For many workers, labor experts, and even journalists, a series of recent moves by Uber Technologies has seemed particularly hard to follow, and/or digest.
In the past few weeks, as COVID-19 impacts have sent whole industries scrambling, Uber has maintained its newsier-than-most reputation with multiple significant layoffs, announced spending plans, and other potential game-changers right in a row — a series of seriously bold maneuvers that may not add up, critics say. They’ve occurred against a likely bigger-than-usual backdrop of legal and other developments for the company, too, plus the usual unprecedented expenses.
Uber’s reasons for wanting change seem fairly obvious: as Irene Jiang pointed out for Business Insider on Sunday, the economic impacts of the coronavirus outbreak have revealed our already unprofitable, problematic third-party food delivery system to be fundamentally “broken” in key ways (not to mention variously manipulable).
But its latest reactions to such crises don’t make much sense in the context of what most US workers and consumers have been thinking and feeling lately: in short, that our system for shaping the economy, steering investment, and creating sustainable employment is failing, with increasingly agonizing consequences.
First up: the elephant in the room
Likely the most startling and impacting Uber news lately is its potential purchase of Grubhub, a direct competitor of Uber’s Eats division.
Grubhub, which also owns Seamless (and has had its own share of controversies), possesses a slightly larger third-party delivery market share than Uber, and has reportedly been looking to sell to one of its competitors. Alex Wilhelm explained for TechCrunch in January, “Grubhub competes with a number of startup darlings, including Postmates (trapped in Schrodinger’s Exit at the moment), DoorDash (aggressively valued, under fire for payment practices and theoretically considering a direct listing despite unprofitability)” as well as the “deeply unprofitable” Uber Eats.
The deal would more than double Uber’s market share in an industry segment that’s more popular than ever but still struggling to make money, the Wall Street Journal noted last week. As such, Uber would control around half of that unprofitable third-party food delivery market, putting it on par with or ahead of market-leader DoorDash.
It would also be a cap-feather for Uber CEO Dara Khosrowshahi. He’s pursuing “his biggest deal yet” with Grubhub, and a strategy “he picked up as a top lieutenant [to] billionaire chairman Barry Diller: roll up competitors, integrate them, and reap the rewards of scale,” wrote Gerrit De Vynck, Olivia Carville, and Lizette Chapman for Bloomberg. “This form of corporate efficiency — embraced by investors based on the market’s reaction to the news this week — sparked a swift rebuke from some officials in the U.S., one of whom described the proposed merger as ‘pandemic profiteering.’’’
Khosrowshahi didn’t comment to Bloomberg, but told investors during the annual shareholders meeting in May that the company is both now and typically “in dialogue with many players, [and] because of our being Uber, the biggest player in this area, the global player, you can imagine that we’re having lots of conversations.”
The deal itself would also reflect the current pandemic to some degree. Wilhelm explained for TechCrunch last week, “In normal times, this deal would likely be a mix of cash and stock. However, in 2020 … it’s likely that this would be an all-equity transaction. Why? Because Uber needs to conserve cash at nearly all costs,” he continued. “Its only historically profitable division (ride-hailing generates heavily adjusted profits) is in the tank, with ride volumes down as far as 80% in April, compared to its year-ago period.”
In recent weeks, Uber has also seen media attention over the conclusion that, based on its latest earnings report, the company loses a noticeable amount of money on the average Eats transaction. As Graham Rapier pointed out for Business Insider this month, Uber’s latest numbers also nevertheless show that the company “has relied on Uber Eats to make up for severe losses in its main ride-hailing business amid the coronavirus.”
James Titcomb summarized Uber’s overall situation for the Sydney Morning Herald last week: “For the company as a whole, which includes initiatives such as electric bike and scooter rentals and a cargo-trucking unit as well as rides and deliveries, its margins went from minus 16.5% at the end of last year to minus 18.8% at the start of this one … despite the company significantly reining in its heavy marketing costs during the quarter.”
“To put it another way,” Titcomb wrote, “not only does Uber lose money for every dollar it makes, it is losing more money on every dollar it makes than it was three months ago.”
Cutting costs, but at what price?
As Uber has reportedly been considering a deal to acquire Grubhub (not to mention lining up a new a leading investment in scooter startup Lime), it’s also been making moves to significantly cut costs and streamline operations throughout.
As Carolyn Said reported for the San Francisco Chronicle on Monday, Uber said it will be cutting 3,000 more jobs at the company — that is, on top of the 3700 it cut earlier in May (at least partly en masse on Zoom), amounting to 25% layoffs overall. “Uber also is closing some 40 offices — including its Pier 70 office in San Francisco, which worked on self-driving technology [and] will be consolidated with its forthcoming Mission Bay headquarters,” Said wrote. “All told, Monday’s actions will reduce Uber’s costs by over $1 billion a year, the company said.”
Following the earlier round of layoffs, primarily among customer support and recruiting teams, one anonymous former employee told the Daily Mail that the extent and nature of the layoffs came as a relative surprise, and that the severance package Uber offered “is generous, but they’re treating us like they treat the drivers.”
By email, a spokeswoman for Uber spokeswoman provided the following comment: “It’s never easy or uncomplicated to let employees go, and that’s only been more true during this unprecedented period, where we are all working from home across dozens of cities and countries. We’ve focused on providing the clearest, most empathetic experience, possible and have put together a strong severance package and other benefits.”
Uber’s efforts to pare down its operations have included international pivots, too. As Megan Rose Dickey reported for TechCrunch, “Earlier this month, Uber Eats pulled out of the Czech Republic, Egypt, Honduras, Romania, Saudi Arabia, Uruguay and Ukraine. In the United Arab Emirates, Uber transferred its Eats business operations to Careem, its wholly owned ride-hailing subsidiary.” Uber wrote in a filing: “These decisions were made as part of the Company’s ongoing strategy to be in first or second position in all Eats markets by leaning into investment in some countries while exiting others.”
But while the company’s regular staff and international operations have seen major cuts, its enormous driver pool has mostly remained on the platform — often taking many more Eats orders, in lieu of Rides — or been waiting to see if crucial things like PPE or unemployment insurance will arrive for them. Drivers in Los Angeles (where Uber recently closed its customer support office) and other cities say they still haven’t received adequate safety supplies from the company, nor its assistance in getting income relief during this crisis.
As NPR reported this week, gig workers in various states so far haven’t been able to collect unemployment, which requires companies to pay in and report workers’ earnings, or have faced long waits to do so. Uber drivers in the US and UK have also become ill or in some cases died in recent weeks, at times after likely contracting COVID-19 viral illness from a rider.
In California, some drivers for Uber and Lyft have begun receiving unemployment payments, however, which recognize their employee status in the state. Like a handful of other US states, California has passed a law that establishes some contractors or ‘gig workers’ as employees for the sake of unemployment insurance and other labor protections.
And in fact, in California, where Uber, Lyft, and others have been spending $110 million to aggressively oppose and effectively overturn that law, the companies are now being sued not only by drivers for the sake of back pay, but by the state itself for having failed to fairly contribute to unemployment funds and tax coffers, and for otherwise working “tirelessly” to avoid its legal responsibilities.
Among other state and municipal lawmakers, New York’s City Council has also been pushing back on certain gig-platform practices as the current pandemic makes their impacts even more stark. Last week, the council’s Small Business Committee chose to approve new rules (which the full council and NYC mayor later signed off on) to start limiting fees that Uber Eats and other third-party delivery platforms can collect from restaurants.
During the committee meeting, broadcast on Zoom, Councilmember Francisco Moya said the rules were aimed to “protect New York’s ‘mom and pop’ restaurants from exorbitant fees by billion-dollar tech companies, which were nibbling away [at them] before COVID, and are now bleeding them dry.”
Drivers and delivery-workers for Uber and its peers have also been increasingly vocal about the precarity of their work in recent months, and especially as COVID-19 impacts continue to mount. For example, Uber Eats workers in Toronto have organized a regular boycott to protest the unsafe conditions and comparatively meager pay they say they’ve seen.
Good news for workers and the economy? Not likely
According to University of California, Hastings law professor and labor expert Veena Dubal, it’s not surprising that workers and lawmakers are starting to hit their limit in terms of tolerating gig firms’ behavior. “How much in opposition the needs of human beings are to how they operate is coming to the fore in this crisis,” Dubal said by phone.
“That Uber is simultaneously trying to buy Grubhub while laying off thousands of people is also emblematic of how they don’t have a model for survival, and are trying desperately to do anything that might work,” she said. “It also shows that at the core of the way they operate is a disregard for human labor.”
In recent weeks, as Uber has been navigating its changes and layoffs (which Lyft was doing, too) amid the COVID-19 crisis, “The people who actually generate value for the company, its drivers, sound ready to jump off bridges,” Dubal said. Many of the hardest-hit drivers, such as parents and immigrants, are “so desperate for food,” she said.
And despite the international crisis hitting low-income workers most, including ride-hail drivers, Uber continues “truly standing in the way of them getting UI benefits,” Dubal said, from allegedly failing to share earnings with the state to encouraging its drivers to apply for aide as independent contractors, not employees.
“There’s a significant difference, up to hundreds of dollars a week, between what they get under Pandemic Unemployment Assistance [for contractors] and state UI,” she noted.
But it is somewhat stunning, Dubal said, that Uber has so publicly indicated a desire to control half of the third-party delivery market, during a pandemic or just in general — the kind of behavior that inspired US antitrust laws in the first place, in fact. With its potential Grubhub purchase and many similar, previous (if smaller) acquisitions, Dubal said, Uber is seemingly trying to create “both a monopoly and a monopsony.”
“It’s what a lot of Big Tech and Big Capital is doing right now: trying to control both the market for services and the market for workers, which is really the only way to survive doing things the way [Uber’s] been doing things — to slough off as much overhead as possible, increase market share, and then not only control prices but the workers who do these services, who flood to where the work is, driving wages down.”
Dubal explained, “It’s a logical place to go for these types of companies — it’s where the impulse is, and how you make the most money — which is why we have antitrust laws. The fact that we have a Federal Trade Commission that does very little policing of this is why it’s allowed,” she went on. “But it’s so brazen, for a company to say, ‘We’re gonna take more than 50% of this market share.”
Dubal stressed that these kinds of corporate behaviors “have an impact on all of us” — not just the front-line drivers and delivery workers, and not just during this crisis.
She pointed to the ‘race to the bottom’ on wages that Uber and Lyft drivers have already witnessed through periodic rate cuts, leaving them unstable today (let alone with any ‘purchasing power’ to help restore our economy). In the past eight years, she said, “No one has gotten a raise, except maybe [the CEO].”
As more and more American workers as well as ones around the world turn to gig platforms for their income and emergency sustenance, the wider social and economic impacts of undercutting some of our most vulnerable workers will certainly, if painfully, become clear, Dubal said.
She reflected, “I keep thinking, these people who are negotiating [on behalf of gig platforms] to push states not to give workers what they deserve, to not pay into UI funds… What do they think about the role of companies in the economy? How do they think people in this economy are going to survive if [certain parties] keep hoarding all the money?”
Indeed, the conflict between popular financial behaviors not just with human ethics but also economics may represent the most important unanswered question of this moment in our society and history (or at least among the top five).
It’s one that private investors but also public funds and government entities are clearly still grappling with, too. In May, for example, news broke that Uber has been approved to bid for up to $810 million in US government contracts in the next few years.
Ed Lin reported for Barron’s on May 10, too, that New York’s state pension, the New York State Common Retirement Fund, “made a big bet on ride-hailing services in the first quarter,” quadrupling its investments in Uber and Lyft.
Lin noted, “The pension is the third-largest U.S. public pension with assets of $210.5 billion, and according to a prominent study, is one of the best.”
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