Is 'Uber'ization the answer?

Very few companies can boast of having become so famous that they ended up as verbs, mostly as a jargon in the business circles and a rare few officially. There is a term which defines this - Neologism.

Wikipedia had this to say on Neologism

A neologism (/niːˈɒlədʒɪzəm/; from Greek νέο- néo-, "new" and λόγος lógos, "speech, utterance") is the name for a relatively new or isolated term, word, or phrase that may be in the process of entering common use, but that has not yet been accepted into mainstream language.

Google was one among them with more people replacing the term 'searching' with 'googling'. It was added to the dictionary about a decade back. And Xerox was one of the earliest. Off late, a new word is in vogue -'Uberization'. As you probably know, it comes from Uber, the transportation company that infamously employs more developers of software than drivers of automobiles. Uberization means different things to different people. To some it is just disruption with new technology/processes and to others it is a service part of the nascent yet promising 'on-demand, sharing economy' driven by technological innovation. It is the latter definition I referred to while penning the below content.

Uber was successful in disrupting the market of good old taxis and works as an intermediary in connecting service providers (Cab drivers) and demand (Cab riders). Uber grew fairly quick, thanks to generous funds from the venture capitalists eager to identify the next Google. Incidentally, Google itself is a big investor in Uber through Google Ventures. Uber has been efficient as a service and cost effective too since the majority of the job is done by algorithm with little to no human intervention. They have also been quite aggressive in expanding as expansion to newer territories and scaling up operations took no or negligible effort. The ubiquitous technology infrastructure in the form of smartphones in the hands of the masses and the ability of computer hardware to more or less keep up with Moore's law has made sure the business model remains competitive.

The social reasons were compelling too. When Toyota brought in Just-in-time (JIT) manufacturing it was touted as a game changer and it did prove that it was an efficiency multiplier and waste eliminator. However, the credit for taking JIT from factory floors into personal lives goes to us, the Millennials. We called it On-Demand Services. This was partly because of the lack of patience. It is indeed ironic that we complain of a mundane, robot-like life when we are ready to adopt assembly line techniques in real life.

The logic behind on-demand services, however, is solid. Uber, for example, tries to address the transportation problem for the masses, especially in the USA, where the public transportation system is lackadaisical. Their argument primarily is this - Why own a car when you can demand one at any point of time. It makes massive economic sense for the consumer. A car would spend most of its time parked at home or in office and little time transporting. Moreover, there are also overhead expenses such as service costs, insurance, et cetera associated with ownership not to mention the physical and mental stress while driving. It also adds value in that a single car in the Uber world ends up transporting more people, many times than a single car in its whole life time when they were owned. And there are the usual arguments on pollution, traffic and the likes.

The efficiencies no wonder are making people call for the Uberization of the whole economy. However, that may be a bad idea.

Uber and most other on-demand services treat the service providing professional as a contractor and not an employee (except in California). This helps the company in running lean and also frees them from other conventional employee benefit related expenses. However, it restricts the company’s reach in controlling the contractor behavior. Experience shows such lack of a leash has been exploited to unleash terrible crimes on unsuspecting consumers.

It is likely that the quality of the service would suffer because of the above reason. A contractor is largely not bound by strict employee guidelines and is likely to deviate from moral and social responsibilities in which the company believes in. The market is expected to instill such guidelines through a network of feedback, leader boards which affect the reputation of the contractor but the ease of obtaining a pseudonymous identity would render it worthless. Just plain human tendencies of forgiveness screw the feedback mechanism too.

The contractor has the freedom to be online or go offline at their chosen hour. There are no fixed minimum hours of work expected out of them. While this gives the contractors the freedom it would break the whole system spreading the available resources too thin and insufficient. It would also result in what is known as surge pricing which is discussed below. This was experienced in the recent tragic Chennai floods when most taxi aggregators including Uber were not able to service all customers (though they need to be applauded for their relief efforts).

Demand and supply for a commodity or service affects all businesses. On-demand services try to make the most out of discrepancies in demand and supply. This is because when the demand is high and supply low, the emoluments are attractive and new suppliers get into the system and when the reverse happens, supply is high and demand low, the consumers get a better deal. Free market economics at work. However, Surge Pricing, as it is known, is not embraced by consumers who feel they are being exploited. Moreover, if not done properly any cost optimization achieved earlier may be lost due to surge pricing methodologies.

Surge pricing would also drive up inequality (related), which according to many, is the single greatest threat facing humanity. A free market is an economist's dream come true but very rarely are markets free and ideal. When the fares hit the roof only those with the ability to pay would be able to avail the service and the less fortunate would be left behind to fend for themselves. If the whole economy is Uberized and all services are to be delivered, on-demand with surge pricing then on a rainy day a low income household would probably lose all the saving they accumulated when the sun shone.

Thus I end my argument on why Uberization is not the answer. Comments welcome below.

Cash on Nash to Lash at Communism but it's not making a Dash despite the Bash!

I haven't watched or read 'A Beautiful Mind' and hence when someone told me that John Nash and his wife met with a fatal car accident I just joined in a collective gasp. Only later did I learn that Nash was the genius behind the famed 'Nash Equilibrium'. My tryst with Nash's work was during management studies and my respect grew when I found the man's work helped various fields from economy to psychology. May their souls rest in peace and equilibrium.

John Nash won the Nobel memorial prize in economic sciences in 1994 despite his contributions primarily had to do more with mathematics than economics. He had very less interest in economics too. Then why economics? Well could be because Nobel prize didn't recognise mathematicians (Alfred Nobel supposedly lost his lady love to a mathematician) and hence economics, as a centrist would tell you. Or because Nash's work helped in economics the most than other fields as a conservative would tell you. Or because it was all a big fat conspiracy by the western world as a communist would tell you.

Why is it a conspiracy some might wonder? Well the reason is though the work itself was devoid of any particular politico-economic ideology it was used to further the 'capitalism is best' idea. 

The crux of the Nash Equilibrium in layman's terms can be defined as - when two or more person strategise rationally for his/her own benefit taking into account the others' decisions they are said to be in an equilibrium and would tend to achieve the most optimal result. Extending this to economics one might conclude that if each player is selfish and is after his/her own betterment then each would achieve optimal performance (wealth). Thus it was arrived that capitalism and free markets were good. Businesses compete in a free market for their own selfish goals and eventually making the market a better place to live in for all.

Uh huh but, Houston, we have a problem! Not all humans can be expected to be rational in this age. In today's cut throat competition, businesses employ hook or crook methods to make money. Bribes are freely given and taken, competing businessmen not companies are eliminated, cartels are formed, resources, environment and the unassuming, innocent, Homo sapiens are exploited. The term for all this in vogue is crony capitalism. But by definition it's a free market, no one is stopping the others from doing all the above and they are well within their right of being selfish!

And not just that! Inequality, a serious problem engulfing the world, is feature of this capitalism says a new age economist who has done some serious research. He has compiled his work into a book 'Capital in the Twenty-First Century ' which incidentally is a best seller (I keep falling asleep while reading it, promised myself to get back after finishing Gone Girl). He is a Frenchman with a very French sounding name, Thomas 'no not Friedman' Piketty. 

This video though dated gives a clear understanding of Inequality in the USA which sells the American dream

And it makes sense. Can someone start with millions or even billions of the green back from the best of Wall Street and aim to compete successfully against the likes of Costco or Walmart in their own game? They may disrupt them with an alternate delivery channel like what Amazon or eBay does but in their own game of brick and mortar behemoths? Not unless they have really shitty management. Even in the alternate channel the success of the disrupter lies in the failure of the disrupted. If Google waked up to the potential of a social network earlier, I doubt Facebook would even exist today.

Thus in a capitalist economy, the haves have a clear advantage over the have nots and some government intervention is needed to bring about a level playing field.

And Mr. Piketty isn't quite finished yet. He comes with his analysis on previous revolutions like the French and Bolshevik goes on to make a scary formula

Where, r is rate of returns from capital, g is the growth rate and boom is a boom - a revolution that could overthrow capitalism and in turn democracy as we know it.

It is high time we get something to replace Capitalism. Communism may not be the answer, but a hybrid socialism could very well be the optimal solution.