Uber and Lyft’s Business Model May Be Dead. Good.
By: Brian Merchant
Tags: Labor, Business, Lyft, Uber, Tech

Uber and Lyft’s Business Model May Be Dead. Good.

The biggest startups in modern history were built on old-fashioned worker exploitation. Time for an upgrade.

Rideshare drivers demonstrate against Uber and Lyft during a car caravan protest on August 6, 2020 in Los Angeles, CA. Photo: Robyn Beck/AFP/Getty Images

Uber is less a business than a constellation of fantasies. The same goes for Lyft.

Early on, Uber and Lyft positioned themselves as “ridesharing” companies that were a key part of the buzzword-emblazoned “sharing economy.” Uber offered luxury on demand, and Lyft claimed to be a fun, environmentally friendly alternative to taxis. Both sold themselves as efficient and city-friendly and promised to help cut down on miles traveled. That was a fantasy that evaporated before the first pink Lyft mustaches fell off the bumpers. The vast majority of rides turned out to be single-passenger trips, the intent was clearly never to reduce anything, and the startups, in fact, began to contribute seriously to congestion.

The companies promised a new model of work, one that would give rise to a network of part-time drivers, “independent contractors” who were free to come and go as their schedules demanded in between pursuing their true dreams and ambitions. That too was a fantasy. Research has revealed that while a majority of drivers do log part-time shifts, most of the work is actually done by dedicated full-time drivers. As one recent study found, “a majority of the trips are completed by drivers who are committed to and rely on” driving for the platform. (That study also found that 83% of full-time drivers purchased their vehicles to provide taxi services and that 72% of full-time drivers rely on driving as their sole source of income.) The company is staffed by what most people would recognize as “employees,” in other words.

Uber and Lyft sold themselves to investors as world-beating operations that would capture whole markets and then become profitable at scale. Surprise — pure fantasy. Even after a decade, neither company has managed to turn a profit. The startups sold themselves to cities as creators of good jobs and providers of new transportation options. But the cities were hoodwinked by the fantasy, too — those jobs are precarious and low-quality; many workers hover around or below minimum wage and must clock dangerously long hours to hit ride targets and surge rates. Taxi drivers, meanwhile, were pushed out of business by the venture capital-fueled companies and are despairing. And city streets are more gridlocked than ever.

Then there was the greatest fantasy of all, written directly into each company’s IPO documents, that soon — soon, within a matter of years even — the ride-hailing business would be turned over entirely to a fleet of autonomous cars, thus eliminating the pesky need for human labor entirely. It’s not really fair to call that a fantasy — it’s more of a delusion. For the foreseeable future, functional and safe self-driving commercial taxis remain a recklessly pursued mirage; Uber’s autonomous test vehicles have already struck and killed a pedestrian.

There is so much wishful thinking stamped into Uber and Lyft’s DNA, so much self-mythologizing, so much sheer venture-capital-fueled optimism that it can be easy to forget about or ignore the single element that is holding any semblance of viability for the two unicorns together: human workers. Drivers are the one part of the rideshare mythological complex that are decidedly not a fantasy, that actually work — but they are rewarded the least. Uber and Lyft’s early investors became millionaires and billionaires when the companies had their IPOs, their founders and executives have grown fabulously wealthy, and their ranks are lined with power players from the upper echelons of the Obama administration. Drivers, meanwhile, often make less than $10 an hour after maintenance and gas expenses are accounted for, and many struggle to make ends meet. (Because Uber and Lyft do not make their data publicly available, it is hard to confirm these figures — a recent Cornell study calculated higher wages after its researcher was selected by Uber to be given rare access to its data but was criticized by other researchers for framing its findings more favorably to the company.)

So, when Uber and Lyft’s most dedicated drivers stood up, organized into groups like Gig Workers Rising and Rideshare United, asked for fairer treatment, pushed lawmakers, and approached the brink of actually attaining it — well, now all these fantasies might finally come crashing down. A California judge ruled last week that Uber and Lyft must immediately begin observing the AB5 law that went into effect at the beginning of 2020 and classify drivers as employees, not independent contractors.

Unlike independent contractors, employees are eligible for things like minimum wage, overtime pay, worker’s comp, health care benefits, paid rest time, and reimbursements for driving costs — the basics. Full-time Uber and Lyft drivers get none of the above. Uber and Lyft have long argued that those drivers — the people physically driving customers from one location to another — are not “core” to its business, arguing that they are technology companies, not transportation companies, so they do not have to consider them employees. Of course, without drivers, there is no service, so there would be no Uber or Lyft at all, and it is hard to imagine a component more central to a car-hailing business than the person who drives the car that has been hailed. (The California ruling noted this proposition as particularly absurd, pointing out that the “entire business is that of transporting passengers with compensation.”)

If anyone once bought into the fantasy of an algorithmically designed future of piece work, the reality should be clear by now — that’s simply a world where workers compete for gigs by signaling their availability for jobs on smartphones.

After the ruling, both Uber and Lyft threatened to exit the state entirely if their legal appeals were defeated. Amazingly, this was less than 48 hours after Uber’s CEO Dara Khosrowshahi proclaimed in a New York Times op-ed that “gig workers deserve better.” If that means allowing the drivers who make his service possible to have basic employee benefits, though, he’d apparently rather shut the whole thing down.

Lyft meanwhile, was more straightforward in its appeal — it said that if it had to classify its workers as employees, it simply couldn’t afford to operate.

If that is true, and it may well be, then it is time to talk about fantasies again. Lyft and Uber are basically making the case — and making it openly — that their businesses are not viable if they must guarantee their workers minimum wage and basic protections. That the people who make Lyft and Uber possible are so poorly paid and so precariously employed that granting them the benefits of, say, In-N-Out cashiers or Target warehouse workers would bankrupt these mammoth Silicon Valley behemoths. Which makes it a particularly sad fantasy indeed.

The Uber-Lyft brain trust and its supporters are clinging to the last line of fantastical argument — that this new model of work is so flexible and revolutionary that it demands a “third way” as Khosrowshahi wrote in his op-ed — and that it should exist outside the bounds of basic labor law. That old rules do not apply. That the government should help enact a slush fund or a meager stable of minor supports for precarious workers, given that companies like Uber and Lyft have created so many of them, to subsidize their benefits. (Remarkably, Khosrowshahi says that under his proposed system, after working an entire year, a full-time driver would be able to accrue around $1,350 worth of benefits; in his words, that’s “enough to cover two weeks of paid time off, or the median annual premium payment for subsidized health insurance.” Two weeks of time off or bare-bones health care. Not both. Talk about grim.)

But I hope we can see that for what it is at this point. It’s a desperate hail Mary aimed at rekindling the ghost of a deflating dream.

This new model, it has become clearer as the fantasy fades, is really the oldest of the old models: That is, disrupting an entrenched business by finding a means — or excuse — to reduce labor costs and skirt regulations. Uber and Lyft are glorified taxi companies that fused slick-looking user interfaces to basic GPS technology, put the app on newly ubiquitous smartphones, and then pointed to this incremental technological step to justify sidestepping both taxi regulations and labor laws. This wasn’t a taxi service — it was app-enabled “ridesharing.” It’s hardly a new play, of course; using advances in technology to argue labor laws no longer apply to your business has been a practice embraced by bosses since the Industrial Revolution.

But that constellation of fantasies nonetheless, for a while, held the enterprises aloft. Helped along by credulous press, Uber, Lyft, and its ilk seemed to be on the cusp of installing this “new model of work” as a norm. In a recent working paper, journalist Sam Harnett dissects how the boosterish mainstream tech press of the 2010s all but cheered Uber and Lyft into becoming a phenomenon, touting the “sharing economy” as an emergent force for good. Venture capitalists and deep-pocketed investors then rode the hype and juiced the company’s valuation into an absurdly unrealistic stratosphere. In fact, if each of these forces — the naively optimistic tech press, the disruption narrative-loving VCs, and the relentlessly self-promoting companies themselves — weren’t all feeding Uber and Lyft’s increasingly far-fetched mythologies, a different prospect might well have emerged. A more reasonable-shaped scenario wherein Uber and Lyft really were fun, friendly apps that rendered connecting some part-time drivers to far-flung riders in a modest market prospect, solving for some inefficiencies and matching idle vehicles to wayward people — not the most valuable startups in the world, the hyper-inflated harbingers for the future of transit and the future of work.

Because, once again, the Uber-Lyft vision of those futures is terrible. If anyone once bought into the fantasy of an algorithmically designed future of work, the reality should be clear by now — that’s simply a world where workers compete for gigs by signaling their availability for jobs on smartphones, laboring at the whims of algorithms owned by billionaires that automatically assigned them their tasks, and making increasingly slimmer sums as more and more precarious workers joined the informal app-accessible work pools. All while companies like Uber and Lyft charge them steep rents for the pleasure of using their platform to find work.

Which is why we should be glad these fantasies are coming crashing down now. And why it’s imperative they stay down. Because if this model were allowed to become standard, it would signal an even more precarious and hopeless future of work than the one millennials and zoomers are currently staring down — one with more platform work, less security, lower wages, and ever-larger slices of the gains funneled to the owners of the apps.

Uber and Lyft are now trying to make a power play — they hope that by demonstrating that if they exit a state that tries to offer the meagerest of regulations, consumers and drivers will revolt. But it also appears that they are genuinely nervous now. Backing out of a market as large as California is a measure a business would only take if it were desperate. They have one last-ditch effort in the works to preserve their exploitative business model — a ballot proposition called Prop 22 that they have bankrolled with DoorDash to the tune of $100 million that would permanently enshrine gig workers as independent contractors in California. They hope they can bully voters into propping up an enterprise whose chief innovation is now fairly obviously worker exploitation.

They will only succeed if we continue to believe in their fantasies.