AB5 threatens the existence of gig companies like Uber & Lyft

Yesterday, Gizmodo reported that AB5, a bill that is aimed to force gig companies to treat their workers as employees instead of independent contractors as they are now, passed California’s Senate Appropriations Committee and will go to a full vote in the Senate next month. If passed, it is expected to be signed into law by the Governor.

AB5 stems from a decision by a California Supreme Court decision in 2018, which essentially decrees that “Workers must be treated as employees, not independent contractors, if their jobs are central to a company’s core business or if the bosses direct the way the work is done.”, according to LA Times. According to the ruling, ride-hailing businesses cannot exist without drivers and drivers have to follow certain standards to be able to operate on their platforms. Hence, they should be treated as employees.

Ride-sharing companies exist as middlemen between riders and drivers, managing the supply of drivers and demand for rides. Drivers no longer have to drive around to pick up riders. Surge pricing gives drivers incentives to go out at unpopular hours like early in the morning. The argument that these companies make against AB5 is that drivers have flexibility to choose when and where to work, and as a result, shouldn’t be classified as employees. Well, even as employees, drivers can surely negotiate with Uber or Lyft that right. One of my colleagues moved from Omaha to Austin to work remotely so that she can be with her husband. What is at stake here is the bottom lines.

Gig companies like Uber or Lyft haven’t made any money despite treating their workers as independent contractors. If the proposal is signed into law, it will mean higher operational costs as these companies will need to pay minimum wages and be responsible for other benefits to their employees. Any chance of profitability will become even slimmer.

To be fair to Uber and Lyft, what they have done so far is perfectly legal as up to now there is no law that regulates the industry. They just take advantage of the situation and the bargaining power that they have over drivers. On the driver side, each cannot fight with these companies. They need lawmakers.

Regarding lawmakers, they have reasons to help both drivers and ride-sharing companies, especially in the US. Regulators that are more concerned about the well-being of drivers, their constituents as well, will support proposals such as AB5. Those who are more concerned about the power of lobbyists and about staying in power will fight against AB5. Since California is a progressive state, there seems to be more proponents than opponents of AB5. I am not sure the same can be said in other less progressive states or the federal administration.

Neither am I sure that collectively laws such as AB5 will benefit our society, but personally I am for it. Drivers should be protected against the abuse of these gig companies. Eventually, it has been proven that there is demand for services such as Uber or Lyft. I am confident there will be startups wanting to tap into the demand. As for Uber or Lyft, they will either adapt and innovate to survive and thrive or fall into the category of “thanks for being the trailblazers, but perhaps your time is up” companies.

Are autonomous vehicles the answer to many businesses’ problems?

It’s not uncommon nowadays that businesses mention autonomous vehicles as an opportunity for growth and profitability. Unless their vehicles are self-driven, ride-sharing services such as Lyft or Uber don’t particularly promise a sure path to profitability at the moment. In an article published last week, the CEO of AT&T mentioned self-driving cars as a reason for his optimism

Even Warren Buffett quails at the prospect of competing in such a powerful field of rivals. “Everybody has just got two eyeballs, and they’ve got x hours of discretionary time … maybe four or five hours a day,” he said recently at a charity event, speaking generally about the entertainment industry. “You’ve got some very, very, very big players that are going to fight over those eyeballs. The eyeballs aren’t going to double. You have very smart people with lots of resources trying to figure out how to grab another half-hour of your time.” His assessment: “I would not want to play in that game myself. That’s too tough for me.”

Any business that Buffett wants to avoid sounds unpromising, but Stephenson rejects the legendary investor’s premise. Acknowledging that “there are only 16 waking hours in the day,” he says, “Well, we haven’t filled up the 16 hours yet.” He nods toward his office window over Commerce Street with its busy traffic, which he says will ease when 5G networks enable autonomous cars. “When you have the lion’s share of those cars autonomous, for the average person that’s another two hours of availability of screen time, consuming video.”

AT&T Has Become a New Kind of Media Giant

Are autonomous cars the answer though?

Let’s say, generously speaking, 10 years from now all the cars would be self-driving. What would it look like? If the cars don’t carry passengers, without drivers, where would the cars go? Would all the cars keep driving endlessly till they are called to pick up passengers? Would the cars park on the street and if so, would there be enough space to accommodate all the cars? If the cars park in a garage somewhere, how would the garages be planned and constructed so that the garages are all well spread throughout a decently big area?

There can be many more questions that would result from having mainly autonomous vehicles on the streets. I can’t think of them all, but you get the idea. Right now, we don’t even have many on the streets yet, let alone answering questions and tackling problems that ensue the arrival of self-driving cars. Additionally, I personally don’t believe that we can have all cars or the majority of the cars self-driven on the streets in the next 10 years. I wrote something about it here.

If it takes a long time for self-driving cars to be realized and populated, can the likes of AT&T, Uber or Lyft wait till that time? AT&T’s debt is almost $200 billion and as Warren Buffett said above, and I agreed with his view, that the competition for eyeballs wasn’t going to get any easier. Uber or Lyft keeps losing money operationally and will be expected to continue that path, unless self-driving cars come along. 10-15 years of losing millions, if not billions, of dollars every year doesn’t seem a sort of business that investors like. And before any comparison between Uber and Amazon is raised, the two are far from being similar to each other. Look at their respective operating income.

Source: Wall Street Journal

Obviously, some years from now, it is possible that I may be embarrassed for saying all this and the fine folks in Silicon Valley or that somewhere in the US can deliver the miracle. Until then, I prefer being pragmatic to venturing out too far into fiction and imagination.

Weekly readings 25th May 2019

Inside Google’s Civil War. An interesting story on the internal rift between employees and management over controversial projects.

What makes ramen noodles so special? As a fanatical fan of Japanese food, it’s a very interesting read on one of the more known Japanese dishes

Lower pay and higher costs: The downside of Lyft’s car rental program. The ugly truth about ride-sharing business.

Skift Analysis: Amazon’s Travel Strategy Comes Into Focus

Shark Tank deep dive: A data analysis of all 10 seasons. I am not a huge fan of the show, but it’s cool to look at it from the data perspective

Carmageddon Sinks Tesla’s Bonds. I have been pretty bearish on Tesla and this article doesn’t do much to change my opinion.

An incredible story about a woman who was brave and incredible enough to go out on her own terms

How Data (and Some Breathtaking Soccer) Brought Liverpool to the Cusp of Glory. A fascinating read on how Liverpool used data to enable performance on the pitch.

The Legal Argument That Could Destroy Uber. A really interesting read on what can be a serious legal threat to Uber.

Uber, Lyft Driver Strike & The Role of Regulators

Yesterday, there were reports on the upcoming strike by Uber and Lyft drivers ahead of the former’s IPO in order to demand minimum or at least higher wages for drivers. Despite claiming that drivers are an indispensable part of their business and having programs such as Lyft Direct or Lyft Driver Centers to support drivers, the ride-sharing companies employ the ones behind the wheels on a contractor basis, not a permanent basis. Hence, drivers are less protected by the laws regarding their benefits.

The thing is that these strikes, in my opinion, are unlikely to change the status quo. First of all, Lyft and Uber lose millions of dollars every quarter. Even if they wanted to help out drivers, I don’t think they would prioritize it over keeping the expenses down. Secondly, I don’t think they want to. Lyft and Juno sued NYC to block the minimum wage bill. Though they may argue the bill will tip the advantage towards a larger business such as Uber, it is clear that they care more about their survival than the drivers, as most of us would if we ran a business like that.

It brings me to the role of regulators. NYC successfully enforced the minimum wage bill. The likes of Uber, Lyft or Juno have no choice but to comply if they want to continue to operate in the Big Apple. It is something that other cities can emulate. Pass an official bill to raise the minimum wage. I don’t think these share-riding companies can afford to exit markets in America, especially bigger and more expensive ones like LA, SF or NYC. If driver minimum wages are raised, it will likely be more expensive for riders. Nonetheless, there will be opportunity for other businesses to come in and offer more affordable transportation alternatives.

While the strikes will bring more publicity and exposure to the issue, I don’t think it can be solved without the lawmakers.

Weekly Readings – 16th March 2019

How the epic ‘Lord of the Rings’ deal explains Amazon’s slow-burning media strategy. Interesting insights into angles Amazon may be pursuing in their media strategy. I am curious to know the activities to which Amazon prefers users watching videos.

How Equifax neglected cybersecurity and suffered a devastating data breach. I encourage you to read or at least skim it. The data breach affected more than 140 million accounts. So, there is a high chance that you are one of the affected. As one of the three main Consumer Reporting Agencies, Equifax is important in our lives, yet it displayed a shocking lack of care about our sensitive data. According to the report, Equifax didn’t have proper documentation or policy in place. It had 8,000 vulnerabilities that were past the due dates for patching. It didn’t even track the expiration date of SSL certificates, something that is definitely not rocket-science. Upton notice of an Apache vulnerability, Equifax failed to respond in a timely manner. The other two CRAs did and as a result, avoided a similar fate.

Writing is thinking. I don’t think I need to elaborate more on this. I love writing and it’s one of the reasons why I have this blog.

The Clear Case for Capitalism. I am a fan of true capitalism. With emphasis on the word “true”. There I said it. The article lays out the benefits that we can gain and have gained from capitalism. I urge you to read the article before listening to politicians or anyone talk about capitalism.

Lyft IPO: Cautiously Optimistic Unit Economics Despite Significant Losses. I have a pessimistic view on the outlook of Lyft after reading their S-1. However, this is an interesting and positive take on the ride-sharing company’s unit economics.

Where Warren’s Wrong. A 4,900-word masterpiece by Ben on Senator Warren’s proposal to break up big techs.

Microsoft, Facebook, trust and privacy. I find it great for us to have folks like Ben Evans, who has a lot of years of experience in tech and business. His experience, reflection, connecting the past and the present, the writing and multi-dimensional view are always helpful and informative. I agree with him that even though the new change in vision may render it irrelevant the strategic issues Facebook is facing, the new vision asks as many questions as it answers.

Formula 1: The secret aerodynamicist reveals design concepts. Formula 1 isn’t a popular sport in America even though the country features one of the best tracks in the world and has one world champion back in 1980. Formula 1, as people usually say, is the pinnacle of motorsports. It has arguably the fastest cars, at least in corners, and the most advanced technologies. The post will reveal great information on the aerodynamics of the cars.

Don’t Read This If You’re Bullish About Lyft. The title is quite self-explanatory.