Opinion: Would you, should you invest in Uber?

Toronto taxi driver protests Uber, June 1, 2016. Photo from Canadian Press.

We have a responsibility as investors to evaluate companies from many angles. That is the beauty of the investor perspective. It’s not limited by whether and how we benefit as customers.

Instead, it’s about whether many people benefit as customers as well as about how suppliers and employees benefit or are treated and what is reflected in the overall business culture. Just as founders and business leaders must spend time carefully considering what business model is best suited for delivering value, investors also consider the business model and its viability and sustainability over the long-term.

Investors not only influence what products and services are made or delivered, we vote with our investment dollars on what problems get solved and how.

On occasion, I examine whether and why impact investors would (or would not) invest in well-known, rising ventures. Uber Technologies Inc., the transportation network company headquartered in San Francisco, operating in 400 cities worldwide, has been campaigning for support to bring Uber to BC.

Based on my examination, Uber does not treat its suppliers fairly and doesn't "take care of the village," a concept upon which I’ll expand further, and therefore wouldn’t align with impact investors. If we're going to invest in innovative companies and useful technology like Uber, we should hold them to treating employees and suppliers fairly.

The Benefits of Uber

Uber is an example of how logistics businesses have advanced. Uber provides people with convenient and efficient access to an essential resource of connection - connecting people and goods between point A and point B.

Its logistics technology is seen as an improvement upon the dispatching technology of traditional taxi companies by being able to organize a fleet of cars more efficiently and expediently. In terms of Uber’s supply chain, it doesn’t own any cars and doesn’t employ drivers. Instead it maintains contractor relationships with people driving their own vehicles.

Chart from Access to Essential Resource, from the book Integrated Investing, 2016.

The Uber product has been designed to optimize the customer’s experience and satisfaction, whilst maximizing efficiency amongst and cooperation by drivers. Customers are shown the nearest driver and can choose based on proximity and rating.

The customer’s own time constraints are the only ones (there is no time limit imposed by the app) and whether another customer requests the driver more quickly.

Uber gives drivers, who are independent contractors of the company, improved access to customers and improved access to a livelihood of driving cars. Put another way, Uber gives drivers access to money as a means of exchange for other resources that they need.

Uber's technology can be an improvement over a human dispatcher (that may or may not distribute customers amongst drivers fairly) and can be an improvement over driving around the block several times hoping for a customer off the street.

The Downside of Uber

The information about customers and drivers and the amount of time given to customers and drivers to evaluate such information is asymmetric. Drivers have approximately 15 seconds to accept an incoming ride request, otherwise the request is sent to the driver that is next closest to the customer.

Whilst Uber heralds the flexibility and independence of “being your own boss” as an Uber driver, the app is structured such that drivers are encouraged to accept a high percentage of requests and to drive as much as possible.

Drivers face the risk of having their account deactivated if their ratings fall below a minimum level or if their rate of acceptance of rides is too low, amongst other things, whereas customers are not subject to the same constraints and criteria.

Chart from Cost/Benefit Analysis for All Stakeholders, from the book Integrated Investing, 2016

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