YONELA DIKO: Uber and e-hailing companies need a new business model

The introduction of e-hailing services in South Africa began in 2013 with the US operator Uber entering the local market. This was followed by the Estonian company Bolt (formerly Taxify) two years later in 2015 and much later, the Chinese-based DiDi Chuxing. The transport economy was revolutionised, giving our country a much-needed subsector that was not only good and convenient for customer comfort and dignity but also created a new decent jobs market.

Although the benefits of the e-hailing services have been many, particularly to the customer, they have not been on an even keel with those benefits that are supposed to be due to the employees or independent contractors who drive the Uber cars. In fact, the problem begins right there, with the inability to distinguish whether an Uber driver is an employee or an independent contractor to the Uber company and whether Uber is in fact a transport company or a tech company.

This lack of clarity gives Uber and e-hailing companies a way out as the companies insist its drivers are independent contractors who make their own money and don't get paid by Uber and are also free to be with as many apps as they like and make more money.

The problem of course is that this independence is in word only and not in deed. Uber drivers, if they were independent contractors would set their own prices and would balance price increases between their share and what is transferable to the consumer, especially the runaway petrol increases. For drivers who don't own their cars, on top of the petrol increases and Uber share of 25%, they must pay another weekly R2,500 to the owner of the car.

If Uber drivers were truly independent they would be flexible on their pricing and consider things like traffic, distance and detours and not be controlled by an app that would charge the same amount per kilometre even if you were stuck for 2 hours in traffic.

Uber vs its drivers

In March 2022 e-hailing services drivers went on a two-day strike across the country with clear demands to both e-Hailing companies and to government.

E-hailing drivers, particularly those under the US operator Uber abandoned their cars and took to the streets in protest for among other reasons, an immediate stop to the practice of determining prices on behalf of operators; abolishing uneconomic prices and encourage competition and new business entity entry into the sector.

Uber drivers further wanted government to create a fair regulatory environment that enables investment in an equitable and socially responsible manner; They also want government to guard against the creation of app monopolies that compete at the expense of operators and drivers. They want commission to be slashed to 10%. Some companies charge up to 25%.

There was also the overall concern about the Rapidly rising fuel prices.

Uber and price determination

If drivers were truly independent - and based on their break-even costs and minimal margins - they would charge no less a base fee of R50 as well as a R13 per kilometre. Uber is only charging R7, which is below the cost of transporting a client the same distance.

The consequence of Uber charging such low prices per kilometer have resulted in Uber drivers declining a lot of trips, especially short distance. Despite the customer frustration Uber has not responded because fewer cars and high demand result in higher prices and more share for them. Drivers' share however seemingly is not tied to demand push increases.

Legislations

In the United Kingdom, the Supreme Court has already ruled that Uber drivers are employees who are entitled to full pay for all their work hours even those they are not transporting don't a client. Uber is of course defiant even against the Supreme Court ruling.

According to a MIT CEEPR study examining the economics of Uber and Lyft, another e-hailing company in the US. According to a study titled The Economics of Ride-Hailing: Driver Revenue, Expenses and Taxes - after a survey of more than 1,100 Uber and Lyft ride-hailing, which looked at drivers' vehicle cost information factoring in costs such as fuel, insurance, maintenance and repairs to come up with a median profit per hour worked - "74% of drivers are earning less than the minimum wage in the state where they operate". It also found out that "30 percent of drivers were found to incur expenses exceeding their revenue or to be losing money for every mile they have driven".

Mark Tluszcz, co-founder and CEO of Mangrove Capital Partners who has described the e-hailing industry and general gig economy model as modern-day sweatshops, says the current e-hailing business model is good for companies but terrible for drivers.

The real challenge with the e-hailing system is that drivers have fixed costs but the companies set prices with only the consumer and competing apps in mind. The companies can increase their share from drivers and drive prices down with only their bottom line in mind and without any consideration of how this will impact drivers. Drivers must pay for their cars, insurance, petrol and share with the owner for those who don't own the cars, and the company only has the cost of running the app to worry about.

Way forward

Some entrepreneurs such as Mamelodi Township's Karabo Mogajane, after listening to the frustration of many drivers and what is clearly exploitation by oligopolies in the e-hailing space, have launched their own app called Ambee.

Ambee seeks to find a fair solution to bot the price sensitivity of clients and the need for drivers to run profitable transport businesses. The app charges drivers only a monthly subscription and lets them keep all their earnings from clients.

There is also an Eastern Cape-based #LetsGoEat app which also seeks to balance e-hailing app benefits due both to the consumer and to the driver by only charging app monthly fees to the driver and letting the driver keep all his earnings from transporting clients.

It is a shame that the e-hailing service has been likened to the old sweatshops that broke people's backs while making huge profits for companies.

There has to be a minimum charge for drivers that covers their minimum costs. The partnership between the drivers and app owners needs to be reviewed to have fairness and profitability for both app owners and drivers.

Like all businesses, government must set the rules of the game to avoid exploitation and abuse. No business should operate outside the regulatory arms of the government.

Yonela Diko is the former spokesperson to the Minister of Human Settlements, Water and Sanitation. You can follow him on Twitter: @yonela_diko