Uber under pressure to change business model
Despite becoming the world's most valuable startup with a valuation of $51 billion, Uber has also encountered numerous troubles in many countries, mainly due to its controversial business model.
Last Tuesday, Hong Kong police arrested five Uber drivers, a year after the company began operating in the city. The reason given was that these drivers did not meet the requirements for insurance and car rental licenses according to the law.
Police seized several computers and documents from Uber’s office for investigation. Two employees were also detained. Uber’s North Asia spokesman Harold Li said all trips were insured. “We are committed to protecting our drivers and will work closely with the police to resolve this matter,” he said.
Police arrest an Uber employee from the company's office in Hong Kong (China) on August 11. Photo: Reuters
Australia also confirmed this week that 29 Uber drivers will face charges for providing illegal taxi services. In June, five drivers were detained in Jakarta, Indonesia, after local taxi companies complained that Uber was operating without a taxi license.
A month earlier, Chinese police raided Uber’s office in Chengdu, Sichuan province, on suspicion of “unlicensed operations.” A similar raid took place in April at its Guangzhou office in Guangdong province.
Spain, Germany, Thailand and South Korea are among the countries that have banned Uber. Last month, the company won a rare victory in Canada when an Ontario court failed to prove that Uber operated as a taxi company.
All of these investigations stem from the nature of Uber’s business. The company has always maintained that it is a technology company, and does not manage vehicles or employ employees as drivers. “It is a service that connects suppliers and demanders,” said Clement Teo, an analyst at Forrester.
However, that is not clear enough for the authorities. For example, the Australian Taxation Office requires Uber drivers to pay value-added tax (GST) at the rate applicable to taxi and travel services. Although Uber reaffirms that it is not a taxi company, the Australian government, like many other places, believes that the service they provide is no different from other taxi companies.
Thus, the similarity in service provided with traditional taxi companies has caused Uber to face many lawsuits. “The reason lies in the fact that Uber has ignored the traditional business method, which comes with a lot of related regulations,” shared Daphne Kasriel Alexander, a consultant at Euromonitor.
In addition, this new innovative and "destructive" technology is making traditional drivers feel unfair.
Traditional taxi drivers protest against Uber in Santa Monica, California in 2014. Photo: Reuters
The litigation will be further complicated as Uber continues to argue that drivers are not its employees, thus shifting most of the legal liability onto these individuals.
“Instead of pushing all the risks onto drivers, Uber could create a new market where risks and rewards are redistributed,” said Brishen Rogers, Associate Professor of Law at Temple University (USA). Questions such as how much risk will drivers have to bear? What will they get in return? ... remain unanswered.
Passenger safety is another concern for the government, following the sexual assault of a woman by an Uber driver in New Delhi last year. Sexual harassment has continued to plague the company, with a driver in Calcutta, India, arrested for harassment three months ago.
However, experts say the company will not change its business strategy in the near future, despite this pressure. “Uber is so big that it will not change its business model,” said Clement Teo.
According to the Wall Street Journal , Uber has just become the world's largest private company with a value of $51 billion after 5 years of operation. It is also one of the most downloaded applications on the Google Play and Apple Stores. The company also claims to have "created" 15,000 jobs in Australia alone this year.