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Background of the Uber’s Operational Failure

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Undesired Outcome: The transformation into a transportation service and lifestyle platform alternative strategy gives Uber a more diverse business model, and a more horizontal development of the company’s business offers Uber opportunities on different tracks. Uber’s diversified business development has resulted in operational failures, and explosive business growth led to ever-increasing vulnerabilities in operating costs. The approximately $3 billion operating loss for 2018 is roughly 27% of revenue, 52% in 2017. The huge operating costs prevent Uber from realizing profitability in the short or even medium term. This will be an important vulnerability in the development of a service and lifestyle platform alternative strategy.

Some ideas and example regard to Uber’s Operational Failure

Uber’s transformation from a ride-hailing platform to a lifestyle platform has caused it to face an unprecedentedly complex system and excessive service volume. This period may lead to improper operation of personnel due to unfamiliarity with the new business. Network security incidents with imperfect business systems. At the same time, reputation may be damaged. This horizontal development makes it difficult to focus on strategies and to be proficient in all aspects. And this simultaneous development makes operating costs and development costs very high. Difficulty in paying profits caused operating losses.

1. Whether the driver is an employee

Uber’s practice of classifying its drivers as independent contractors rather than employees has been challenged in legislation and the courts. Without employment, Uber is not obligated to pay Social Security taxes, unemployment insurance or workers’ compensation, and it is not required to reimburse drivers for miles. Uber’s official line is that uber drivers work with freedom and flexibility. But uber drivers are unhappy that they are treated as independent contractors, working conditions and often earn less than the minimum wage. More important is 2021, with the lifting of pandemic restrictions. Uber offered sign-up incentives and significantly increased the price of rides. But it has also tampered with pay structures so that drivers often do not share in higher fares — and when their earnings do rise, it is more due to bonuses than to each paycheck from work.

The company has already settled the issue once in Massachusetts and now faces legislative challenges in California, a state with 39 million people that is a huge market for uber. In 2019, the California State Senate passed Bill 5, which requires Uber, Lyft, and other ride-sharing companies to treat their employees as employees rather than independent contractors. Uber’s lead lawyer responded by saying that despite the law, the company does not treat its drivers as employees.

The company has also launched a campaign with Lyft and other on-demand delivery companies to reverse the ban. On November 3, 2020, Uber-backed Proposition 22, which defined app-based transportation and delivery drivers as independent contractors, was on the California ballot, overturning Assembly Bill 5. Voters approved it. On August 20, 2021, Alameda County Superior Court Judge Frank Roesch ruled that two parts of Proposition 22 were unconstitutional and that the measure was unenforceable. Uber and Lyft announced they would appeal. Proposition 22 remains in force, but its fate is uncertain.

Not only that, but drivers in other states may also fight Uber in court. And Uber has to think about all this from a PR perspective: the impression of a high-profile multibillion-dollar company exploiting its employees is not welcome in the court of public opinion. And the latest news is that in February 2021, the UK Supreme Court ruled that Uber drivers should be classed as workers entitled to minimum wage and leave. If Uber offers a solution, employee problems are a very potential cause of failure for the company.

2. Violated Local Tax Regulations

Not only in the US market but in the international market, Uber is also facing the controversy of how to define the driver’s identity, which is challenging the taxation policies of some countries, and this is likely to cause more significant financial and legal troubles for enterprises. Many examples prove that changes in tax policies are not a hypothetical risk.

A recent court decision in the Netherlands perfectly shows the extent of the problem. The local judiciary decided that Uber’s drivers were employees, not contractors, for purposes of employment law. The Court dismissed the notion that Uber was merely a technology company and a platform connecting would-be drivers and passengers. Consequently, Uber would have to guarantee the right to sick leave and back pay in some cases (Lomas). This shift would obviously translate into increased tax obligations for Uber. However, the company reacted to the decision by stating that it would not officially employ any drivers within the country. This reaction suggests that Uber would struggle to maintain profitability and competitiveness by paying all employment-related taxes.

This episode is hardly unique. The same scenario unfolded in France following its supreme court ruling (Rosemain). Remarkably, justifications for such decisions were almost identical. The authorities believed that Uber had too much control over drivers’ work, so that treating them as independent contractors seemed inappropriate. These developments demonstrate that Uber will probably face an increasing number of such challenges in the foreseeable future. That might confront Uber with a dilemma between staying in the market on less lucrative terms and risking losing it entirely. Ultimately, Uber’s taxation issues reveal limitations to the sustainability and innovativeness of its business model. If the competitiveness strongly depends on the ability to exploit loopholes in tax and business regulations, Uber faces a substantial risk of failure. Indeed, governments tend to close regulatory loopholes once their abuse becomes apparent.