shifting sands
Mar 8, 2016 · 11 min read

Uber Out. A view from Manila

INTRODUCTION

With Uber’s meteoric global rise is anyone questioning the potential social impact of its business model and given the black box nature of the service is more transparency required to allow . The question is whether the model is applicable to

I live in Manila and have recently become a regular user of the service that Uber provide here. Uber have been running here since December and are taking on well-established mobile taxi services like Grab Taxi (which allows you to order a real cab through their app and pay a 70 PESO surcharge in cash) and Easy Taxi (with a similar model to Grab). Given that I travel 20 minutes to and from work every day I have the pleasure of being able to talk to a wide variety of drivers that have in varying degrees just started to drive for Uber.

On the surface the service is magnificent. I get slightly cheaper journeys to and from work. Paying in the region of 10% less than when I travelled exclusively with taxis, except during periods of surge pricing. I do this in pristine new cars (mainly Toyota Vios and Innova’s) that compare very favorably to normal taxis that often smell faintly of urine and are in varying degrees of disrepair.

The Uber drivers also seem on the whole enamored with the service: Given Uber’s current broad range of incentives many of the drivers are earning very good money. Full time Uber drivers currently take home around 15–25,000 PESO a month, which compares favourably to most professions in Manila. An average IT specialist can earn around 50k a month, while a normal taxi driver will struggle to earn 20,000 PESO.

The Philippine people love to chat, so news of the potentially high earnings and generous incentives that Uber offers is travelling fast and has meant Uber is experiencing, not surprisingly, exponential growth here. Estimates suggest up to 300 drivers joining each week according to attendance at Ubers introductory sessions. Anecdotally I have seen a massive uplift in the availability of Uber cars in the last 6 months. These days it is rare to find a time or place where an Uber is not within 4–5 minutes and there often multiple options.

The new drivers fit in to a number of different camps:

1. Part timers who have other jobs and have a car and use Uber to supplement their main income.

2. Drivers who are simply driving for people that are purchasing the cars and paying the drivers a basic salary, on rare occasions they are on a percentage deal rather than salaried.

3. Drivers that are driving a family car or have bought a “family” car for the purposes of Uber.

4. Retired workers who use Uber to keep busy and earn a pension, some who have purchased cars with savings in order to do this.

5. Taxi drivers who have switched to Uber and have bought a new car.

6. People who have quit their jobs, bought a car and have joined Uber full time, (a surprising number although more research would be required to see the percentage)

This breakdown is interesting simply as it focuses attention on two things:

1. A lot of new cars are being bought to enable this proliferation of Uber’s services. Most of these will be on 5-year higher purchase or funded by eating in to savings.

2. Many people are actually switching from established roles to take up jobs at Uber.

It is these two areas that started to wave a small red flag for me. People are taking risks to be part of the Uber phenomenon. It is for this reason that the actual state of play requires a little more analysis.

I also have personal reasons for analyzing Uber’s meteoric rise: I come from a technology background so am fascinated by the big data approach that Uber takes for its business and want to create some hypotheses on how they might be operating their model. In addition coming from this perspective I worry about the sort of “walled garden” ecosystem that Uber has created — with drivers, and passengers to a lesser degree completely at the mercy of the technology,

In addition I am naturally cynical and something does not quite add up with Uber. There must be a reason it is valued at 50 billion, while operating at a loss and obviously Uber is not an exercise in philanthropy, so it would appear something has to give.

Before I continue I should clarify my position on the underlying technology and concept. I am no middle aged technophobe and am a big fan of disruptive technology, especially crowd sourced technology, that increases employment opportunities as opposed to that have been blamed for reducing them (see the infamous Kodak versus Instagram argument for prospects on employment). While many taxi drivers around the world will argue that Uber is destroying their business, hence the protests, lawsuits, government regulation, lobbying etc. that many people have read about when researching Uber. it does appear to provide a valuable service for the passenger. Personally it is cheaper, safer (although a recent rape case bought about an Uber driver in India can be offered as counter to this point), cleaner and more convenient. In the Philippines it has in many ways been a game changer for many people here nervous of riding the unreliable, dirty and often dangerous cabs here.

With my position clear let’s look into the facts and figures a little:

Starting with the incentives: Talking to many drivers the incentives are incredibly lucrative at present.

I have heard of the following incentives but I am sure there are more (these are not run in parallel but give a good indication of what is available at present):

On Mondays, Tuesdays, Wednesdays if you do more than 18 trips your bonus is 5,000 PESOs on top of the ride for each day.

For Thursdays, Fridays, Saturdays if you do more than 14 trips you get an incentive of 2,500 PESOS

If you have more than 56 trips in a week Uber gives you 300 PESOs bonus per ride — amounting to 11,800 PESOS.

More than 75 trips in a week gives you 300 PESOS bonus per trip

There are alo peak hour bonuses offering oer trip bonus if you take a certain number of trips per day during peak hours.

In recent weeks the incentives have changed a little but are still offering 275 PESO’s for each trip after you complete 50+ trips.

There is no argument that Uber is locked into an aggressive strategy of growth and pursuit of market share. This means that running at a loss at the start to encourage drivers is just part of their business model. However doing some simple mathematics will show how much they are willing to spend. Taking the 3rd Incentive as an example:

If a driver does 56 trips in a week at an average of say 150 PESO’s per trip (finger in the air based on my usage but is likely to be less) means Uber’s revenue is 30 PESO’s per trip at 20% and they pay a bonus of 300 per trip. They are losing 270 PESO’s per trip or 15,120 PESO on the week. While actually this only equates to around $360 and some of it will be made up on sideline businesses (advertising, licensing data etc.) it is obviously unsustainable long term.

Every driver I talk to says they do wonder how the incentives keep coming at this level but seem blissfully unaware that this is likely to change.

In my head as the number of drivers increases the incentives will be reduced in one of two ways:

1. They simply won’t be offered, which at least is transparent

2. By controlling which drivers gets the rides so that incentives can’t be met. This is potentially more underhand and while Uber claims that it always gives the job to the nearest car evidence suggests otherwise — meaning they are selecting drivers based on their own criteria or at least have the facility to in the future. While obviously I am not privy to these algorithms I am sure the payment of incentives will be a factor in selecting drivers for certain rides.

The issue with 2 is that drivers will feel they have some control over whether they reach incentives and the carrot is still there but ultimately given the walled garden ecosystem and Ubers big data analytics this will not the case at all. Uber and Uber alone control whether a driver achieves his goals.

My point becomes therefore that Uber has a moral imperative to disclaim the likely earnings of a driver over the long term so people can make informed decisions based on the reality rather than the rich pickings when Uber is making a land grab. Simply put there needs to be a word of warning, particularly for drivers or individuals described earlier that are purchasing cars on higher purchase and are leaving their jobs.

The Philippines has one of the lowest GDP / head in Asia and a little difference in income can mean a massive difference for individuals and their families. Coupled with the fact that many individuals are buying cars that will be paid off at massive HP premiums over 5 years the fact that the income in the first months is good gives everyone a false economy and has the potential for devastating financial mistakes being made.

I hope I am wrong but I predict that this model is creating a credit bubble for cars that will burst when Ubers algorithms kicks into gear and reduces incentives. This will potentially lead to people going bust and the floor falling out of the second hand car market in the next couple of years with Toyota Vios, Innova, and many other small family salon cars going for peanuts — great if you want to buy a car not so great if you were a driver that has to feed a family. When I say family here this extends beyond our western nuclear family perception to a catholic ingrained creation. It is not unusual for taxi drivers here to have more than five children. I have met one driver with nineteen children. While commenting on the sense of this and the responsibility of the church here is beyond the scope of the article it simply makes the point that families are large. Wider family ties are tight here too adding to that number of dependents.

If we look at more mature Uber markets we may get a view of what the future holds for all these new drivers in the Philippines. My experience is of London where there is now an oversupply of drivers. The algorithms control numbers by blocking drivers who have a low rating through the system. Currently below 4.5 I believe. Uber will claim that this provides a superior service and in many ways this is true. In fact some would say it is a true democratic selection through crowd-sourced interviewing or appraisal. However it does leave people open to the fickle love or hate nature of the public. It is well documented that people tend to be more extreme when rating to five stars — see the Apple store for evidence of this. What it creates though is this desperate fear from drivers about getting a low rating.

In London many drivers come from the minicab business so have a fall back if the service is switched off. In the Philippines if the same policy is adopted people who have bought cars and left jobs will suddenly be out of work and out of pocket at the switch of the button. I hope Uber has a plan for dealing with this in an ethical way.

At the same time as London is a more mature market for Uber there are very few achievable incentives or promotions available. The algorithms have determined that market saturation is complete and the driver is now a product to which to profit from pure and simple. In fact many drivers in London are already voicing their dissatisfaction with the income level and dwindling number of rides offered. For the Philippines: Drivers will be left trying to simply cover their monthly car payments for new cars, hence my prediction of a crash in the second hand car market.

Since this walled garden system is all encompassing in terms of the control of drivers (and passengers) alike there is further anecdotal evidence of anomalies that suggest that there may be some abuse of control.

The surge pricing system proudly patented by Uber does not seem to work here in the Philippines. Cars rush to surge pricing areas only to be offered no customers. In such a price sensitive place is anyone actually willing to pay surge pricing? In addition anecdotally drivers who have rushed to surge pricing areas have mysteriously seen their GPS connectivity to Uber drop. This could be a genuine connectivity problem but if evidence repeats itself it may be a game of algorithms. I can only assume that the surge pricing must be to do with the number of requests coming through coupled with the number of cars in the area as well as what time of day it is and bizarrely the weather. At present though none of this is transparently presented.

The final piece in this puzzle is the looming IPO. As has been the trend for many tech IPO’s recently there seems to be a simple appetite to value tech business based on how many users a system incorporates and potential future growth.

For Uber valuation will also be coupled with market penetration, geographical coverage, market share as well as investors love of the disruptive. Given these factors there is less motivation for Uber to focus too much on fundamentals but simply push forward with a strategy of domination — hence being able to run at a loss when entering a market. Uber can afford this as it has raised an incredible amount of money. It is currently going through a new round of funding suggesting that it has also spent a lot, proved by the reported $470 million global operating loss[1] this last quarter. There is no doubt that at some point the fundamentals will need to come into play meaning that Uber will need to start making money from the drivers or more from the passengers.

This is likely to happen after IPO when a select handful of investors have joined the globe’s richest elite. In the meantime the people at the margins, especially here in the Philippines may feel the squeeze. Another score for unfettered capitalism.

Until then expect Uber to use clever tech, our data and their algorithms to move in to many other areas of our lives. Uber Eats (food delivery) and Uber Parcel (package delivery) are already being piloted in the US as well as a car-pooling service. The potential seems endless and yet is it healthy for another tech firm to monopolize so much of our lives.

Uber is a groundbreaking service that provides a service many find invaluable; however here in the Philippines there is a danger that people on the margins will suffer under its pursuit of domination. Some might say that is life and people go into these things with their eyes open but my point is here that Uber needs to pursue their business model with enough transparency so drivers, particularly, can make the right decisions.

To try and end philosophically there are those that believe the shared economy, of which Uber is a key component, is really evolving capitalism[2]. The idea being that in the shared economy everyone we all can benefit from being able to share our own possessions (cars, houses[3]) or skills. Does though the reality of vast online companies working in the “cloud”, stateless to minimize tax, and ingesting huge quantities of our data to create services that we then fulfill not actually point to a period of more aggressive capitalism. There is a need for institutions and governments, notoriously slow to respond to the shifting technological landscape, to acknowledge this shift and potentially temper the extremities of the model. It also needs us as individuals to question how companies are profiteering from our data. As Jaron lanier, a renowned internet philosopher, talked about in his book, Who Owns the Future: If we are not rewarded for the willing but often unconscious provision of our data, be it location or preference, the internet is doomed to exploitation.

[1] http://www.dailymail.co.uk/news/article-3144849/Leaked-documents-Uber-recorded-470-MILLION-global-operating-losses.html

[2] See Paul Mason: http://www.theguardian.com/books/2015/jul/17/postcapitalism-end-of-capitalism-begun

[3] Air B n B being the major world renowned player in this market

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