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Uber’s taxi deals delay the inevitable: higher driver pay

March 29, 2022, 5:29 PM UTC

After a late-night flight to New Orleans earlier this month, I gathered my luggage and did something I haven’t done in years: take a taxi. 

The decision boiled down to pure economics. I could get an Uber on the spot for about $90, an exorbitant price for a 25-minute trip, or I could wait in a half-hour line for a $40 taxi ride. Hundreds of thousands of riders across the U.S. are facing this dilemma each day, as Uber and Lyft struggle with a driver shortage amid a bounce back in demand. 

The dearth of drivers, largely attributed to frustratingly low earnings and fast-rising gas prices, has driven up ride-share prices and wait times. Now, Uber is tackling this challenge by doing the previously unthinkable: partnering with taxi drivers in the U.S. 

One week after Uber announced a deal to place New York City taxi drivers on its ride-hailing app, The New York Times reported Monday that the company is close to striking a similar agreement with taxis in San Francisco. 

Uber and some taxi officials have pitched the pact as a win for everyone. The company, which is struggling to reach consistent profitability after burning through billions in cash, boost ridership totals, and drive down prices. The added traffic also allows Uber to push users to other products on its app, a perk highlighted earlier this year by CEO Dara Khosrowshahi.

Meanwhile, long-suffering taxi drivers, who saw Uber and Lyft steal riders by undercutting their monopolistic prices, get access to a larger pool of customers. Riders, in turn, benefit from the convenience of an all-in-one app and more consistent prices. (Investors also like the arrangement, sending Uber shares up 4% on the day of the New York announcement and up 6% more in mid-day trading Tuesday.)

The deal, however, runs the risk of papering over a core problem at Uber: its treatment of drivers.

For the better part of a decade, Uber has built its company on the back of poorly-paid drivers, many of whom struggle to earn a decent living. 

A January 2021 report by Gridwise, which helps ride-share drivers track and maximize their earnings, found that Uber and Lyft drivers across the U.S. typically make $15 to $20 per hour. That take-home pay doesn’t account for fuel, maintenance, insurance, repairs, and other costs—which eat up roughly one-third to one-half of driver income. Uber drivers also don’t get health insurance or other worker benefits (though a small percentage of California drivers receive a state health insurance subsidy).

In taxi drivers, Uber has found a similarly vulnerable population. Many taxi drivers are struggling to stay afloat following the invasion of Uber and Lyft, which won over customers through superior technology and lower prices subsidized by venture capital cash. As George Lama, a longtime San Francisco taxi driver, told The Times: “No one is looking at us because they’re conditioned that Uber is quicker, a larger fleet, cheaper.”

Thousands of drivers in New York City and San Francisco also grapple with crushing debt tied to expensive permits, known as medallions, that they purchased to operate taxis in their respective cities before Uber and Lyft arrived in town. Although taxi drivers likely would earn less revenue per ride through an Uber partnership, the promise of higher volume could prove enticing for medallion owners faced with mounting loan payments.

For now, the Uber-taxi deal marks a mutually beneficial detente between the two sides. 

But some day, in the not-too-distant future, Uber could face an even deeper driver crisis in U.S. markets if its pay rates don’t change. The current driver shortage illustrates the gig economy’s frustration with Uber’s labor practices. Taxi drivers continue to leave the industry in droves. And policymakers are pursuing medallion reforms, lessening the need for drivers to accept substandard pay just to make minimum loan payments.

Uber has built a best-in-class ride-hailing infrastructure. But how many people will drive for it if working conditions don’t change?

Want to send thoughts or suggestions for Data Sheet? Drop me a line here.

Jacob Carpenter

NEWSWORTHY

Highly rated. Private equity investors have agreed to acquire Nielsen, the media measurement firm best known for its eponymous television ratings, in a deal valued at $16 billion, The Associated Press reported Tuesday. Investment firms Evergreen Coast Capital, Brookfield Business Partners, and an affiliate of Elliott Investment Management are leading the acquisition. Nielsen collects and analyzes data related to media consumption habits, which television networks and advertisers use to set prices for air time. Nielsen shares jumped 20% in mid-day trading Tuesday.

A thorn in Apple’s side. A Dutch foundation filed a multibillion-dollar class-action lawsuit Tuesday against Apple, arguing the tech giant’s App Store policies violate competition laws in the Netherlands, Bloomberg reported. The lawsuit, spurred by the Consumer Competition Claims Foundation, seeks damages stemming from higher app prices tied to Apple’s 30% cut on all app sales and in-app purchases. Dutch regulators have hit Apple with about $55 million in fines for noncompliance with an antitrust order tied to the company’s fees for dating apps operating in the Netherlands. The class-action lawsuit and regulatory sanctions are unrelated.

A new way to play. Sony announced plans Tuesday to restructure its PlayStation subscription service later this year, shifting toward a model launched in 2021 by Xbox parent Microsoft, CNBC reported. Under the new system, monthly subscribers can choose between three tiers of PlayStation Plus, each of which includes online gaming support and access to downloadable titles at no extra charge. Unlike Microsoft’s equivalent offering, Xbox Game Pass, Sony won’t offer exclusive, first-day title releases through its PlayStation Plus subscription. The new system will go live in June.

An end to encryption? Online security experts fear that new European Union rules for the world’s largest tech companies will undermine privacy features on encrypted messaging apps, including WhatsApp, The Verge reported Monday. The new provisions, agreed to last week by European policymakers, force large messaging apps to “interoperate” with smaller ones, allowing for users to communicate between the two platforms. While advocates for interoperability argue that the change will level the playing field for smaller apps, privacy experts said it’s virtually impossible for competing apps to maintain encryption given their highly-specialized design features.

FOOD FOR THOUGHT

A.I. in the warzone. The Russia-Ukraine conflict is giving military analysts new insight into how two highly modernized countries wage war in an era of fast-evolving technology. As Fortune’s Jeremy Kahn reported Tuesday, Russia’s use of explosive-packed drones equipped with artificial intelligence, commonly known as “loitering munitions,” marks a new frontier in warfare. The weapons are prompting a fresh round of moral and ethical questions about their use, as more nations look to take advantage of the relatively cheap, lethal equipment.

From the article:

The war in Ukraine has become a critical proving ground for increasingly sophisticated loitering munitions. That’s raised alarm bells among human rights campaigners and technologists who fear they represent the leading edge of a trend toward “killer robots” on the battlefield—weapons controlled by artificial intelligence that autonomously kill people without a human making the decision.

Militaries worldwide are keeping a close eye on the technology as it rapidly improves and its cost declines. The selling point is that small, semiautonomous drones are a fraction of the price of, say, a much larger Predator drone, which can cost tens of millions of dollars, and don’t require an experienced pilot to fly them by remote control.

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BEFORE YOU GO

Not lovin’ this. The smart vending machine makes sense for all kinds of products: soda, coffee, electronics, and frozen foods. But fresh-off-the-grill patties? I don’t relish telling you Axios reported Tuesday that a company called RoboBurger just rolled out its first made-to-order hamburger vending machine in a New Jersey mall, offering 100% Angus beef on a bun for $6.99. Cook time: 6 minutes. The hardware apparently has an internal refrigerator, hot griddle, and self-cleaning system. I’ll let others try this first and ketchup later if the reviews are good.

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