Uber and the Ethics of Sharing

31 Pages·2016·2.74 MB·English

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Uber and the Ethics of Sharing:

Exploring the Societal Promises and
Responsibilities of the Sharing
Economy

04/2016-6209-E
This case was written by Erin McCormick, Case Writer, under the supervision of N. Craig Smith, the INSEAD Chaired
Professor of Ethics and Social Responsibility. It is intended to be used as a basis for class discussion rather than to
illustrate either effective or ineffective handling of an administrative situation.
Additional material about INSEAD case studies (e.g., videos, spreadsheets, links) can be accessed at
cases.insead.edu.
Copyright © 2016 INSEAD

This pre-release version may be used for teaching purposes but it has not yet received an official case number by The Case
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• In San Francisco, a six-year-old girl was run over by a driver for the ride-hailing
service Uber, as the driver drove around waiting for the company’s mobile app to
direct him to his next passenger.
• In Paris, taxi drivers rioted in the streets, protesting that a subsidiary of Uber, the
fastest growing company in the so-called “sharing economy”, was stealing their
business without respecting the rules and regulations of the trade.
• In London, Uber drivers sued the company, insisting it pay the minimum wage and
follow the same safety regulations as other employers.
• In Australia, the tax office cracked down, demanding that Uber drivers pay the
national business tax on each fare.
In each case, Uber has argued that it is not the primary responsible party. In questions of
safety, transportation regulation, labour rights and business taxes, Uber often defers
responsibility to its “driver-partners’ – many of whom are ordinary people picking up
passengers in their personal cars. The company maintains that it only provides an online
platform to connect customers with “independent contractors” – drivers in business for
themselves.
“It's a technology platform that connects riders and drivers,” said Travis Kalanick, co-founder
and CEO of Uber.1 “So you want a ride, we are going to connect you to all the transportation
providers that are available in a market, and we're going to get you the quickest pick-up time,
highest quality ride, and get it to you at the lowest cost that's possible.”
With operations in 300 cities worldwide and more than $8 billion in equity funding, Uber is
quickly becoming one of the world’s most highly-valued companies, at the forefront of a
growing breed of tech-based companies leveraging the powerful economic engine dubbed the
“sharing economy”. The company, and thousands of other start-ups like it, provide ways for
people to share their underutilized possessions – cars, bedrooms, parking spaces and even
clothing. In the meantime, they are turning basic norms – about consumption, work and
regulations – on their heads.
The whole nature of what it means to do business is being redefined by companies like Uber,
Airbnb, which rents out space in people’s homes, and Taskrabbit, which lines up workers to
help customers with odd jobs. But while “sharing economy” companies hold out a promise of
increased sustainability and democratization of the workplace, they raise questions about how
such changes affect societal safety nets.
Are they merely “technological platforms”, facilitating transactions for individual business
people? Or are they real-world companies, with the same responsibilities as transport
companies, hotels and employment agencies? In some cases, their very survival depends on
the answer to these questions.

1 Laurie Segall, Uber CEO: ‘Our Growth is Unprecedented’ CNNMoney, June 12, 2014
http://money.cnn.com/2014/06/12/technology/innovation/uber-ceo-travis-kalanick/
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The Economist cover illustrates some facets of the “sharing economy”
An Economy Built on Technology and Trust
If you own a power drill, “that drill will be used for 12 to 15 minutes in its entire life time,”
Rachel Botsman, one of the early proponents of the sharing economy, told a Ted Talk
audience in 2010. “It’s kind of ridiculous, isn’t it? Because what you need is the hole, not the
drill. Why don’t you rent the drill? Or rent out your own drill to other people and make some
money from it?”2
Launched with this vision of cooperation amongst a broad internet community, the sharing
economy was described by Botsman as “an economic model based on sharing underutilized
assets from spaces to skills to stuff for monetary or non-monetary benefits.”3 The term – used
interchangeably with the “peer-to-peer economy” or the “collaborative economy” – depicts an
enterprise platform in which regular people do business with their neighbours rather than
relying on big companies.
The sharing economy was made possible by the ease of sharing data brought on by the
internet age. Be it a person’s Facebook profile or their location as tracked by the GPS on their
smartphone, free-flowing information has made it possible to make transactions to share
goods and services which once might have gone unused. In the past it was so hard for people

2 Rachel Botsman, “The Case for Collaborative Consumption,” TedxSidney, May 2010
http://www.ted.com/talks/rachel_botsman_the_case_for_collaborative_consumption?language=en#t-
945236
3 Rachel Botsman, “The Sharing Economy Lacks A Shared Definition,” Fast Company, November 21, 2013
http://www.fastcoexist.com/3022028/the-sharing-economy-lacks-a-shared-definition
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to find others with whom to share goods like unused tools and extra bedspace, that it wasn’t
worth the trouble. But the internet and the availability of data have dramatically reduced the
“transaction costs”, ushering in an era of collaborative consumption in which underutilized
goods can easily be turned into cash.
A new sense of trust in the online community, based on feedback, is another key building
block of the new economy. Where consumers might once have been afraid to catch a ride or
share a house with a stranger, they now can check out a person’s trustworthiness based on
ratings from previous passengers or reviews from former houseguests.
The sharing economy gives access to all kinds of products and services without having to
commit to ownership or hiring. Why own a car, when in minutes you can borrow one?
Supporters extol the benefits for the environment: if commuters share rides, there are fewer
cars on the road; if people share their rollerblades instead of buying new ones, it reduces the
use of raw materials and the pollution of production.
Yet as it has grown, the sharing economy hasn’t always lived up to the early vision of
“sharing” among “peers”.
Sharing as Big Business
A host of creative technology start-ups emerged to develop the intricate internet platforms and
smartphone applications needed to make these peer-to-peer transactions easy. Uber, Lyft and
BlaBlaCar connect drivers to people who need rides. Airbnb helps people rent out their extra
beds. Parkatmyhouse connects drivers to parking spaces. TaskRabbit in the US and
TaskPandas in the UK line up workers for people needing help with small jobs.
NeighborGoods helps people share tools. But as the sharing economy has grown from a fringe
concept to a huge industry, some of these companies have acquired the scale and
characteristics of the big businesses they were supposed to replace.
Unlike traditional brick and mortar businesses, these new firms can sell rides or rentals
without having to invest capital to buy cars or build hotel rooms. Whereas it took the world’s
biggest hotel chain, InterContinental Hotels, 65 years to build a chain of 650,000 rooms in
100 countries, Airbnb did it in four years.4 Uber wasn’t founded until 2009, but it is already
valued at more than $60 billion – twice the estimated value of Hertz Car Rental5 – without
owning a single taxi.
Many of these companies and their users appear to have none of the altruistic motivations
connoted by the term “sharing”. Proponents of the sharing economy, including Rachel
Botsman, who co-founded Zipcar, one of the first companies to emerge under the umbrella
term, have proposed an alternative terminology: they suggest that companies giving
consumers instant online access to other people’s goods and services should be called the “on-
demand economy” or “the access economy”.

4 Ibid
5 Ycharts, Hertz Global Holdings Enterprise Value, https://ycharts.com/companies/HTZ/enterprise_value
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Despite little agreement as to what this new business phenomenon should be called,
PricewaterhouseCoopers has identified five sectors of the so-called sharing economy – peer-
to-peer finance, staffing, car sharing, accommodation and music and video streaming. PwC
estimates that collectively these earned global revenues of $15 billion annually in 2014, a
figure that could jump to $335 billion by 2025.6
As they have grown, many of these companies have sidestepped the local regulations that
competitors in traditional businesses face. While taxi companies operate within local limits on
the number of cabs and regulations about using airports, Uber has often managed to avoid
such rules. Similarly, Airbnb has faced complaints that a large number of rentals on its site are
illegal. A 2014 report by the State of New York’s Attorney General found that 72% of private
short-term units offered on Airbnb in New York City appeared to be illegal under state and
local zoning laws.7
Some fear that these companies can use their size and the advantages gained by side-stepping
local laws to drive traditional competitors out of business, much as Amazon.com has done
with local bookstores. “There is often room for just one successful platform in a market and
the “winner takes all””, wrote Felix Barber of Ashridge Business School. “It’s no surprise that
the old monopoly concerns are arising anew.”8

Source: Dadaviz.com, Business Insider

6 PricewaterhouseCoopers, “Five key sharing economy sectors could generate £9 billion of UK revenues by
2025,” press release, August 15, 2014, http://pwc.blogs.com/press_room/2014/08/five-key-sharing-
economy-sectors-could-generate-9-billion-of-uk-revenues-by-2025.html
7 New York State Attorney General Eric Schneiderman, report: “Airbnb in the City,” October 2014,
http://www.ag.ny.gov/pdfs/Airbnb%20report.pdf
8 Felix Barber “How do we fight 21st century monopolies like Amazon, Google and Uber?” Upstart Business
Journal, December 11, 2014 http://upstart.bizjournals.com/resources/author/2014/12/11/fight-21st-century-
monopolies-like-amazon-uber.html?page=all
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Source: Forbes Magazine
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Source: PricewaterhouseCoopers

Source: AP Photo/Eric Risberg
A man leaving Uber headquarters in San Francisco
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Uber
From the day it first launched its app in its home town of San Francisco in 2010, Uber has
used the latest technological advances to make ride-hailing super-efficient. Founded by tech
entrepreneurs Travis Kalanick and Garrett Camp in 2009, Uber developers spent nearly a year
building systems to predict rider demand and get cars to those areas, then set the price based
on demand. Early on, Uber hired a rocket scientist, a computational neuroscientist and a
nuclear physicist to develop an algorithm for predicting how long it would take for cars to
reach their passengers.9 “There is a ton of math, which basically makes sure that riders get a
car in five minutes,’’ said Uber founder Kalanick, promoting the then-new company at the
2011 Tech Crunch Disrupt conference.10
Passengers can look at the app on their smartphones and see all the Uber cars travelling the
streets near them. Once they request a car, the app allows passengers to see their driver
approach via a city map. The fare is calculated by the app, based on time and mileage: if it is a
busy period, fares can be doubled or more, based on Uber’s “surge pricing”. At the end of the
ride, the app automatically deducts the cost from the user’s Paypal or credit card account.
Drivers are paid by Uber after it has deducted its commission – usually 20%.11

Source: Mary Altaffer/AP
As the app became hugely popular, investors poured billions of dollars into the company,
which is still privately held. The company expanded to one new city per month as of 2011,
quickly adding Washington DC, New York City and Chicago. The first city outside the US
was Paris in 2011, followed by a push to launch in cities around the world. By mid-2015,
Uber had service in 177 North American cities and in 60 countries around the world, in places
as diverse as Seoul, Lima, and Cape Town.12

9 Sarah Lacy, “Uber Out-Maths Google on NYC ETAs,” TechCrunch, June 15, 2011,
http://techcrunch.com/2011/06/15/uber-out-maths-google-on-nyc-etas/
10 Sarah Lacy video interview “Travis Kalanick on How Uber Started”, TechCrunch, June 15, 2011,
http://techcrunch.com/2011/06/15/uber-out-maths-google-on-nyc-etas/
11 Joann Weiner, “The hidden costs of being an Uber driver,” Washington Post, February 20, 2015,
http://www.washingtonpost.com/news/get-there/wp/2015/02/20/the-hidden-costs-of-being-an-uber-driver/
12 Uber.com, “Our Cities,” https://www.uber.com/cities
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Uber describes its mission as “evolving the way the world moves…by seamlessly connecting
riders to drivers.”13 With Uber, instead of standing on the street or calling a cab and waiting,
passengers can stay inside and watch the progress of the car on their smartphones. “This is a
real boon for consumers who don’t like long waits or uncertainty—which is to say everyone,”
writes Brishen Rogers, Associate Professor of Law at Temple University. “The result is that
Uber may be creating what once appeared impossible: a functioning market for car-hire
services that is governed largely by supply and demand.”14
Customers praise the app for allowing them to reliably hail taxis around the world and have
all their transactions conveniently billed to the same credit card – without having to worry
about having the right currency or having to negotiate fares with local drivers.
Dozens of competitors to Uber have emerged around the world, including Lyft in the US,
Didi Kuaidi in China, Grab in Southeast Asia, Chauffeur-Privé and Snapcar in France, and
Gett in the UK. But Uber is by far the biggest. With its huge valuation, aggressive business
practices, and no-holds-barred approach to dealing with adversaries, the company is quickly
gaining a reputation as the bad guy of the new business model. Its behaviour raises the
question: What are the responsibilities of sharing economy enterprises?

Logo Company Estimated Areas of Information Source
Value in Operation
billions
Uber: UberPop, UberX, $62.50 58 countries and
UberPOOL 300 cities
worldwide

Lyft $5.50 More than 100 http://www.bloomberg.com/n
U.S. Cities ews/articles/2016-01-04/gm-
invests-500-million-in-lyft-
to-bolster-alliance-against-
uber

Didi $16.40 China http://www.technewstoday.co
m/28080-uber-china-now-
valued-at-7-billion-as-war-
with-didi-kuaidi-continues/

13 Uber.com “About us, ” https://www.uber.com/about
14 Ibid.
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Ola $5 India http://www.forbes.com/sites/s
aritharai/2015/11/18/ola-
ubers-india-rival-raises-
500m-in-funding-now-

valued-at-over-5-
billion/#12e381757f4b
Grab, Grabtaxi, Grabcar, $1.50 Malaysia, http://www.forbes.com/sites/f
etc. Singapore, the orbesasia/2015/11/17/grabtax
Philippines, is-other-founder-talks-about-

Indonesia, return-to-
Vietnam and company/#160de9f01e5c
Thailand
Chauffeur-prive ? France: Paris,
Nice, Cannes

Gett/GetTaxi $0.60 More than 50 http://www.haaretz.com/israe
cities, including l-news/business/.premium-
London, 1.687031
Moscow, New
York and 13

cities in Israel
Snapcar ? Paris

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