Should You Consider Uber (As a Gig)?

Of my group of childhood friends growing up in the Bay, all of us went into different careers. Some became bankers, some doctors, and others techies. However, there was one who dropped out of school and worked random retail jobs. That is, until he found Uber. He fell in love with it because it was easier work that paid more than his previous jobs. There’s also a degree of respectability and cachet that comes along with being an Uber driver that’s not there as a waiter or grocery store stocker.

So should you consider a job as an Uber driver? I would argue no. The most in-depth analysis of how much Uber drivers really take home was done here. I paste the kicker here:

Without including other real weekly expenses such as gas, car maintenance (or accounting for depreciation of the car), I found that the average net income per hour for the eight drivers was $21.90, roughly 10 dollars per hour less than the combined hourly wage from the raw Uber data.

(…)

However, if we assume an average weighted driver wage of $21.90 per hour, which factors in just a fraction of driver expenses, and assume drivers work 30 hours a week (again, not necessarily typical, but a middle range of the hours worked by the eight drivers we spoke to), we can assume a rough projected yearly driver salary of $34,164.

That $21.90 figure may even be undercounting the true cost of gas and maintenance. You see, sharing platforms like Uber are inherently exploitative. By counting all drivers as independent contractors and issuing them 1099s, Uber is not responsible for payroll tax, benefits, and other hard-won legal protection that apply to ordinary employees. By being self-employed, Uber drivers have to pay both the employer and employee sides of Social Security payroll tax. That’s a whopping 15.3% on the first $100k or so of income. Then factor in paying for health insurance out of pocket and you can see how the same $50k in gross income from Uber isn’t the same as $50k from a W-2 job, much less than $50k from qualified stock dividends.

Then there’s the unreliability of cash flow. As a business, the Uber driver can easily have days or months with low utilization and income that’s not enough to pay the bills.

We haven’t even gotten to the subject of tips, which Uber recently begrudgingly legitimized in a settlement with its drivers, in exchange for being able to keep them as independent contractors. Unfortunately, we don’t know how this change will turn out. Uber riders loved the hassle-free nature of payment, so adding the uncertainty of whether and how much to tip will definitely degrade that experience. As a driver, it’s an anxiety-inducing dilemma. Should you set a low rate and hope to rake in tips, at the cost of potentially bad reviews, or try to stand out by advertising yourself as a more expensive but hassle and tip-free experience? What’s worse is that Uber hasn’t taken an official stance on tips, preferring instead to slide it under the table by allowing it but still discouraging it as routine policy.

If driving for Uber really were an attractive gig, we should expect to find many workers flocking there, which would increase competition and drive down the wage for everyone. No wonder that Uber is aggressively promoting itself… as a place to work. This commentator from Naked Capitalism notes anecdotally:

There’s something very curious going on with Uber, apart from the obvious, well-publicized weirdness: they’re advertising like crazy on the radio, both national and locally here in San Francisco (I don’t know if they advertise in other local markets). That in itself is hardly remarkable. What is remarkable is what they’re advertising. They’re not advertising their service. They’re advertising for drivers. Think about it. When has a company ever paid to advertise in mass media for workers? I think the reason is obvious. If the gig was profitable to the drivers, and there was a reasonable retention rate, they would have no need to advertise in mass media. But as we know, the pay sucks, especially when vehicle costs are factored in, and the attrition rate is atrocious.

Rather than think about working for Uber as a contractor, we should strive to understand the fundamentals of its success and how we can apply the same lessons to our own business ventures. As I wrote in my book, a good modern business in the internet age is capital-light. Uber checks this box for sure. Part of its genius is that all it really is is a low-cost platform for the exchange of goods and services. It takes a small cut and provides nothing more than a matchmaking service and slick UI. It’s ingenious as a business plan – almost foolproof due to its simplicity and lack of capital expenditures.

Uber is also insanely scalable. That is, they don’t need to change their core business model or significantly increase expenses just because they’re growing larger. By leveraging contractors anywhere in the world, they just need to keep the central platform running and fresh-looking. Contractors will automatically do all the hard work and make business decisions appropriate for local markets, laws, and customs. It’s capitalism broken down to the microscopic level.

The dark side of Uber, which may very well be its downfall, is that it outsources safety standards and consumer protection/insurance requirements to its contracted drivers, most of whom do *not* comply with minimum regulations that apply to taxi drivers. Of course, actual enforcement of local state and county laws is impossible given how many small fry drivers there are. How can taxis compete trying to play by the rules?

Think about it this way. If Uber were subject to the same standards that apply to taxis, in terms of insurance and safety standards, they would probably be just as expensive. Otherwise, Uber is really not all that innovative. A large taxi company could just as easily put together an easy to use app for mobile devices and mimic the same function.

Sooner or later, the law will catch up and start regulating Uber. All it takes is a major accident leading to death or disability and a major lawsuit. Perhaps Uber’s true business model should be to rake in money and plan on cashing out and shutting the service down while the going is still good.

Facebooktwittergoogle_plusmail

Leave a Reply