Ride-sharing: Uber, Grab and Go-Jek
The development of ridesharing
Before co-founders Travis Kalanick and Garrett Camp worked together to form the ride-sharing giant Uber in 2009, the notion of taking rides from strangers was alien to many. While hitchhiking was practised in some countries, like the United States and Netherlands, during the 20th century, factors like the lack of trust towards strangers and the deregulation of air travel led to its gradual decline. Furthermore, safety concerns remained a major challenge that inhibited passengers from engaging in such practices.
As such, conventional forms of transport dominated the industry in different countries, as exemplified by the highly-coveted taxi medallions in New York City (In fact, the medallion peaked in value at $1 million in 2014). These medallions function as permits in the United States for taxi drivers to operate in the region.
Yet, the well-regulated taxi industry was severely disrupted by the establishment of peer-to-peer ridesharing companies, such as Uber and Lyft. As a result, the influx of cheaper and accessible transport alternatives has created an excess supply condition, thus causing a significant plunge in the price of taxi medallions.
Although it took a considerable time for consumers to embrace this innovative concept of ridesharing, the widespread gains of greater affordability and convenience have allowed Uber and Lyft to gain traction rapidly. On the other hand, taxi drivers protested and demanded swift government regulation as they feared stiff competition would threaten their jobs. Additionally, the fact that private hire vehicles could easily enter the industry and compete angered taxi drivers as ridesharing companies allowed any individual with a driving license to join the ranks.
Uberization of economies
Ardent supporters of ridesharing believe that this technological trend is beneficial to economies. Their premise stems from the perception that imperfect market information leads to underutilization of resources. In this case, both taxi drivers and passengers are unable to ascertain the demand and availability of rides respectively. As such, the entry of Uber has been hailed as the key solution to wastages, thus bringing the market closer to the point of improved mobility and information accessibility.
As Uber profited from this lucrative market, new entrants like Grab, Go-Jek and DiDi began to occupy the Asian region in the 2010s, contributing to the widespread adoption of apps-based ride-hailing services. Similarly, other markets are affected by this development, such as private accommodation (Airbnb), bicycle sharing (Ofo and Mobike) and food delivery (Deliveroo and UberEats).
The key observation is that uberization has led to the expansion of services as consumers enjoy a wider variety of options - traditional services (e.g. hotel accommodation) or disruptive alternatives (e.g. lodging offered by private homeowners). For example, MealShare.org enables users to organise or host potluck events. By doing so, individuals can minimise food wastages, while enjoying private dining experiences and engaging in social networking.
Another notable implication of the sharing economy is the accumulation of data. Through the provision of apps-based services, ridesharing companies gather data to enhance user experience. Uber uses a complex dispatch algorithm to match drivers to individuals that are in the vicinity. Over time, the company collects valuable information, such as user frequency during specific time of the day and the concentration of drivers in various locations.
The acquisition of data allows Uber to improve its distribution of resources and raise the efficiency of its services. Additionally, collaboration with private and public entities can resolve recurring challenges, like traffic congestion. In October 2018, Uber, Lyft and Ford Motor Company jointly agreed to share data with SharedStreets, which is a platform to enhance urban mobility. This public-private partnership provides mayors with access to road traffic data to improve road allocation, thereby reducing traffic jams and air pollution.
Beware the dangers: Threats
However, the advent of a sharing economy has given rise to new challenges, such as privacy concerns and technological unemployment. As part of the traditional business models, some taxi drivers are resistant to technological disruptions that are interpreted as threats to employability.
According to an Oxford Martin School study by Carl Benedikt Frey in 2013, the rise of Uber has led to the fall in income of taxi drivers by 10%. In contrast, Uber drivers were reported to have higher per hour earnings than their traditional counterparts. In June 2014, the taxi drivers in London launched a strike that obstructed many parts of central London to express their dissatisfaction towards the entry of Uber. As a result, the London economy incurred costs of nearly USD$212 million.
Besides, the wild exuberance of Uber drivers may be short-lived as tech companies have begun exploring prototypes of self-driving vehicles. In June 2018, the United Kingdom’s Vertical Aerospace successfully conducted a test flight for an unmanned prototype. Similarly, a collaboration between German automobile manufacturer Audi and European aerospace company Airbus led to the creation of a futuristic aerial taxi, which was presented as the Audi Flying Taxi Concept in Drone Week exhibition. As a result, it is clear that technological innovation continues to replace older economic models, as aptly described by Joseph Schumpeter’s concept of ‘creative destruction’.
Are we ready for the future of sharing?
In summary, as we are entering the age of sharing, it is crucial for various stakeholders, like consumers, producers and even governments, to be aware of the economic consequences. Resource reallocation is a desirable process that is to be encouraged but the approaches should properly examined to minimise undesirable impacts.