Prof Benjamin Edelman discusses the other side of Uber and such companies. There always are ill effects especially of things that are too good to be true.
It’s easy to understand why so many people embrace transportation network companies like Uber and the growing number of other ride-sourcing startups, which enable drivers to make money using their own vehicles. By allowing passengers to hail a ride via a smartphone app, these businesses offer an option that is often more convenient than a traditional taxicab service—not to mention less expensive.
With these benefits, consumers and investors are also tempted to give these companies a pass for accusations that they cut corners on issues like background checks, insurance coverage, or refusing to pick up passengers with disabilities.
Consider Uber, which is involved in more than 150 lawsuits (including a class-action suit by its own drivers). Uber routinely frustrates regulators as much as it pleases consumers. It has fielded cease and desist orders from governments all over the world, often continuing operation even when ordered to stop. Yet venture capitalists have injected more than $7 billion into Uber, which has recently filed for an additional $2.1 billion. And according to various analysts, Uber is on track for an estimated valuation north of $60 billion. To say the least, the company can afford lots of lawyers to fight its global legal battles.
“Uber anticipated that regulators would have a hard time keeping up,” says Benjamin G. Edelman, an associate professor in the Negotiation, Organizations & Markets unit at Harvard Business School whose research focuses on consumer protection related to online businesses. “It’s not because regulators were asleep at the switch. It’s not because regulators haven’t been diligent in filing lawsuits—they’re filing plenty of lawsuits. But Uber is fighting back. Often the company’s strategy has been to delay regulators’ every complaint, trying to get their service that much more entrenched so it will be harder for regulators to do anything about it.”
Compares it to Napster:
Maybe the answer lies in the past. As a cautionary tale with a twist of hope for the future, Edelman reminds us of a company that had a lot in common with Uber: It was a celebrated California startup; it offered groundbreaking peer-to-peer technology; it received ample venture capital; and when sued, its executives argued it was simply offering a platform for consumers to share.
That company was Napster, the MP3 file-sharing service that was forced to shut down in 2001 after losing a legal battle against several major recording companies.
“Consumers love Uber,” Edelman says. “They loved Napster, too. When Napster got shut down, consumers were very upset. For one, they said we needed Napster to get innovation like immediate music downloads and access to more music than any record store could stock. But in fact, in short order the legal alternatives became surprisingly good, arguably much better than Napster. Today, we enjoy iTunes, Amazon Music, Pandora, and countless others, which we certainly wouldn’t have if Napster had been able to keep operating with a perpetual cost advantage.”
Answers are usually in the past..