Unicorns and Uber

In November, 2013, Aileen Lee coined the term “Unicorn” to describe a certain type of company:

“U.S.-based software companies started since 2003 and valued at over $1 billion by public or private market investors.”

By that definition, Lee called Facebook the super-Unicorn!

Today, just a year and a half after the term was coined, Fortune says we live in the “Age of the Unicorns”! And the top companies on that list aren’t even all American anymore: Xiaomi, the Chinese smartphone manufacturer, tops the list and India’s Flipkart is number 7 with a valuation of $11 billion.

At number 2 on the list is Uber ($41 billion), the ride sharing company that was in the news when one of its drivers raped a passenger in Delhi. What does “ride sharing” even mean? Here’s what it means:

1)      When someone wants to go somewhere, they ask for a ride via the Uber app on their phone;

2)     Uber finds a driver (someone who installed the Uber app and offered to be a driver) nearby using GPS on the driver’s smartphone and puts the two together;

3)     Rider pays the driver when he reaches the destination.

But wait, isn’t that what an online cab service does? No, there are very significant differences. Adam Greenfield explains:

“The company owns no fleet, employs relatively few staff directly, and — as we shall see — may not even maintain public offices in the commonly-understood sense of that term.”

Let’s pick on the relevant phrases from everything so far:

1)      “No fleet” means it’s not a cab company. That in turn it doesn’t fall under the purview of cab regulators.

2)     Since it’s not under the cab regulations, fares can’t be regulated either. That is why Uber can and does jack up prices during peak demand.

3)     Since a driver is anyone who installed the app and offered to drive, he’s not an employee of Uber. That means Uber doesn’t have to provide any benefits or salary to the drivers (they get paid only if they ferried someone).

4)     With the above structure, it avoids all the liabilities associated with regular cab companies.

Some find all this creepy. And some parts are indeed creepy. Like when the Delhi rape happened in an Uber driver’s car, the police realized that Uber had no offices in India! (Maybe that’s a learning for Uber since some of their executives were arrested in Paris after the recent anti-Uber strikes by regular cabbies).

So is Uber all bad? An example of how regulations designed for the pre-Internet, pre-smartphone era are proving hopelessly inadequate today?

That’s a tricky question: after all, when European cabbies go on strike, Uber’s drivers still operate since they’re not part of a union. Is that really such a bad thing to have if you happen to need to go to the airport in London or Paris on a day when the cabbies are on strike?

Is Bill Gates right in saying Uber is just an example of capitalism at work?

“Uber is just a reorganisation of the labour pool into a more dynamic form.”

And Gates warns the regular cabbies to watch out for what’s next:

“The real Rubicon there is the self-driving car…The serious revolution is when that capability is machine-based.”

Gates may well be right: Uber might just be the first wave. Google has the self-driving cars already and one of Apple’s VP’s ominously said:

“The car is the ultimate mobile device, isn’t it?”

The cab industry is well and truly in Silicon Valley’s crosshairs.