Playing Both Ends Against The Middle
By: Stowe Boyd
Tags: Economics, Platform, The Future of Work, Uber, Ecosystem Economics

Ride-hailing pioneer Uber had a disappointing initial public offering, after raising $8.8 billion at an average of $48.77 per share, and now trades around $40 per share. It appears that the public markets have looked at the vast amounts of cash that Uber is spending, and they don’t like what they see, reports Eliot Brown:

With Uber and Lyft, “there’s no profitability within sight even with binoculars and that’s been a tough pill for investors to swallow,” said Daniel Ives, a tech analyst at Wedbush Securities.

Uber has been very effective at raising money from venture capitalists over the past few years. SoftBank Group is the largest investor in Uber, whose investment in Uber has appreciated about 20% in value since buying shares in the company at a discount. Masayoshi Son, Softbank Group’s CEO, explained to his investors in February,

To SoftBank Group, vision matters most.

And what is that vision?

Uber can be viewed as the orchestrator of a platform ecosystem, the major player that has developed the platform that supports the exchange of value from ride-hailing passengers to ride-hailing drivers who transport them. The economics of the platform make it possible to scale to support hundreds of millions of passengers and tens of millions of drivers at a potentially non-linear way. Uber’s management states that it is not profitable at present because it is expanding aggressively to seek first-mover advantages, even while taking 30% of the fees changed for ride-hailing. Clearly, those economics change dramatically when autonomous vehicles become a reality, as Uber and others envision,

But Uber’s vision is to operate on a much broader scale, not limited to ride-hailing, or even to other sorts of transportation like food delivery, or long-distance freight. Uber believes it is chasing a significantly larger opportunity, as Alexis Madrigal outlines in The Uberization of Everything:

Reading this, I was reminded of Bertrand Russell’s definition of the two kinds of work, from In Praise of Idleness:

First of all: what is work? Work is of two kinds: first, altering the position of matter at or near the earth’s surface relatively to other such matter; second, telling other people to do so. The first kind is unpleasant and ill paid; the second is pleasant and highly paid. The second kind is capable of indefinite extension: there are not only those who give orders but those who give advice as to what orders should be given.

In the short term, Uber seeks to charge a fee on moving atoms from place to place, starting with the atoms in human bodies, then the food atoms we have delivered for lunch, and soon, all sorts of atoms for all sorts of uses.

But scaling that up is not the big vision. Uber wants to move to the other kind of work that Russell wrote about: it wants to move beyond telling drivers what atoms to move around, but wants to grow its algorithms to encompass telling all sorts of workers to perform all sorts of work.

Some of those workers will be automatons — like autonomous vehicles picking us up and dropping us off, delivering food and packages, and hauling freight cross country. But Uber could also build its platform and ecosystem to be connecting gig workers with jobs, restaurant and hotel workers with shifts, a consulting firm with a project opportunity, or a brain surgeon with a patient.

Uber wants to play both ends against the middle, an enormous flanking maneuver for the work marketplace.

And that is a seriously compelling vision, with Uber as the leading platform for the decoupled gigification of work where the friction involved in work — finding workers, pulling together teams, assigning tasks, paying for their work — is mediated by Uber’s expanded work platform. In a nutshell, automating much of what management does.

This is by no means an unchallenged trajectory. Uber has numerous rivals like Lyft, Didi Chuxing, Yandex, Careem, and Grab (most of which it has invested in) in its existing market, the movement of atoms. In the larger, three-dimensional market of work, Uber faces niche-specific competitors ranging from freelance marketplaces like Upwork, as well as the inertia of managers who are used to doing things in the conventional way.

The idea of a generalized platform ecosystem for work — in which potentially every worker can be matched with potentially every company, and where the friction that we take as a given surrounding their interactions — hiring, negotiating payment, transferring funds, coordinating work — is handled by scalable smart contracts and AI… well, it is a truly grand vision.

Yes, it’s true that you only need to change the soundtrack from a major to a minor key to have the techno-utopian vision slide into dystopian nightmare, with people being told what to do by malign platform intelligence.

On the other hand, a great many people are told what to do at work every day, already, and candidly, we might all be better off with a dispassionate algorithm than a biased manager with an agenda.