Uber disruption

Last week I got the chance to listen to Jerry Hausman, an economics professor from MIT, who spoke on ‘Startups – will their economic models take over?’ – a topic close to my heart.

The 70 year old econometrician started by pouring scorn on Twitter (‘I mean, don’t you have something better to do?’) which I thought was wonderfully ironic, given his audience contained the esteemed business leader and well known Twitter aficionado, Diane Smith-Gander, who was tweeting away live at the time. The point he was making was he was not necessarily a raving fan of these new businesses, despite being an avid user of Uber (‘They are 40% the price of taxis in Boston – in fact you could do away with public transport and give everyone Uber vouchers and it would be far cheaper for government’).

Uber’s valuation of US$62 billion and Airbnb’s of US$30bn defines them as ‘unicorns’ (valued over a billion) and have come from nowhere in less than 10 years. This was simply not possible when Jerry (or most of us) were growing up. ‘Stanford university was a backward country college, not even Ivy League, now people drop everything to get in there.’ Stanford has spawned Yahoo!, Google, Hewlett and Packard, Youtube, LinkedIN, Netflix, Paypal, Cisco and Sun among its alumni and is known as the ‘billionaire factory’.

The poster child of the sharing economy, Uber, has been incredibly disruptive forcing regulatory fights (and invariably, wins) in 68 countries and 450 cities. ‘Uber keeps dropping its prices and driver compensation, yet Uber wants to maximise revenue, so has to drive huge increases in sales.’ argues Hausman, ‘The drivers are earning less and less – in the US they only drive 13 hours week – and they also have to run their own cars paying for maintenance, petrol and depreciation.’ Jerry pondered if the Uber drivers were getting a good deal or not, and thought not.

In the US, cars are only used 4% of the time, and with regulation lagging the fast development of Uber, there is still upside for the company in terms of usage, and savings in costs for users. Imagine if the continued rise of Uber and their ilk meant that cars were used 25% of the time (a 6-fold increase). Many of us may get rid of our second car, or even give up owning a car altogether, as ownership made less and less economic sense. Imagine what would happen when self-driving cars become the norm, that you can hail easily through an app. What would that do to traffic congestion, car accidents, the environment, public funding of new roads, the health system, taxation, the insurance industry, car industry and car park revenues? This would disrupt many sectors, and drive fundamental changes (some for the better, some worse). But it does hinge on the economic model for Uber and their drivers working, and the public’s acceptance of the car sharing economy. Airbnb can do likewise for accommodation. I see many startups trying to be the ‘Uber for the x industry’. It’s the startup ‘model du jour’. We teach our children to be good sharers, might we as adults do likewise?

Jerry is not a fan of regulation, above the minimum, as he sees it crowding out efficiency and entrepreneurship. His favourite phrase was ‘I’m a fan of capitalism between consenting adults.’ Any large industry that has been over regulated over time is ripe for these new models to take hold. ‘How about the real estate industry’?, I asked him, ‘Is anyone, or could anyone uber that?’ Jerry replied, ‘It’s easier to uber your car ride, or your stay in a hotel, as we’ve all given lifts to people in our cars or had people over to stay. But the average person simply does not sell their property very often, so it’s not something they feel comfortable doing on their own. It’s a big ticket item, often their largest financial asset. That’s not to say it can’t happen, ever, but that will be a more difficult one to disrupt.’

I agree, and it’ll probably take some time before the real estate transaction is done directly between buyer and seller, but I also bet some people somewhere are working on this, and over time, even this transaction will be changed irrevocably. My advice to real estate agents, as it is for taxi drivers and hoteliers and anyone in a regulated industry, is to be aware of these creeping changes that can disrupt your entire industry, seemingly from nowhere. Don’t scoff at the technology, have an interested and serious look into it. Stay relevant. Keep your customers close. Don’t assume anything. If you wait until you’re waving placards on the steps of Parliament against some well funded and beautifully designed upstart to get interested in the sharing economy, you’ve already lost.