Is the On Demand Economy Real?

I was sitting in a bar with an old friend last night and we were discussing the on-demand economy. He asked me, “is Uber going to go public”? I thought about it for a while, and realized that although Uber is a very large company, valued at $66 billion dollars, it is still private. And there have been no leaks about when it will go public.

Usually, when a company holds off on a liquidity event, it’s for one of two reasons: it’s too small to be interesting to the financial markets, or it isn’t making money. The first is clearly not true of Uber; and the second is only partially true.

But there are other problems with Uber, and some of those we discussed and some we didn’t, as we moved on to other flawed companies in the on-demand economy (which you will notice is no longer called the sharing economy).

The first is that Uber’s drivers don’t work for Uber alone. In fact, my own research shows (I use Uber a lot) that most of the drivers carry several phones and work for Uber, Lyft, and perhaps a more traditional company like Execucar. So while the lack of employee burden is a short term positive, it could be a long term negative if more of these services pop up.

Which brings me to the second flaw: any number of services can pop up, as evidenced by Uber’s big rival, Didi, in China. Google actually lost the Chinese market. There’s no brilliant patent stuff in Uber, just good use of existing technologies and resources — although Uber might tell you that wasn’t perfectly true.

The third flaw is the incompleteness of background checks — again deemed not as necessary because the Uber drivers are only contractors. But tell that to the woman in India who was raped by an Uber driver, and tell it to the many women who tell me they won’t get into an Uber anymore because the drivers have been offensive and “scary.” Now, scary isn’t a great metric, but it’s a way of indicating distaste on the part of the customer. As kids, we all learned not to get into a car with a stranger.

And then we get to the part my friend was most concerned with, and that’s the ultimate question of liability, with its subset, regulations and insurance. Uber is rolling out a fleet of self-driving cars in Pittsburgh this week. It’s imperative that the company avoid the accident everyone who doubts the vision of self-driving cars is waiting for. Uber is putting an engineer in every one of those “self-driving” cars. Engineers cost much more than Uber drivers, and as it exists, this model won’t scale very far.

Everyone is predicting the widespread rollout of self-driving cars in a couple of years. But this cannot happen, according to experts who know. I attended an Internet of Things conference this year in which the self-driving car gurus from Mercedes, Ford, and BMW spoke. These are the three automakers who most embrace the concept of driverless cars (perhaps because they think they must.) All of them admitted that in order for autonomous cars to be widely deployed, there must be two other events: the advent of smart cities building smart roads, and an enormous rewrite of existing regulations.

Since regulations and roads involve government, don’t hold your breath.

Last night we solved the problem of why Uber doesn’t go public with only two drinks, and with it the issue of whether Uber is a “real” company. We decided it really wasn’t, because a “real” company is profitable, can stand up to public scrutiny, and doesn’t just keep raising money to try different interruptive strategies without returning some to its investors. Uber may have allowed some of its early investors to cash out on secondary markets, but how is this different from a Ponzi scheme? Later investors simply bought out the earlier investors. Madoff anyone?

Stay tuned for my thought on food delivery.

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