Can the Uber-Model Fix Everything? [Trend Report]

"The idea that technology could not only fix anything, but the same technology could fix anything, in many cases proved arrogant. Every service industry—cleaning, delivery, grocery shopping, caring for kids—is complicated in its own ways, and often in ways that technology alone cannot improve."

-Sarah Kessler on the ‘Uber-model’, writing for Fastcompany

The trust we put in technology is driven by techno-optimism: the idea that technological progress will improve our standards of living. Still, this process is not to be taken for granted. By taking a closer look at a number of developments in and around Silicon Valley, we spot and analyse equivocal trends that embody both optimism with regard to the future but also possible creeping downsides that should be stressed.

We will have a look at three interrelated issues, namely: work in the sharing economy, Uber’s disruptive bets on technological progress and the rise of a global, Silicon Valley-inspired aesthetic taste. Central to all of these issues is the ‘Uber-model’: the way Uber organizes its value chain to deliver its service and gain a share of the market.

So let’s talk about Uber. Even though this ride hailing service hasn’t made any profit yet and has actually made a lost in the past half year, it is still the highest valued start-up on the market, valued at $69 billion. It’s first selfdriving car service has just taken off, even though it comes with two Uber employers: one co-pilot who can take action if the car makes a mistake, and another employer that live-monitors the car’s decision-making on his laptop.

These facts pose some interesting questions: What are Uber’s expectations of the future that cause them to move into driverless cars and spend more than they receive? Can you come up with an ‘ Uber for X’ for anything, at a profit?

Trend #1

The one-way street of the 'Uber-model'

#digital_disruption #automation #bubble_economics

One lesson in tech is that it’s easier to disrupt a market than to reorganize it around yourself

-Max Wolff, chief economist at Manhattan Venture Partners

The startup-craze is not what it used to be: recent months have seen a fall of funding for tech startups based on the ‘Uber-model’ for on-demand services, except for Uber, Didi Chuxing (Uber’s main competitor in China) and Airbnb. What are Ubers plans to secure its position?

According to journalist Steven LeVine, Uber bets on two trends, the first being the ascension of driverless cars and the second being the normalization of ride-hailing as an alternative to car ownership. If driverless cars operationalized successfully, then Uber will save on fees for its drivers. If ride hailing takes off, then Uber has already monopolized the means to cater to this market. In other words, Uber is betting on disruptive technologies in the automobile industry and on the rise of the sharing economy. It thus has an important goal in mind: convincing its stakeholders that self-driving cars are real.

Research consultancy Gartner has suggested that autonomous vehicles has reached its ‘peak of inflated expectations’ — the moment where the technology’s market valuation are at its highest point, while actual technological progress is lagging behind and can’t fulfill its promises yet. Thus, the implication for Uber is that the firm is at risk of trying to realize unrealizable promises to its investors.

Let’s remember that Uber is yet to make a profit, and actually made a huge loss in the first half of 2016 trying to maintain its monopoly. Also, autonomous vehicle technology is now entering its drawn-out live-testingand-adjustment phrase.

The Uber case is illustrative of this tension between expected technological progress and profitability on the one hand, and actual technological progress and profitability on the other. Actual progress and profitability is way fuzzier and harder to map than the former. Expectations can be revved up by wide media publicity for the demonstration of a prototype. Such was the case with Uber’s self-driving car service, even though the company is a latecomer in the autonomous vehicle business compared to Google, Tesla and Apple.

The high level of investment in Silicon Valley Unicorns – tech start-ups with a valuation of over $1 bln, mainly backed by venture capitalists – likewise reflects the trust put in these start-ups to quickly turn their innovation into market dominance. Venture capital usually place their bets on multiple startups, many which are doomed to flop. But the Unicorns belong to a special kind of startups namely, the ones that are expected to breed the big fat profits that make up for all the failed startups. Uber-inspired startups in particular were seen as the best and newest investment opportunities.

However, as an article in The New York Times points our, it’s actually quite hard to operationalize the Uber-model for any market. Uber has proven to be a unique case: it offered an alternative to the low-service and highly protectionist taxi business. But other startups in close vicinity to the ondemand Uber-model, had to capitalize on lesser opportunities.

The lesson learned from these startups, who initially sat on a huge pile of venture capital, had to increase their prices eventually in order to actually start make a profit. The same could happen to Uber. Furthermore, Uber’s smaller setbacks (in Uber’s case: stronger-than-expected competition in new markets, unionization, governmental fines and lawsuits) could heap up into an unbridgeable financial burden.

We can conclude that Uber and the like have not proven to rely on a riskfree and highly profitable business model. Instead, they are forced to shape the markets into their favor in order to survive by investing in technology, monopoly-establishing subsidies and its brand value.

One important question remains: why is Ubers quest for market domination relevant to our understanding of today’s world? One crucial implication is that companies such as Uber and Airbnb alter markets and our conception of the value of a particular service firmly: we are now used to getting Uber or Airbnb-quality services at a low price. Uber did cater to an untapped source of consumer needs, namely, affordable and easy transport. But, by installing itself as the market leader, it also enforces its disruptive view on what the market for personal transportation should look like. Even if Ubers stock-market launch flops, its shadow will remain. The same can be said on Amazon’s influence on publishing houses, bookstores and the market for books.

Trend #2

The sharing economy is also a gig economy

#digital_disruption #future_of_work #automation

In the gig economy, work is no longer about notions of ‘job’ and ‘career’. Rather, work becomes a source that, thanks to digital mediation, is available everywhere and anytime.

-Casper Thomas, journalist, writing for De Groene Amsterdammer

What about the supply-side of the Uber-model? The rise of the so-called sharing economy has strong implications for the way we work and look at work, according to economist Arun Sundararajan.

First, let’s recap what the sharing economy actually is. The sharing economy is based on formalizing informal or reciprocal work done by people – giving someone a lift, letting a friend stay at your apartment, running errands for a small compensation, usually via an online marketplace. The Uber-model discussed here exemplifies what the sharing economy is all about: intermediating between peer supply and peer demand, the firm takes a commission based on the product or service sold.

Of course, the Uber-model is not just a trend promoted by highly visible tech firms. It is also demand-dependent trend. Adaptions related to the model, such as online food delivery services cater to spontaneous decision makers, people with sedentary lifestyles or with little time took cook for themselves. The trend also reflects a change in lifestyles or changes in our economic reality.

By implication, the Uber-model is growing importance in the labour market as well. Crowdsourcing firms such as Clickworker, CloudCrowd and Amazon’s MTurk have taken on a role as service providers for so-called human intelligence tasks. Tasks that are relatively small, that require a onetime payment and a set time span. As Casper Thomas, writing for De Groene Amsterdammer (€), concludes that the ultimate power lies with the employer/consumer. He or she gets to choose from a range of individual day laborers who offer their services at different prices. The employer also gets to rate the quality of their work afterwards. The way such online labour markets are organized represents a gig economy: the crowdworkers workweek depends on him or her getting regular ‘gigs’, i.e. commissions.

Now, imagine a world in which work is mainly directed by a ‘perfect market’ for labour, facilitated by online marketplaces such as Clickworker and others. This may either be a libertarian dream come true or a realization of a new for of wage slavery. In a supporting article (€), journalist Koen Haegens asks himself the following question: why do companies exist? He involves economist Ronald Coase to answer this question. According to Coase, who considers the question within the theoretical framework of efficient markets, the answer is transaction costs: entrepreneurs organizing themselves in firm-like structures and hiring people save both time and money on finding qualified personnel and negotiating employment fees. The ‘gig economy’ thus represents a frictionless and perfect market for employment.

Thus, we can conclude that the rise of the sharing economy, facilitated by the Uber-model, disrupts these classic employer-employee relations. On the one hand, we can expect positive outcomes for competitive and capable freelancers who enjoy the freedom offered by the sharing economy. On the other hand, we might conclude that for many, their financial security is at risk when the gig economy becomes the norm. Classical employee protection is erased in a highly competitive and ‘perfect’ market for labour if the creation of proper legal frameworks lag behind. Not all work is necessarily influenced by the full introduction of a gig economy, but for labour that could be traded efficiently on an online marketplace, labour bargaining can become a race to the bottom.

Trend #3

Silicon Valley aesthetic taste gone global

#gentrification #lifestyle_changes

Taste is also becoming globalized, as more people around the world share their aesthetic aspirations on the same massive social media platforms, whether it’s Facebook, Instagram, Pinterest, or Foursquare, with their hundreds of millions or billions of users.

-Kyle Chayka, journalist, writing for The Verge

Whenever you travel around the world and go for a cup of coffee, chances are big that you’ll end in the same spaces familiar to the ones at home. We’re not talking about McDonald’s here, nor Starbucks, nor any other global coffee-serving chain outlet, but your everyday AirSpace - a portmanteau of AirBnb and space. This space, as journalist Kyle Chayka calls them, is characterized by:

Minimalist furniture. Craft beer and avocado toast. Reclaimed wood. Industrial lighting. Cortados. Fast internet.

The rise of AirSpace does not simply reflect a short-lived fad in interior design. Rather, it reflects a lifestyle aspired by many; a trend that has come to age and has become part of the fibre connecting one global hub to another. AirSpace embodies the quasi-nomadic, quasi-artisanal, ‘Millenialistic’, glocal and Instagram-able lifestyle of the creative classes and new elites, whose ‘home’ is diffused across the planet.

How come that coffee outlets, hotels, workspaces, AirBnB rooms around the world all reflect the same design pattern? As Chayka argues, the shared taste-space that constitutes Instagram, Facebook, Foursquare and Airbnb enabled AirSpace to go global and to become highly visible. To put it differently, tastes can spread much more quickly and much more deeply because the planet is continuously connected through these online networked. The rise of Airspace also reflects a shift in the way we work: flexible, freelance-y and highly mobile. AirSpace fits the sharing economy.

Then there is an analogy between AirSpace design and its spiritual origins. The industry that gets by far the most favorable attention is the tech industry, in particular its Silicon Valley branch. Silicon Valley, in turn, is synonymous with technological innovation and digital disruption, but also informality, ‘flat’ organizational structures and creative office spaces. For example, those office spaces designed by Studio O+A, an interior design firm with a big share of global tech HQ’s in its portfolio, reflect quite aptly the values endorsed by these tech firms themselves. These HQ’s are places that, unless you are a Stanford Computer Science graduate (or dropout), tend to be hard to get into. So for the rest of us there’s AirSpace, an alternative for those who want to live the Creative Class-lifestyle.

Considering the dominance of Silicon Valley on the news and its diffusion through social media, AirSpace still has a long time to come. Still, as Chayka warns, the rise of AirSpace should be viewed with caution. Citing fashion scholars Eugenia Paulicelli and Hazel Clark, he states that "aesthetic gentrification divides the new world map in the light of a softer Post-Cold War prejudice: the fashionable and the unfashionable world … You either belong to AirSpace or you don’t.”

Read our July trend report about the difference between data and facts, surveillance capitalism and hyper-globalization.