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«Uber and the Ethics of Sharing: Exploring the Societal Promises and Responsibilities of the Sharing Economy 04/2016-6209-E This case was written by ...»

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PRE-RELEASE VERSION

Uber and the Ethics of Sharing:

Exploring the Societal Promises and

Responsibilities of the Sharing

Economy

04/2016-6209-E

This case was written by Erin McCormick, Case Writer, under the supervision of N. Craig Smith, the INSEAD Chaired

Professor of Ethics and Social Responsibility. It is intended to be used as a basis for class discussion rather than to illustrate either effective or ineffective handling of an administrative situation.

Additional material about INSEAD case studies (e.g., videos, spreadsheets, links) can be accessed at cases.insead.edu.

Copyright © 2016 INSEAD This pre-release version may be used for teaching purposes but it has not yet received an official case number by The Case Centre. No part of this publication may be copied, stored, transmitted, reproduced or distributed in any form or medium whatsoever without the permission of the copyright owner.

PRE-RELEASE VERSION

In San Francisco, a six-year-old girl was run over by a driver for the ride-hailing • service Uber, as the driver drove around waiting for the company’s mobile app to direct him to his next passenger.

In Paris, taxi drivers rioted in the streets, protesting that a subsidiary of Uber, the • fastest growing company in the so-called “sharing economy”, was stealing their business without respecting the rules and regulations of the trade.

In London, Uber drivers sued the company, insisting it pay the minimum wage and • follow the same safety regulations as other employers.

In Australia, the tax office cracked down, demanding that Uber drivers pay the • national business tax on each fare.

In each case, Uber has argued that it is not the primary responsible party. In questions of safety, transportation regulation, labour rights and business taxes, Uber often defers responsibility to its “driver-partners’ – many of whom are ordinary people picking up passengers in their personal cars. The company maintains that it only provides an online platform to connect customers with “independent contractors” – drivers in business for themselves.

“It's a technology platform that connects riders and drivers,” said Travis Kalanick, co-founder and CEO of Uber. 1 “So you want a ride, we are going to connect you to all the transportation providers that are available in a market, and we're going to get you the quickest pick-up time, highest quality ride, and get it to you at the lowest cost that's possible.” With operations in 300 cities worldwide and more than $8 billion in equity funding, Uber is quickly becoming one of the world’s most highly-valued companies, at the forefront of a growing breed of tech-based companies leveraging the powerful economic engine dubbed the “sharing economy”. The company, and thousands of other start-ups like it, provide ways for people to share their underutilized possessions – cars, bedrooms, parking spaces and even clothing. In the meantime, they are turning basic norms – about consumption, work and regulations – on their heads.

The whole nature of what it means to do business is being redefined by companies like Uber, Airbnb, which rents out space in people’s homes, and Taskrabbit, which lines up workers to help customers with odd jobs. But while “sharing economy” companies hold out a promise of increased sustainability and democratization of the workplace, they raise questions about how such changes affect societal safety nets.

Are they merely “technological platforms”, facilitating transactions for individual business people? Or are they real-world companies, with the same responsibilities as transport companies, hotels and employment agencies? In some cases, their very survival depends on the answer to these questions.

1 Laurie Segall, Uber CEO: ‘Our Growth is Unprecedented’ CNNMoney, June 12, 2014 http://money.cnn.com/2014/06/12/technology/innovation/uber-ceo-travis-kalanick/

–  –  –

The Economist cover illustrates some facets of the “sharing economy” An Economy Built on Technology and Trust If you own a power drill, “that drill will be used for 12 to 15 minutes in its entire life time,” Rachel Botsman, one of the early proponents of the sharing economy, told a Ted Talk audience in 2010. “It’s kind of ridiculous, isn’t it? Because what you need is the hole, not the drill. Why don’t you rent the drill? Or rent out your own drill to other people and make some money from it?”2 Launched with this vision of cooperation amongst a broad internet community, the sharing economy was described by Botsman as “an economic model based on sharing underutilized assets from spaces to skills to stuff for monetary or non-monetary benefits.” 3 The term – used interchangeably with the “peer-to-peer economy” or the “collaborative economy” – depicts an enterprise platform in which regular people do business with their neighbours rather than relying on big companies.

The sharing economy was made possible by the ease of sharing data brought on by the internet age. Be it a person’s Facebook profile or their location as tracked by the GPS on their smartphone, free-flowing information has made it possible to make transactions to share goods and services which once might have gone unused. In the past it was so hard for people 2 Rachel Botsman, “The Case for Collaborative Consumption,” TedxSidney, May 2010 http://www.ted.com/talks/rachel_botsman_the_case_for_collaborative_consumption?language=en#tRachel Botsman, “The Sharing Economy Lacks A Shared Definition,” Fast Company, November 21, 2013 http://www.fastcoexist.com/3022028/the-sharing-economy-lacks-a-shared-definition Copyright © INSEAD 2

PRE-RELEASE VERSION





to find others with whom to share goods like unused tools and extra bedspace, that it wasn’t worth the trouble. But the internet and the availability of data have dramatically reduced the “transaction costs”, ushering in an era of collaborative consumption in which underutilized goods can easily be turned into cash.

A new sense of trust in the online community, based on feedback, is another key building block of the new economy. Where consumers might once have been afraid to catch a ride or share a house with a stranger, they now can check out a person’s trustworthiness based on ratings from previous passengers or reviews from former houseguests.

The sharing economy gives access to all kinds of products and services without having to commit to ownership or hiring. Why own a car, when in minutes you can borrow one?

Supporters extol the benefits for the environment: if commuters share rides, there are fewer cars on the road; if people share their rollerblades instead of buying new ones, it reduces the use of raw materials and the pollution of production.

Yet as it has grown, the sharing economy hasn’t always lived up to the early vision of “sharing” among “peers”.

Sharing as Big Business A host of creative technology start-ups emerged to develop the intricate internet platforms and smartphone applications needed to make these peer-to-peer transactions easy. Uber, Lyft and BlaBlaCar connect drivers to people who need rides. Airbnb helps people rent out their extra beds. Parkatmyhouse connects drivers to parking spaces. TaskRabbit in the US and TaskPandas in the UK line up workers for people needing help with small jobs.

NeighborGoods helps people share tools. But as the sharing economy has grown from a fringe concept to a huge industry, some of these companies have acquired the scale and characteristics of the big businesses they were supposed to replace.

Unlike traditional brick and mortar businesses, these new firms can sell rides or rentals without having to invest capital to buy cars or build hotel rooms. Whereas it took the world’s biggest hotel chain, InterContinental Hotels, 65 years to build a chain of 650,000 rooms in 100 countries, Airbnb did it in four years. 4 Uber wasn’t founded until 2009, but it is already valued at more than $60 billion – twice the estimated value of Hertz Car Rental 5 – without owning a single taxi.

Many of these companies and their users appear to have none of the altruistic motivations connoted by the term “sharing”. Proponents of the sharing economy, including Rachel Botsman, who co-founded Zipcar, one of the first companies to emerge under the umbrella term, have proposed an alternative terminology: they suggest that companies giving consumers instant online access to other people’s goods and services should be called the “ondemand economy” or “the access economy”.

Ibid 5 Ycharts, Hertz Global Holdings Enterprise Value, https://ycharts.com/companies/HTZ/enterprise_value

–  –  –

Despite little agreement as to what this new business phenomenon should be called, PricewaterhouseCoopers has identified five sectors of the so-called sharing economy – peerto-peer finance, staffing, car sharing, accommodation and music and video streaming. PwC estimates that collectively these earned global revenues of $15 billion annually in 2014, a figure that could jump to $335 billion by 2025. 6 As they have grown, many of these companies have sidestepped the local regulations that competitors in traditional businesses face. While taxi companies operate within local limits on the number of cabs and regulations about using airports, Uber has often managed to avoid such rules. Similarly, Airbnb has faced complaints that a large number of rentals on its site are illegal. A 2014 report by the State of New York’s Attorney General found that 72% of private short-term units offered on Airbnb in New York City appeared to be illegal under state and local zoning laws. 7 Some fear that these companies can use their size and the advantages gained by side-stepping local laws to drive traditional competitors out of business, much as Amazon.com has done with local bookstores. “There is often room for just one successful platform in a market and the “winner takes all””, wrote Felix Barber of Ashridge Business School. “It’s no surprise that the old monopoly concerns are arising anew.” 8

Source: Dadaviz.com, Business Insider

6 PricewaterhouseCoopers, “Five key sharing economy sectors could generate £9 billion of UK revenues by 2025,” press release, August 15, 2014, http://pwc.blogs.com/press_room/2014/08/five-key-sharingeconomy-sectors-could-generate-9-billion-of-uk-revenues-by-2025.html 7 New York State Attorney General Eric Schneiderman, report: “Airbnb in the City,” October 2014, http://www.ag.ny.gov/pdfs/Airbnb%20report.pdf 8 Felix Barber “How do we fight 21st century monopolies like Amazon, Google and Uber?” Upstart Business Journal, December 11, 2014 http://upstart.bizjournals.com/resources/author/2014/12/11/fight-21st-centurymonopolies-like-amazon-uber.html?page=all

–  –  –

Uber From the day it first launched its app in its home town of San Francisco in 2010, Uber has used the latest technological advances to make ride-hailing super-efficient. Founded by tech entrepreneurs Travis Kalanick and Garrett Camp in 2009, Uber developers spent nearly a year building systems to predict rider demand and get cars to those areas, then set the price based on demand. Early on, Uber hired a rocket scientist, a computational neuroscientist and a nuclear physicist to develop an algorithm for predicting how long it would take for cars to reach their passengers. 9 “There is a ton of math, which basically makes sure that riders get a car in five minutes,’’ said Uber founder Kalanick, promoting the then-new company at the 2011 Tech Crunch Disrupt conference. 10 Passengers can look at the app on their smartphones and see all the Uber cars travelling the streets near them. Once they request a car, the app allows passengers to see their driver approach via a city map. The fare is calculated by the app, based on time and mileage: if it is a busy period, fares can be doubled or more, based on Uber’s “surge pricing”. At the end of the ride, the app automatically deducts the cost from the user’s Paypal or credit card account.

Drivers are paid by Uber after it has deducted its commission – usually 20%. 11 Source: Mary Altaffer/AP As the app became hugely popular, investors poured billions of dollars into the company, which is still privately held. The company expanded to one new city per month as of 2011, quickly adding Washington DC, New York City and Chicago. The first city outside the US was Paris in 2011, followed by a push to launch in cities around the world. By mid-2015, Uber had service in 177 North American cities and in 60 countries around the world, in places as diverse as Seoul, Lima, and Cape Town. 12 9 Sarah Lacy, “Uber Out-Maths Google on NYC ETAs,” TechCrunch, June 15, 2011, http://techcrunch.com/2011/06/15/uber-out-maths-google-on-nyc-etas/ 10 Sarah Lacy video interview “Travis Kalanick on How Uber Started”, TechCrunch, June 15, 2011, http://techcrunch.com/2011/06/15/uber-out-maths-google-on-nyc-etas/ 11 Joann Weiner, “The hidden costs of being an Uber driver,” Washington Post, February 20, 2015, http://www.washingtonpost.com/news/get-there/wp/2015/02/20/the-hidden-costs-of-being-an-uber-driver/ 12 Uber.com, “Our Cities,” https://www.uber.com/cities

–  –  –

Uber describes its mission as “evolving the way the world moves…by seamlessly connecting riders to drivers.” 13 With Uber, instead of standing on the street or calling a cab and waiting, passengers can stay inside and watch the progress of the car on their smartphones. “This is a real boon for consumers who don’t like long waits or uncertainty—which is to say everyone,” writes Brishen Rogers, Associate Professor of Law at Temple University. “The result is that Uber may be creating what once appeared impossible: a functioning market for car-hire services that is governed largely by supply and demand.” 14 Customers praise the app for allowing them to reliably hail taxis around the world and have all their transactions conveniently billed to the same credit card – without having to worry about having the right currency or having to negotiate fares with local drivers.



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