Technologies disrupt old ways of doing things.
Some see this as their virtue, making them engines of what the economist Joseph Schumpeter called ‘creative destruction’ (‘industrial mutation that incessantly revolutionises the economic structure, … destroying the old one, … creating a new one’). Mark Zuckerberg had the same thing in mind when he said Facebook should ‘move fast and break things.’
Others are more cautious. Breaking things without having much idea of what comes next suits some people – those with great self-confidence or money they can risk – a lot more than others – those who depend on the jobs they have to scrape a living. Enthusiasts for technological disruption like to call more cautious people ‘Luddites’, after skilled workers who opposed factory production of textiles 200 years ago – though their aim was to protect their skills and way of life from being overwhelmed rather than hostility to innovation pure and simple.
My point’s that technological disruption’s complex. It shouldn’t just be understood as progress or as threat. There will be winners and losers from it; there will be impacts that we like and those we don’t; there will be opportunities for some, lost opportunities for others; there will be changes in the distribution of prosperity and power.
Technological development may be inexorable and (even) something like inevitable, but that doesn’t mean it can’t be channeled in ways that maximise its value and mitigate its downsides. Readers of this blog will be familiar with my tripartite aspiration in this context: that we should seek to promote the changes that we want, preserve the things we value, and prevent developments that put those things at risk. To do so we must analyse the impact of tech change, not merely celebrate or fear it.
Technological and business models
I see a problem in the way we often think of this, which is that we don’t separate the technology itself from the business models that become associated with it.
New ways of doing things are enabled by the internet and more general digitalisation. They often make economies and lives more efficient, and we welcome them for that.
How these efficiencies and other benefits get delivered to us is a related but essentially a different question. Think for example about Amazon. Mass market e-commerce is enabled by technology and scale. There are benefits in this for many (not for all). Amazon has made its business successful by leveraging technology to do retail differently and, for many, more conveniently, offering those benefits (and discounting downsides).
Scale lets Amazon leverage its data and reduce its costs, giving it competitive advantage and market dominance. They’re both critical to mass market e-commerce. But they aren’t inextricably linked to other aspects of Amazon’s business model: its ownership structure, for example, or its employment practices, the way it manages profits and tax, its relationship with secondary or ‘third party’ vendors.
Uber uber everywhere?
This is not intended as a blog about Uber, but it’s the example that I think illustrates this distinction between technology and business models most clearly.
I know people who use Ubers with enthusiasm (because of their convenience and, in some places, sense of safety), and others who won’t touch them (often because of their employment practices). Myself I use taxis rarely anyway, but do use Ubers (and their equivalents) as well as more traditional hires, depending where I am and what I need to do.
Four things to bear in mind.
First, for all it claims it’s just a platform, Uber looks like, acts like and is a taxi service. It’s no different in principle from the local taxi services at railway stations that I’ve known all my life. They also match customers to drivers, and they don’t claim that they’re platforms.
Second, there are very different models for taxi services in different countries, different cities. Some are highly regulated through licensing, require drivers to have expertise and training, impose strict requirements on cars, on drivers’ records and their working patterns to ensure public safety and individual welfare. In other places, taxi services are almost entirely unregulated. In some, they’re intertwined with criminal activity.
Third, the business model Uber (and its peers) rely on uses three digital technologies, not one: its booking system (which matches customers to drivers), digital payments (which add convenience and remove an element of risk), and GPS (which obviates the need for drivers to have detailed knowledge of their cities).
Fourth, the core change within the business model is about how supply and demand are matched. Traditional taxis could be hailed on the street (if they were visible) or booked at an office in a fixed location (if they were not). The Uber model merges the two: it lets you, in effect, hail a taxi on a mobile phone by booking through a central (automated) office. That changes the dynamics.
The technological perspective
From a technology perspective, all this adds convenience and efficiency, especially in matching supply and demand. If mobile phones were around when taxis were first needed, we’d have used them then and there to hail our taxis.
Digital payments and GPS also offer clear advantages to both drivers and customers in terms of security – drivers don’t have to keep money in the cab – and payment assurance. And hailing without visibility reduces the risk of discrimination on grounds, say, of race or disability (though the rating systems used by services like Uber pose a different discrimination risk).
Services like Uber, though, rely on scale. They only work if there’s enough supply within a neighbourhood for mobile hailing to be quicker than alternatives. That means a lot of drivers, and it means a lot of drivers working with one platform: hence the likelihood of market concentration or monopoly. The bigger the platform, the better able to deliver the rapid match of customer with driver that's the point.
So what about the business model?
But does this require other aspects of the Uber business model? I’d say not. The fact that services like Uber have been delivered by global enterprises with specific models for managing employment and transactions doesn’t mean they can’t be done in other ways: by a number of competing companies using a platform that is jointly-owned, for instance, or through a drivers’ cooperative, or by an agency run by local government. It’s the scale that matters here, rather than the form of business ownership.
One controversial core aspect of Uber’s business model has been the relationship it has with drivers. In practice, companies like Uber control the work their drivers do: allocating hires, determining payments, managing finances, effectively hiring and firing by deciding who is on or off the platform. Yet they claim to be merely platforms facilitating drivers’ self-employment.
This has led to disputes between Uber and drivers in countries where employment relationships are regulated in ways intended to protect employees’ interests and ensure employees’ welfare. Uber argues that drivers like the flexibility to work when and where they choose. In these disputes, its drivers argue that they’d prefer to have employment rights such as sick leave, holidays and the financial security that goes with proper pay. Drivers say they’re employees, and Uber says they’re not. (Britain’s Supreme Court has just ruled that they’re not self-employed.)
Other regulated issues
These are not the only ways in which the business models that have been established by digital enterprises have different or additional impacts to the disruptive new technologies that underpin them. I’ve only space enough to hint at three.
In competition policy, for instance. Uber is yet to make a profit, its losses underpinned by investors betting that, in the end, market dominance will yield them benefits. It minimises tax liabilities across different jurisdictions. Both give it competitive advantages over local businesses that have to make profits and pay local taxes.
Regulated taxi environments typically include regulations to protect passenger safety – ensuring, for example, that vehicles are safe and properly insured, and protecting passengers and drivers against the risk of violence, including sexual assault. If Ubers aren’t subject to these, who has responsibility for ensuring passengers are safe? And who should have?
Taxi markets based on maximising the availability of demand have environmental and social impacts on local communities where demand is high – for example near airports or sports stadia. Local regulations could address these impacts (which are not unlike Airbnb’s impact on local housing markets), but are hard to enforce if the taxi management business does not itself enforce them.
Which takes us, in some ways, back to a question raised in last week’s blog: the relationship between global data businesses and national or local regulation.
As mentioned earlier, taxi regulation varies greatly place to place. There are strict rules in place in some countries to protect drivers’ welfare, employment rights and passengers’ safety. Where this is so, alternatives to traditional services – informal offline taxi services as well as services like Uber – may be less regulated, less safe and less secure. In other places, where taxi services are barely regulated, the rules imposed by services like Uber on their drivers could increase welfare and safety. Context matters, then, as in so many other cases.
Three points to end with
First, we should not assume that technological improvements to established services – in this case, mobile hailing, digital payments and GPS – require the business models that have become established with them. In many ways they don’t.
Second, the disruptive technology that underpins services like Uber is pretty basic by the standards of what’s coming (in the dawning AI age). Lessons learnt today will be more important come tomorrow.
Third, national regulations to protect employment and consumer rights, public safety and tax revenue are normal aspects of business governance. Global companies in other sectors abide by them (or are required to). Technological innovation does not and should not imply immunity where they’re concerned, not in a ‘people-centred, inclusive and development-oriented’ digital society.
Image: "Hong Kong", by Hans Vivek via Unsplash.com