The lessons from Uber, Ola and rideshare’s disruption is that in the end, the consumer still pays

- April 19, 2024 5 MIN READ
Uber, crash
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The arrival of Uber and its ilk in Australia has seen more $1 billion in taxpayer funds handed to the what’s now known as the point-to-point transport (ie including taxis) sector in compensation.

And users in NSW will continue to be slugged for it until the end of this decade. The entire sector has been a decade-long sh*tshow of consumers being sold a lie of better, “cheaper” services.

Ola, the Indian rideshare, slinked out of Australia last week after five years. It also shut down in New Zealand and the UK, giving everyone just a few days warning.

If you were still an Ola user, the most likely way you found out they’d gone was by logging into the app last Friday and getting “sorry, we don’t serve this location” when seeking a pickup in Sydney’s CBD.

The spin is the company, which banked more than $7 billion in VC funding, but is now worth around $3 billion, is supposedly setting up for an IPO. But the fact that it can so easily and quickly go “yeah, nah” and walk away is a reminder how little care and responsibility global tech brands have in smashing their way through international markets.

It’s like when Sydney was littered with bike share in 2018, before most of those startups left town, leaving piles of bikes behind (Uber owns one survivor, Lime).

Now, with rideshare rivals like Taxify long gone, only Chinese-backed Didi remains in competition to Uber.

Uber’s rocky roads

Meanwhile Uber, having last month settled a class action by the Australian taxi industry with a $272 million compensation deal, finds itself back in court at the moment in another fight for hundreds of millions in compensation.

That case shouldn’t be confused with Uber’s $21 million fine for four years of misleading users over cancellation fees and taxi prices in December 2022 – a $5m discount on the $26m company originally agree to, or more recently a $412,500 fine for sending 2 million spam emails.

Or the time Uber ‘interfered’ with the privacy of 1.2 million Australians following a 2016 cyber attack.

This time defunct Australian startup and taxi app rival GoCatch is in the Victorian Supreme Court, seeking millions in damages from Uber accusing the US tech giant of using spyware to hack the GoCatch platform for driver details to poach them.

The GoCatch app back when it operated

While defending the claim, Uber conceded that it launched the UberX app when it was illegal in several states. Like duh, we knew that – part of the fun was that getting in one at the time made our nice, ordered middle-class lives feel slightly rebellious.

But when you read court case documents featuring the Uber boss at the time writing “I detest our competitors and have built relationships with investors, politicians and potential employees to hurt their development” (aka the Australian startup GoCatch, which was operating legally), it offers an insight beyond the bland corporate blather the tech giant’s uttered for years about doing it for the people. It’s more doing it to the people.

Witnesses from VCs AirTree and Square Peg have appeared as witnesses in the case, having invested in GoCatch. This week it’s been the turn of Antler’s Mike Abbott – because he used to work for Uber and it’s not been pretty. He gave evidence about how Uber “made it difficult for the regulator to book Uber trips” when it was operating illegally in order to prevent scrutiny. And as The Australian pointed out, Uber is paying him $500 an hour to appear as a witness, a sum it would take an Uber contract driver a couple of days to earn.

Nearly five years ago I spent several months conducting an experiment on the cost of a 7km ride between work and my home using Uber and Ola, which were heavily discounting at the time, and a taxi. The cost was roughly even.

Uber has since moved from a taxi-like charge of time and distance based on price-per-km to a how-much-can-the-market-bear model?

The charges are opaque and unless you have an idea of the taxi cost, it’s like buying a carpet in a Marrakech souk. The weird “due to unanticipated tolls or surcharges on this trip” message on most receipt when there were none is a reminder of that.

While the taxi industry is highly regulated, with a government body setting prices and rules, the best government can do with Uber is strike a deal not to rip off people with surge pricing when disaster strikes.

Hard to make a buck

Yet Uber’s now entrenched in Australia, as much for food delivery as rideshare.

Getting a clear picture of how much the business makes in Australia is challenging, but like most US tech giants, it struggles to be profitable in Australia.

Back in 2018 Uber Australia, a subsidiary of the US business, generated total revenue was $935 million. It paid $691m in “service fees” to the parent company, leaving it with a company tax bill of $8.5 million.

Fast forward five years and in 2022, revenue hit $2.64 billion, with $1.4bn in costs, including delivery driver payments.

Uber spent $105 million buying local sharing economy startup Car Next Door that year. The “service fee” grew to $1.1 billion.

The company also generated $9.2 billion in third party collections – that’s most likely your $50 worth of pizza delivery, with $7.5bn paid out. Then there was $1.3bn on administration expenses.

While the parent company reported a US$1.43 billion profit in the last three months of 2023, including US$1bn from equity investments, the Australian arm’s profit was just $1.5 million in 2022. The US business recently initiated a US$7 billion on a buyback of its stock.

Compensation galore

In late 2022, a few months before voters punted the Coalition from office, the then NSW government added a “modest” extra $260 million to the compensation bill to the taxi industry via user the user surcharge. The total compensation package to NSW taxi licence holders for the rideshare’s introduction is $905 million.

That’s more than double the Victorian government package and more than nine times the Queensland government’s offer.

Rideshare and taxi users were slugged with a 20% increase in the $1 passenger service levy (PSL) to $1.20 (ex GST), with the surcharge extended for another two years to 2030. That’s 12 years of the levy. The PSL was first introduced in 2018 for a maximum of five years.

When rideshare was legalised in late 2015, the then-Baird government announced a $250 million compensation for the taxi industry that offered plate owners $20,000 per plate. A NSW tax licence was worth $367,000 in 2014. Prior to that they traded above $400,000 and before the pandemic, post-rideshare, traded for around $70,000. That cost is not a government charge – they are traded on the private market, like other assets.

The new package provides $150,000 for every Sydney metropolitan taxi licence holder with a cap of 6 plates. Each regional taxi plate will be paid between $40,000 and $195,000, with no cap on the number of plates.

Bye buy A2B

As for the taxi industry itself, last Friday A2B Australia Ltd, which the operator of 13cabs, Silver Service and Cabcharge – an Australia-wide taxi network with more than 9,000 vehicles – disappeared from the ASX.

Singapore-listed ComfortDelGro acquired A2B for $182 million at $1.45 per share. Trading was suspended on April 2 ahead of delisting on April 12.

In 2012 the year before Uber barged into town, A2B shares sat in the $5-6 range.

You could argue that this is creative destruction and everything competition and disruption should do. And no one would argue the taxi industry was anything but a moribund monopoly in need of a shake up.

But instead we got a US cowboy seeking their new VC-backed gold rush as regulators race behind trying to catch up.

In the middle were consumers who got run over by both of them.

The whole scenario is a reminder that the late billionaire Kerry Packer was bang on in 1991 when he told a Senate inquiry: “If anybody in this country doesn’t minimise their tax they want their heads read because as a government I can tell you you’re not spending it that well that we should be donating extra”.

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