France Is Right to Mistrust Uber
At first glance, Uber's most recent troubles in France look like an especially violent case of a hidebound country's reaction to technological disruption. I, too, was once tempted to see Uber's legal problems in Europe in that light.
Now, I think there's a valid reason for the French government to resist the spread of Uber. The company is not doing enough to convince governments or the European public that it isn't a scam.
Uber's troubles have been particularly acute in France. Last week, licensed taxi drivers blocked roads and airports, burned tires and trashed cars. Previously, President Francois Hollande demanded that the company's UberPop service be "dissolved" and its vehicles seized. On Monday, police detained two of Uber's top executives in the country for questioning. Thibaud Simphal, the company's director general for France, and Pierre-Dimitri Gore-Coty, its director for Western Europe, will have to appear in court in September to answer charges of fraud and illegal activity.
Yet Uber is not just a victim; it has invited much of the trouble. Katherine Teh-White, managing director of management consulting firm Futureye, says new businesses need to build up what she calls a "social license to operate":
This is the agreement by society or a community that an organization's practices and products are acceptable and aligned with society's values. If society begins to feel that an industry or company's actions are no longer acceptable, then it can withdraw its agreement, demand new and costly dimensions, or simply 'cancel' the license. And that's basically what you're seeing in Europe and other parts of the world with Uber.
Uber's "social license" is questionable at best. Consider these six areas of provocative behavior:
First, Uber presents a financial threat to the integrity of the transport systems of all the countries in which it operates.
Uber is said to be worth $50 billion, but it isn't clear whether it has a viable business model, and the company has been extremely secretive about its financials. Bloomberg reported Monday that Uber has provided potential investors in a $1.2 billion convertible bond issue with a prospectus that says the company generates a $470 million operating loss on $415 million in revenue. It's OK for a rapidly expanding tech company to lose money and still be highly valued, but this is a transport business: What if it undercuts traditional taxis, drives all or most of them out of business, and goes belly up? Who gets hurt?
Some of the questions French prosecutors are asking Simphal and Gore-Coty relate to documents police wanted but failed to find when they raided Uber's French office in March. How long can a company keep hiding details of its operation without eliciting mistrust?
Second, Uber has yet to provide a satisfactory answer to concerns about client privacy.
The policy said individual travelers' and drivers' data could only be accessed for "legitimate business purposes," such as dealing with complaints. Access requests, according to the policy, are "monitored and audited by data security specialists on a daily basis," and if someone were caught spying on people for fun, there would be disciplinary action.
Uber said it took some such action against Mohrer, but never made clear what it was -- the executive still has his job. Nor did Uber fire Emil Michael, who last year suggested a campaign to dig up dirt on journalists whose coverage Uber didn't like.
As a result, I have decided against ever using Uber. It's a personal choice, but governments would understandably balk at encouraging a business that could easily access and misuse information about people's physical movements.
Third, Uber has engaged in unethical competitive practices.
These include placing fake orders with competing service Lyft to recruit its drivers. Burner phones and credit cards have been used to avoid detection. This goes beyond "technological disruption" and competitive pricing. Uber has denied intentionally canceling rides with competing services but is unapologetic about its recruitment practices. "We can't successfully recruit drivers without talking to them -- and that means taking a ride," the company said. European governments can be excused for not wanting to tolerate this kind of behavior on their turf.
Fourth, Uber's driver-screening practices are nontransparent and, in some cases, nonexistent.
A rape case in India involving an Uber driver previously convicted for a sexual offense showed that the company relied on the Indian government to do the necessary checks because it required drivers to be licensed. That makes it no different from traditional taxi services, which, in many countries, are often poorly supervised. In various countries, notably in Germany, Uber has also run into trouble with its driver insurance practices. In the U.S., an Uber driver ran over and killed a 6-year-old girl while not covered by insurance: He was between rides. This is the kind of trouble governments hate.
Fifth, Uber treats its drivers in a way that's unacceptable to many European countries.
A recent study commissioned by Uber claims that its drivers make more money per hour than cabbies, but that doesn't include time between rides and costs such as gas and insurance. Ultimately, they probably make about as much. The flexibility of working hours is a huge advantage for students and people holding down more than one job, but in Europe these people are worse off than most of the workforce because they aren't protected by the continent's generally pro-worker labor market rules. Governments, especially socialist ones, don't want those rules eroded, and while many Americans might argue they should be, that isn't the dominant attitude on the other side of the Atlantic.
Sixth, and finally: Uber executives are defiant in the face of regulation.
After a number of French cities banned the service and started fining drivers, the company picked up the tab for the fines. Simphal reacted to the bans by saying they "didn't change anything." In Germany, Uber's approach was the same, despite court orders than went against it. Uber may sell this as a courageous war in the name of progress, but to Europeans, it's just American contempt for local laws. What other rules might Uber choose to ignore?
Uber's model of providing transportation -- with flexible pricing, advanced software that cuts waiting times and no regular hours for drivers -- is progressive. That doesn't mean, however, that Uber is the company that will ultimately profit from the disruption it is spearheading. The company already has competitors, and these may well do a better job than Uber of getting a "social license to operate" in Europe.
First movers don't always win: Thanks to them, newcomers know what mistakes to avoid. Uber's are pretty obvious.
This column does not necessarily reflect the opinion of Bloomberg View's editorial board or Bloomberg LP, its owners and investors.
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