An Uber labor market: do we let it happen?

India is crucial for Uber. It’s their biggest market outside the US, providing its fastest growth in the world. But is the success of one taxi-hailing app just the first sign of something bigger for India?

Uber’s market entry strategy has been seen around the world. They launch aggressively in each target city, subsidizing prices and driver rates to undercut existing players. Long term they cut costs with their own approach to tax collection and regulation. Drivers are independent contractors, not employees (although a California court  may be among the first to make them change that in some territories).

This strategy takes huge upfront expenditure. But it allows Uber to quickly build a pool of drivers and customers that gives it critical mass; enough buyers and sellers to ensure everyone can get the transactions they want. Going forward, Uber takes a significant 20% of each payment. The promise of that revenue stream attracts investors for aggressive market entry.

Uber everywhere

Across India, thousands of start-ups are striving to be “The Uber of”; cleaning, moving house, running errands, secretarial work or some other activity. Most will be trying to replicate Uber’s profitable model: minimal responsibilities to people doing the work, high margin, indifference to regulation and the quest for a huge valuation. Underpinning the approach is a beautifully designed, highly convenient, website/app.

The sheer number of these businesses is a problem for buyers and sellers. Suppose I want to do a bit of taxi-driving but also some dog-walking, at home hairdressing while exploiting my qualifications to work in a supermarket? To be fully exposed to buyers I have to be active on multiple sites. Each is trying to lock me in to boost their pool of users and erode the competition. Each could send me a booking at any time and penalize me if I am off doing a booking for one of the others.

In a world of fragmented markets there is little data. What times I should most profitably be available for work? How much could I charge? What other skills should I progress to given demand patterns at times I want to work? I don’t know. I just do what the sites tell me.

A more unified platform for all sorts of work would improve my chances enormously. If it had scale, drove down its own margins and output a constant stream of data that would be even better. But launching such a wide-scope platform would be prohibitively expensive for a technology company. They would have to aggressively enter so many sectors at once.

The role of public bodies

Currently India’s public bodies face two key concerns. Urbanization is bringing many, particularly the young, to cities in search of employment. The other is shadow economy transactions. No-one knows the extent of India’s problem with untaxed, unregulated, work. World Bank research puts it at 24% of GDP. More recent estimates are much higher. Inviting Apps that make it one-click easy to buy or sell outside the mainstream economy will only make life even harder for anyone who wants to play by the rules.

Governments around the world are grappling with this issue. Clamp down on sites like Uber or recognize they provide an important way for people to find the work they need? The British government has taken a lead developing a third way: initiate even better markets to entice activity into the legitimate economy.

It’s not an obvious proposition. But the travel industry provides a roadmap. Many of us prefer booking trips through nicely designed, informative, Apps like Kayak, Expedia, Opodo or their many competitors rather than going to a travel agent. But those Apps don’t each hold data on every single hotel room/flight seat/hire car that is available at any time. They work with underlying databases like SABRE, Amadeus and Galileo. These directly store availability and pricing rules for multiple travel agents and websites.

An underlying platform

Government bodies have market-making power in the world of odd hours of working. They are often the biggest buyers (directly or indirectly), they control databases of who is licenced to do what and they have multiple levers that influence economic activity. They could focus these facilities on a system we call a CEDAH: Central Database of Available Hours for a particular city.

A CEDAH for Kolkata for example would allow any citizen to specify the types of work they would do (vetting would be checked where necessary), how their hourly rate was to be constructed and the hours they wanted to sell; today, tomorrow or weeks ahead.

Any web market or app could draw on this data instantly to assemble workers who were eligible for any buyer’s requirement. As in travel, those intermediaries could add whatever mark-ups they wish. But the CEDAH builds in tax and enforces regulation. It is funded through its own small mark-up, just as credit card processing modules take a charge within other websites.

The technology for CEDAHs has been built and is freely available to Indian cities. But it needs some market-making in any city in which it is launched. Without this, a local market will just be swamped by people who want to work this way.

With dialogue progressing across North American and European cities, we are now keen to talk to pioneering city leaders in India.