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Ken Phillips is co-founder and Executive Director of Independent Contractors of Australia. He is a published authority on independent contractor issues and directs research on related commercial and trade practices issues. Through his numerous articles in newspapers and think-tank and academic journals, Ken is known for approaching issues from outside normal perspectives and is frequently sought out for media comment.

Uber lessons in disruption

Saturday, January 10, 2015

Taxi alternative Uber is throwing all the rules about hiring a car with driver out the (taxi) window.

In turning the taxi industry upside down, Uber is causing political storms across North America. The controversy in Australia has only just begun.

It’s just one example of our “disruption addiction”.

Once, keeping everything the same made people feel comfortable. Now we’ve become the ­disruption generation, accommo­da­ting disruption in deeply personal ways.

There’s hardly an extended family where partner separation is not somewhere in the mix. Same-sex relationships are standard. Relationships that come and go are no longer frowned on.

This acceptance of disruption in our personal lives displays ­itself in more hardnosed attitudes when we operate as consumers. We’re unforgiving of businesses that don’t respond instantly to our personal wants. “Disrupt your business” or die is our unspoken message.

Uber’s response is disrupting the viability of the regulated taxi industry cartels. Uber connects consumers directly with the service provider, the owner-driver.

The drivers are self-employed. Unlike taxi drivers, Uber small-business drivers choose their jobs and the price they charge. Uber drivers aren’t forced to accept fares. Consumers pick the driver they want at the price they are prepared to pay, displayed on the Uber mobile app. In contrast, the price for taxi services is decided by a Big Brother regulator.

It’s pure free market. Uber doesn’t provide transport services. It’s a free-market facilitator, like a stockmarket for personal transport services with an array of checks and balances.

We consumers provide ratings on drivers displayed on the Uber app for others to see. “Sleazy”, ­unpleasant drivers driving dirty vehicles are identified. People stop choosing them.

Uber drivers have potentially higher income security and better safety from abusive and fare evasive passengers. To be an Uber customer, you must register with Uber, giving personal and credit card details. ­Payment happens automatically. If you’re obnox­ious or violent ­towards a driver, you’re easily traced.

Uber’s surge-pricing system means that in peak demand prices go up, sometimes dramatically. But higher prices attract more drivers providing faster service to customers who are prepared to pay. Sometimes this backfires on Uber, but they are quick learners.

During the Lindt cafe siege in Sydney in Dec­ember, much of the CBD was evacuated. Demand for Uber drivers skyrocketed, kicking in its automatic price surge. This infuriated many customers. The following day, Uber publicly apologised, contacted every customer, saying Uber was wrong, and refunded fares for anyone ­affected by the emergency.

The regulated taxi ­industry would be incapable of even admin­istering such refunds, let alone responding quickly.

Uber represents disruption at its most agile. It’s existence scares the taxi cartels, developed under and because of taxi regulation. This is where uncomfortable politics is kicking in.

Taxi regulation has been devel­oped to “protect” consumers and ensure service standards. But the regulations also protect Mr Big taxi cartels. Unsurprisingly, the cartels are fighting to protect their business models, pressing regulators to prosecute Uber drivers. Small taxi owners are the public fronts in their campaigning.

Politicians are being heavily lobbied. Allegedly, Uber is a big, bad business threatening small taxi owners. But Uber is truly smart.

It is spending a fortune in North America on lobbyists, putting Uber’s position directly to politicians and regulators. Uber pays fines imposed on its drivers. But smartest of all is Uber’s communication directly with its customers.

Where Uber is under regulator threat in a US state or Canadian province, it informs its local customer base of the threat, asking the customers to contact the regulator and politicians.

The result has been swarms of Uber customers pressing the Uber case with ­individual regulators as well as with politicians.

This is political disruption on a new scale. Uber is not just a new technology or service. It’s a lobbying machine galvanising huge numbers of individuals. This disruptive power is not about “big business”. It’s the power of disruption that delivers benefits to individuals. If the Uber service did not satisfy the needs of its customers and drivers, it would have no ­influence and would die.

For politicians this is massively confusing and difficult. Every poli­tician wants to be seen to be a lover of small business. Consequently, politicians want to be seen supporting small taxi cab owners. But Uber’s activist support from customers and drivers counters this. If politicians aren’t careful they look like “yesterday” people — political death!

This is disruption. Politicians who have built their power on the back of entrenched interests are vulnerable like never before. We, the disruption generation, have accommodated disruption in our personal lives and even welcome it. Adherence to expectations enforced by entrenched interests is not tolerated when something different delivers something better.

Disruption has become a new rule.

[First published in The Australian, January 2015]
Comments
GS commented on 11-Jan-2015 06:27 PM
My group of taxi drivers, are but one of several small groups who set themselves up with mobile phones and trunk radio, as they don’t believe the Silver Top and other large operators provide a good service. Most of the customer business they have is high yield traffic to and from the airport. They do not have to rely on street pickups, and the reason for this is they offer a business person a more reliable and safe service for the same cost. Ie., They took it in their own hands to do something better than the big taxi operators.
Anonymous commented on 11-Jan-2015 06:31 PM
yeh great comments, thanks GS!

The irate taxi owner who rang me was pretty hot under the collar. But I made the point that the taxi regulations were their biggest problem, not Uber. And as you say, the solution for the taxi industry is to get their act together and provide a ripper service and out-compete Uber
GS commented on 11-Jan-2015 06:32 PM
Ken,

The whole world is evolving and changing dramatically, and old business models are being broken everywhere. The taxi industry is not immune,
Nor can it isolate itself from what is happening to vast number of industries.

I have been an independent contractor for 23 years now, and a member of ICA. I have witnessed huge changes in my industry, IT and Telecommunication,
Which to a large extent has been a catalyst to the changes everywhere else.

I haven’t bought a paper based newspaper for more than 10 years, but I read my news from tablet apps. Kodak is no longer in business due to changes
Brought by digital imaging. The blockbuster video rental business is shutting down almost everywhere due to Cable and online methods of delivering
Media. Accountants are now suffering a decline in business due to 2 main reasons. Firstly the ATO has simplified tax returns down to an online process,
And secondly, a lot of accounting services can be outsourced to India or other low cost countries.

I travel overseas a lot for my work, but I have had the same taxi driver for the past 15 years. How and why? How, is that there are many small groups of
Taxi owner/drivers who create a small business group of about 60, who utilize mobile phones and trunked radio (to direct radio call others in the group).
Why? well my driver, or any others in the group have never, ever let me down when I pre-book. Always arrive on time. They also know my home location,
My preferred route and are pleasant to deal with. These guys main client base are businesses and executives who need a reliable taxi service. The good
News is that it costs exactly the same as a regular taxi.

Uber is an interesting concept, but for me, it is the difference between flying Air Asia budget airlines vs Singapore Airlines. I prefer to use my regular and
Trusted group of taxi drivers, and although Uber is also a more direct method, and may be cheaper, I prefer to pay more for my regular driver.

So I agree with your article. The taxi industry needs something like Uber to shake them out of their cartel complacency, and change their model to being more
Customer focussed.

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