The Regulation Iceman Commeth For The On-Demand Economy

Sometimes slow news is good news for a sector, particularly one like the on-demand delivery market space, where recent news has surrounded a wave of firms flaming out. And while the startup engine has notably ramped down, with fewer firms venturing out into the competitive landscape, the last week was almost marked by something like a quiet and peaceful equilibrium.

Almost ... but not quite.

Because while the direct action among the vast and various firms jostling to become the "Uber of X" was tame, the peripheral action in the space was hopping.

And not in a good way, or at least not in a way likely to be encouraging to those running services that rely on connecting consumers to a fleet of independent contractors ready to fulfill their needs for a ride/groceries/a hot meal/pet grooming at the tap of a button in an app. Those services launched into virgin territory in terms of regulation — businesses of this kind had never quite existed before — and so the rules and regs in place did not quite manage to directly address them. And many on-demand startups — following in the "ask forgiveness not permission" model that Uber so famously pioneered as it expanded into city after city — find that they have been operating in something of a grey area, especially as far as labor laws and local regulations are concerned.

But the events of the week indicate that this area is not likely to remain quite so gray forever. The world of delivery on-demand — and the rules it operates under — have gotten some big and very high-profile attention this week from some who seem less apt to "forgive" for bent rules as they are to regulate more specifically to make rule bending much harder.

Which means the on-demand marketplace, already weighted down by over saturation and and waining investor interest, is now likely facing another heavy rock on the scales against them.

When Senator Warren Is Less Than Impressed 

The United States Senate's loudest and proudest proponent of consumer and worker rights has decided she has a bone to pick with the gig economy, and decided to share it with the world while giving a speech at the annual conference of the New America think tank in Washington, D.C.

Sen. Elizabeth Warren's specific target in her speech was the ride-sharing companies, who she accuses of dodging wage and other labor laws by substituting full-time staff for contract workers. She pointed out that these types of companies have undercut the dedication of many to establish good work conditions for employees.

“The much-touted virtues of flexibility, independence and creativity offered by gig work might be true for some workers under some conditions,” Warren said in her speech, “but for many, the gig economy is simply the next step in a losing effort to build some economic security in a world where all the benefits are floating to the top 10 percent.”

Warren posited that ride-sharing, and by extension the proliferation of similar business that employ a fleet of on-demand workers, aren't offering worker flexibility and are instead creating a landscape ripe for abuse and diminishing rewards for the on-demand drivers.

“While their businesses provide workers with great flexibility, companies like Lyft and Uber have often resisted the efforts of those same workers to access a greater share of the wealth generated from their work,” she said. “Their business model is, in part, dependent on extremely low wages for drivers.”

Warren wasn't entirely negative on ride-sharing. She noted that the disruption it had caused in some areas were good for consumers, as it had opened up fair competition.

“The ride-sharing story illustrates the promise of these new businesses — and the dangers. Uber and Lyft fought against local taxicab rules that kept prices high and limited access to services,” Warren said.

But Warren also noted that ride-sharing companies have been the beneficiaries of an unequal playing field when it comes to regulatory measures.

Uber has since fired back with its own PR statement, of course.

“Our platform provides independence and flexibility, and nearly 90 percent of U.S. drivers tell us that they partner with Uber to be their own boss and set their own schedule.”

But Warren was only one of the sharing economy's problems with regulation this week, as the ongoing drama in Austin demonstrates.

The Big Austin Loss 

May has not exactly been super kind to ride-sharing nation, as before Warren was taking aim at the business model, the city of Austin was officially kicking out Uber and Lyft.

Well, OK, Austin didn't actually kick out Uber or Lyft. They left voluntarily because, as it turns out, Austin was dead serious about better background checking for Uber drivers.  In fact, Austin Mayor Steve Adler says the two ride-sharing companies would be “welcome to stay” and that the city is open to continued negotiations.

So what are they negotiating? Basically, Austin residents voted to force ride-sharing services like Uber and Lyft to conduct fingerprint-based background checks. The law also would have banned pickups from occurring in traffic lanes. The ride-sharing companies said both rules would have hurt business in the area and had a disastrous effect on new hires, and that they would pull out if the law passed.

There are threats — and then, there are threats that get backed up.

Uber and Lyft bailed out of Austin and seem pretty dedicated to playing hardball with the city.

Uber said it remains disappointed in the vote and Lyft stated that this is a stand for a “long-term path forward.” They seem unlikely to back down — and for good reason. Austin is not just Austin, and neither firm (nor their many imitators) are particularly apt to open up this floodgate.

But those who voted strict fingerprinting into enforceable law are equally intransigent in their defense of comprehensive vetting processes and that the traffic lanes will be relatively clear of what might be termed “mid-street” pickups.

Who is the big loser? Drivers who were seriously reliant on the two companies for work or side gigs. Reports are that three weeks in, Austin Uber drivers have decamped to San Antonio.

So what did we learn this week? The age of being able to skip over regulation, or count on regulators to not enforce what they didn't really understand, are over. And the on-demand ignition boulder — for good or ill — just got that much harder to push up the hill.



The September 2020 Leveraging The Digital Banking Shift Study, PYMNTS examines consumers’ growing use of online and mobile tools to open and manage accounts as well as the factors that are paramount in building and maintaining trust in the current economic environment. The report is based on a survey of nearly 2,200 account-holding U.S. consumers.

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