What’s wrong with Uber’s IPO?

If any week could highlight the winners and losers of the gig economy, it’d be this one.

While Uber drivers in London are striking in order to earn just £2 a mile, several Silicon Valley billionaires are set to profit when Uber floats on the New York Stock Exchange.

Uber’s IPO (initial public offering) will show how much the market values it. But what is creating the value of the company? The real currency of the gig economy is data. That is why we need to give workers control of their data. If Uber drivers aren’t sharing in the stock exchange windfall, they should be able to take their ratings elsewhere. 

Uber is a successful example of the Precision Economy

The company is quite remarkable despite not turning much of a profit. I wince every time someone tries to tell me that its business model depends on driverless cars. Uber has created a service that consumers love to use. It is already shaking up the freight trucking industry in the US and now has its eyes set on hospitality. CEO Dara Khosrowshahi’s vision is that Uber will become a marketplace for transportation (not unlike Citymapper).

Uber encapsulates what the RSA has described as ‘the Precision Economy’ – it uses big data and algorithms to more efficiently manage its workforce. This enables drivers to complete more trips than traditional minicabs, but it also raises questions about the amount of control the platform exerts over them. The amount of control means that many believe they should be re-classified as ‘workers’ with access to holiday pay and the minimum wage.

If you ask Uber drivers what they dislike most about the platform they will tell you that it takes too much commission. One of the main reasons they have gone on strike is to reduce this from 25% to 15%.

What allows Uber to behave in the way it does is the age old economic problem of monopoly. Despite new entrants to the mobility market such as Lyft and ViaVan it still enjoys a massive market concentration – in the US, its market share could be as high as 69%.

The lack of a clear price for data makes it hard to regulate monopolies in the gig economy

Not all monopolies are bad. Some are useful.

Railways are often seen as ‘natural monopolies’. The theory is that if a single operator had control over the whole network they could run things more efficiently, resulting in lower prices for consumers. The Government should therefore either regulate to keep said operator in check or nationalise to ensure it serves the public good.

Consumer prices are the yardstick for if a monopoly is ‘good’. If firms exploit their position of power by raising prices above the rates you’d expect in a more competitive environment (‘price gouging’), it is time for the watchdog to intervene. This was why the Competition and Markets Authority blocked the proposed merger between Sainsburys and Asda.

But these decisions are more difficult for tech firms. The currency of the digital economy is data, which we trade for ‘free’ services, greater convenience, and more personalised experiences. Unlike groceries there is no clear price mechanism – no easy way to understand its value. This makes things difficult for the watchdog.

There is no one size fits all approach here. The tech giants have very different business models. But in most cases, reigning in their power over markets will depend on regulating their power over data. Competition policy also needs to give more weight to the interests of workers.

We need to give gig workers control of their data so they can transfer across platforms

The problem with monopolies in the gig economy is that they reduce the bargaining power of workers, diminishing their ability to seek out better conditions on different platforms.

Even in the current food delivery duopoly, Uber Eats was able reduce the per delivery fee for its riders (in a move it claimed would boost earnings in busier times, but which resulted in protests). And if the rumoured merger with Deliveroo ever came to pass, drivers would have no option but to accept the terms imposed on them by their algorithmic overlord. (Or quite literally, get on their bikes.)

There is logic to the idea that a competitive environment should deliver good outcomes for platform workers. This is because the value of these platforms is derived from network effects. People use Uber to order minicabs because they know that drivers will be available in their city; drivers ride with Uber because they know that passengers will be looking for rides. Workers are a critical part of this network and so it makes sense for platforms to treat them well given how easy it would be to log onto a rival app.

But in the real world there is more friction. Suppose a driver has a 5-star Uber rating, having completed 5,000 trips. They want to start driving with Addison Lee instead. The problem is that they cannot take their 5-star Uber rating with them to Addison Lee, a different platform. Moving platforms means leaving behind your reputation and starting again.

In order to address this, we need to give gig workers control of their data in a way that makes sure they have a right to transfer it across platforms. This could be done by extending data protections like GDPR (the General Data Protection Regulation).

Some commentators have suggested that ’portable ratings’ could be stored on the blockchain. The Competition and Markets Authority could also introduce measures akin to the Open Banking reforms, which force the UK’s biggest banks to share the financial data they hold on their customers with start-ups (at the customer’s request).

A ‘winner takes all’ dynamic requires shared regulation in response

We can hope that competition will come naturally in the gig economy. But the general trend in the digital economy is towards a ‘winner takes most’ dynamic.

Given network effects, once a platform achieves significant scale, the size of the network effectively locks in its users and seals its control of the market. Much in the same way that no one used Google+ because everyone was already using Facebook.

If gig economy platforms do attain ‘networked monopoly’ status, then there is a case for subjecting them to the same level of regulatory scrutiny as natural monopolies.

In every instance, regulators should look to address problems by working hand in hand with employers, tech compa­nies, workers and consumers - a collaborative approach the RSA has called ‘shared regulation’.