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22 May 2018

Out of the Box - Uber: leading edge of the new shared economy  
Prof Tony Chan     Published in The Standard

The term “shared economy” has been used frequently these days, not only among economists, but also by the media. It is a new economic model based on using under-utilized individually owned resources for the public at a fee. The resources can range from cars (Uber), to homes and beds (AirBnB). It disrupts the “old economy”: taxis, hotels, etc. Consumers seem to love it, vested interests hate it and governments find themselves between a rock and a hard place trying to balance between these opposing interest.

Many believe that what we have seen so far is just the tip of the iceberg and many more industries will be disrupted in the near future. Entrepreneurs, usually young, are dreaming up new ideas and investors are lining up to place their bets - the former usually say they want to change the world for the better but both are trying to get rich too. Since most of this new economy has not yet been widely adopted, or been certified as legal, in HK, I suspect most HK consumers have limited first hand experience with it. They read about the controversies in the media and must be wondering what the fuss is all about. How is it going to affect me, now or in the future?

I’d like to share my personal experience with just one example of this shared economy: Uber. I have never used it in a HK but over the last year, I have used it over 20 times, in London, Toronto, San Francisco, New York City, Washington DC and Boston. I used it for rides to and from airports but also for the last mile after using public transport. I have talked to many of the drivers and tried to understand how they work and how Uber does its business.

My first observation is that the controversy we have seen in HK about legality, safety, licensing and vested interest, has happened in most other cities. But, at least for the cities mentioned above, the result of the political process ended up with Uber not only legally operating, but often explicitly facilitated by the local government. In most of the airports, there are explicit signs for “App-based shared rides” directing people (easily spotted checking their smartphones constantly) to designated pickup zones.

There is also competition: Lyft, Juno, Grab, etc., which will undoubtedly further improve the individual companies. Many drivers are on 2-3 such services.

What I like about Uber as a consumer are: promptness (ride usually arrives within 5 minutes after booking online, so no anxiety about making flights), fare known in advance (no worry about circuitous routes to increase fare), peace of mind in having a record of who the driver is (for safety), his rating, and contact information via Uber (in case I forgot something in the car), option of choosing different levels of service (luxury, SUV, economy, pooled, or “express” where you go to a nearby street corner to be picked up), easy selection of different credit cards stored in Uber’s system (for easy separation of official vs personal use), all electronic records and receipts (for easy reimbursement and archiving), free cancellation shortly after booking, and no “refusing” rides. It is like having your own limo with a driver! Most of the drivers are courteous and the cars (economy for me) are in fine condition - after all the drivers own them and they use them personally outside of Uber. I have started to use public transportation more instead of driving.

Uber provides the booking, scheduling and billing infrastructure, pays the drivers about 20% of the fare, vets the drivers (for driving records) and the cars (for mechanical conditions; no cars can be over 5 years old) annually, and at least in some cities (e.g. San Francisco) covers the insurance for the passengers.

What is most interesting to me is the view of the drivers. Most of them are very happy with this new way of earning extra income, often in a time of transition in their own lives (e.g. a major purchase at home, music lessons for kids, etc). They like the flexibility (choosing when to work and taking a ride or not - they can see the passenger’s rating), and that there is no “boss”.

The drivers tell me the same story: a struggle between existing and vested interest (e.g. taxi’s, limo services) and consumer demand resulting in the governments finding a way to change the regulations to allow both to co-exist. In Western democratic societies, politicians ignore voter demands at their own peril.

This new economy is enabled by “tech”: GPS, traffic-aware mobile driving direction apps (e.g. Google Map and Waze), and ubiquitous use of smartphones with wireless internet access. In fact, the cars are the only “old economy” component in this ecosystem. It is hard to imagine this only a decade ago.

What about the future? My own view is that Uber is only the leading edge of a wave that is unstoppable. San Francisco, the HQ of Uber, has over 40K Uber drivers but only a few thousand taxis. Smart entrepreneurs will think of ingenious ways to share other resources, beyond cars, homes and rooms (AirBnB), and bikes (Ofo, MoBike in China). It wouldn’t be too far-fetched to think about sharing knowledge and wisdom - an Uber of consulting or education. It’ll have huge impact in society. Many young urban people will have less incentive to even purchase these resources - they rather “share as they need”. Governments will have to adapt and update the Old Economy regulations, to balance between consumer safety and convenience. We live in an interesting time!


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