March 18, 2019

Uber was founded in March 2009. By way of a birthday celebration, it is set to launch itself on the stock market – with some estimates valuing the company at $120 billion.

Unsurprisingly, Uber’s success has attracted imitators – but imitators of what, exactly?

Suggested reading
Platform cooperativism – an alternative to technopoly

By Peter Franklin

I’m not just talking about ride hailing services here – but a variety of markets in which one set of people (typically consumers) need to be coordinated with another set of people (typically providers). These are called ‘two-sided markets’ – and if there’s some kind of enterprise sat in the middle that actively coordinates interaction between members of the two groups then that is called a ‘multi-sided platform’. An example of platform business would be a credit card company that enables shoppers to buy things from vendors and pay for them at a later date.

Being all about coordination and communication, platform businesses have proliferated and thrived in the age of the internet and the smartphone. A lot of the tech giants, like Amazon and Google, fall firmly into this category.

Those two are much bigger than Uber, of course. However, what makes Uber special (and the subject of such intense scrutiny) is that it is the most prominent example of the most controversial type of platform business – i.e. those that coordinate the supply of labour.

In a thought-provoking piece for The Atlantic, Alexis C Madrigal, writes about the influence of Uber and its emulators:

“As a group, all of these companies have brought hundreds of thousands of people into new work arrangements that are more than a gig but less than a job. They’ve rearranged the way people get basic tasks done, and they’ve wired those in local industries—handymen, house cleaners, dog walkers, dry cleaners—into the tech- and capital-rich global economy…”

This hands a great deal of market power to the digital middlemen, raising concerns over actual and potential abuses.

Suggested reading
The monopolists’ manifesto

By Peter Franklin

But what about the benefits to the consumer? What about the great leap forward in convenience? All economic revolutions have their rough side, but when we’re talking about humanity’s progress from rural poverty to the fully automated smart cities of the future, what’s a little turbulence along the way? Get the technology up-and-running first and we’ll sort out workers’ rights later, right?

But looking at a sample of 105 Uberesque start-ups, Madrigal wonders where the great leap forward actually is:

“…because the ideas themselves are not rocket science, the competition has been fierce. Just in this sample, there are eight Ubers for doctors, six booze-delivery companies, five laundry services, and four each of massage, dog-walking, and car-washing start-ups.”

Using the dog walking companies as an example he suggests that the “consumer impact is small”:

“Instead of taking a number off a bulletin board in a coffee shop and calling Eric to walk Rufus, you hit a few buttons on your phone and Eric comes over.”

At least Google and Facebook got their start by offering the best version of a truly revolutionary product – respectively, online search and social media. The ability to hail a cab or hire a dog walker is not so revolutionary; it is something people could do almost as conveniently fifty years ago.

However, that doesn’t mean that the Uber-wannabes aren’t absorbing an awful lot of investment. Madrigal says the start-ups on his list have attracted “$7.4 billion in venture-capital” and asks whether this is “really the best and highest use of the Silicon Valley innovation system?”

A good question, but the horrible truth is that, for want of better alternatives, it might just be.

Yes, it would be great to put one’s venture capital into the next revolutionary innovation – something as transformational as, say, the smartphone. But where is it?

While the world waits for the next big thing, money gravitates to the next small thing instead – and in the era of digitally networked capitalism, a modest improvement in consumer convenience and a narrow edge over one’s competitors is sufficient to establish a dominant, and possibly lucrative, market position.

This strikes me as an argument for the kind of public investment that got the internet off the ground in the first place. Though the big tech companies are sitting on vast piles of cash, they’re not going to invest it in disrupting the status quo – they are the status quo. Meanwhile, smaller, independent tech investors frequently lack the heft, expertise or patience to break new ground.

However, if government or philanthropic investment can get the ball rolling on new technology, then the job of finding commercial applications would give the private sector something more useful to do with its money.

Suggested reading
Britain needs less speculation, not a smaller financial sector

By Peter Franklin

It is not the role of the state to replace private investment; but, as I’ve argued before, government does have a legitimate interest in channelling its flow. Sometimes this is by directing it away from places where it would do harm – for instance by using the tax system to take the profit out of property speculation; but in the case of innovation it’s all about opening up new and better possibilities.

In capitalism’s golden age, this is what government was all about – and it’s what we desperately need to get back to.