Uber is an interesting company. While you might argue that their business model is based solely on ignoring the existing regulatory structure of the taxi industry, they certainly have brought innovation to a staid market. They have gotten a lot of attention for the surge pricing program but it is also worth noting that they are doing something novel on the capacity management side of things. Uber does not employ it drivers. Instead, it deals with drivers as independent contractors. In particular, it does not schedule drivers the way, say, a city bus service would. The bus service can tell drivers when and where they are working. Uber can’t do that. It has to offer an incentive for drivers to be available when demand will be high. At the same time, it basically promises its customers that they won’t have to wait long for a ride. Obviously, surge pricing is part of this. Uber takes a fixed percentage of the fare. So if the fare is consistently 50% higher at rush hour, there is a clear reason to be willing to drive at rush hour.
But more generally there is a question of what is it like to drive for Uber. That gets to an interview with John Pepper (What happened when Boloco founder John Pepper became an Uber driver, boston.com, Feb 7 — with a hat tip to my sister for sending this to me). Pepper was the CEO of Boloco, a regional burrito chain, until he had falling out with his board. He then starting driving for UberX. UberX is the Uber service more or less anyone can get into. It competes with Lyft and Sidecar and is premised on people driving their own, standard vehicles. (In contrast, other Uber offerings are for black car service and require a sufficiently lux vehicle and a commercial driver’s license.) Pepper may have quit his job but he doesn’t mean he has to be doing this to put food on the table. He talks about dropping his kids off at a private school and then picking an Uber customer in his Tesla. What makes this interesting is that he brings the perspective of a person who for many years ran a business that hired lots of lower wage workers. Here are some of his interesting observations.
Q. Did you sign up because you wanted to learn about Uber?
A. Whatever business I do next, there’s a lot to learn from their model. Wherever possible, they leverage skills we already have– people already know how to drive. They set very, very clear expectations as to what constitutes success, and then they follow through with the metrics. There are no stories [from drivers] — they don’t want to hear why this customer was wrong, or that customer was crazy. There are these things that are rigid and effective, but I think they could really effect the world of restaurants and retail. …
Q. You write a lot about the ratings that customers give drivers, and how they made you pretty anxious.
A. Right now, the review process of employees is pretty broken in corporate America. Most of us have read Jack Welch’s book about how GE was so diligent about ranking people. But it’s hard to give fair and just performance appraisal. At Uber, they’re not evaluating drivers in that way. The drivers are being evaluated by someone who sees the full experience from start to finish. There’s no conversation to have, no discussion. It’s very compelling. People know moment to moment that they’re being evaluated. It becomes a norm, not a stress point. The good people surface to the top, and the people who can’t deliver consistently good service don’t make it. But they definitely expect the customers to weed out the bad drivers. …
Q. Does it feel like it would be a good job?
A. It’s very free. You can do nine hours, and stop on your own time, and not work the next day. There’s value to that flexibility. They’re guaranteeing $20 an hour at times, and I happened to make about that even when there wasn’t a guaranteed rate. I worked when I wanted to, and didn’t work when I didn’t want to. That sounds pretty good compared to working at a fast food restaurant, making $10, and not being very in control of your life.
Part of why I find this so interesting is that there are other settings in which these issues resonate. Along with my colleagues Itai Gurvich and Toni Moreno, I have talked with executives of a work-from-home call center that faces similar issues. The people they have answering phones are also independent agents who pick their own schedule for the week. Much like Uber, the flexibility of when to work is a big selling point on why anyone would want to work for them. At the same time, the call center is signing contracts to process retail transactions or take hotel reservations that specify service levels that need to be consistently met.
On some dimensions, they take a similar approach to Uber. They pay per call handled so there is risk on the individual about just how busy they will be. They do, however, guarantee a minimum hourly wage. What they don’t do is vary their compensation with the time of the day. If you know a little about queuing theory, you will realize that this could be a problem. Call centers exhibit economies of scale. If they are staffed to meet a consistent service level (e.g., 80% of calls answered in 20 seconds or less), you will need more people answering calls but they will operate a higher utilization level. Thus, if the call volume doubles, the number of agents needed goes up by less than a factor of two and each agent answers more calls.
That’s where the problem comes up. Suppose 11:00AM is busier than 2:00PM. If the per call payment is just enough to get the right number of agents at 11:00AM, it may not be high enough to attract agents at 2:00PM. Conversely, if the payment is based on the 2:00PM volume it can attract too many agents at 11:00AM. The call center gets around this by capping the number of agents working in time slot. To my knowledge, Uber doesn’t do this. Lyft, however, limits the number of active drivers at slow time to assure that those working are busy. See here. (For more on the logic behind capping sign ups, see my paper with Toni and Itai.)
Another feature that Uber shares with the call center is the focus on measuring worker performance. Uber bounces you if you do not maintain a high rating. The call center has weekly ratings that impact when agents get to choose their schedule for the coming week. Those with high ratings get their pick of times while those with low rating might have a hard time getting attractive hours to work. This is effectively a screening mechanism. Those who are capable and vested in the business get moved to the top while those who are not get shaken out pretty quickly.
So are these good jobs? For some they certainly can be. They offer both flexibility and a level of control that many straight up hourly jobs don’t. But they also involve investment and risk. To drive for Uber, you need a car. For the call center, you must have a land line and a high-speed Internet connection — and then pay for your own training. $20 per hour is good money but it has to party reflect a return on the capital provided as well as the labor.