Tuesday, June 23, 2015

The California Uber Ruling Means NOTHING To Sharing Economy Valuations

I exaggerate for emphasis.
My best guess is that a business model that depends on an uneven playing field for its competitive advantage-- in dollar terms, estimated at 30% over taxis--is inherently risky, expecially in California.
No matter how many lobbyists you can muster.

From FT Alphaville:

Who cares about cost when chasing unicorns
A Monday story from Reuters catches the eye. Investors don’t think a California ruling which classed a former Uber contractor as an employee will affect valuations, either for the taxi supplying start-up or others operating in the so-called “sharing economy”.

There are a couple of ways those optimistic investors might be right, but the sentiment suggests more about the nature of hope and dream-based valuations than any real consideration of business prospects.
We’ll get the obvious argument out the way first: the ruling was a one-off, which Uber will appeal, so lets assume companies which connect consumers with contractors who want to share their labour for a price can continue to treat those contractors as independent mini-corporations, not people. 

Essentially, nothing has really changed. The problem with this line of argument is the large number of people who are walking and quacking like

As the Californian Labour Commission has said before, in the ruling cited in the Uber case, “their work is the basis for [Defendant's] business”.

The point here isn’t to debate Californian legalities, however. Here is an investor consulted by Reuters:
Smaller companies need more flexible work forces and contractors solve that problem. Larger companies with more predictable demand for their products or services can benefit from having employees scheduled to work regular shifts.
“If they had to change (to) that, it would be just fine,” said an Uber investor who declined to be identified due to sensitivity around the ruling.
The expenses that would stem from classifying drivers as employees, including paying workers’ compensation, Social Security and other costs, could be offset to a large extent by the lower wages Uber could pay to drivers compared with contractors, the investor argued.
The article also repeats an Uber claim to have 22,000 drivers in the San Francisco area alone, which suggests it could have started to employ them already, if it was in fact cheaper. In any sort of traditional valuation analysis, a permanent rise in costs associated with higher taxes or regulation is a bad thing. Everything else being equal, there will be less money left at the end to reinvest in the business or pay dividends to the owners, unless those costs can all be passed on to consumers....MUCH MORE

Also of interest: Uberlawsuit.com

Meet the Lawyer Taking on Uber and the Rest Of the On-demand Economy