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Article

12 Jul 2022

Author:
Felicity Lawrence, the Guardian

Uber drew in drivers with investor funding subsidies to make app successful, before cutting payments

Firm faces ongoing battles over workers’ rights and unpaid waiting times after drawing in drivers with huge subsidies.

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He was one of 19 Uber drivers who took the company to court in 2015, originally with the help of the GMB union, to claim they were workers entitled to the legal minimum wage. Uber insisted that its drivers were self-employed contractors, as it has claimed all over the world. The UK drivers eventually won their case when the supreme court ruled in their favour in 2021. It had taken a six-year battle against Uber’s endless appeals to assert their rights.

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Uber was offering huge cash rewards to drivers and £50 credits to customers who brought their friends onboard. It was using billions of dollars of investor cash to pay for these subsidies to undercut rivals, seduce drivers on to the platform and to dominate the market.

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But soon prices were cut. Waiting time increased as Uber flooded the market with cars. Then it raised the commission it took from drivers from 20% to 25%. Today Hadi reckons it takes him 14 hours to make what he was making in just five hours in the early days, and he believes Uber’s commission can be 35% or even more at some times, although its pricing is opaque and variable. By 2015, Hadi found he was making so little as prices fell that his family qualified for tax credits – welfare payments for those in work on low pay. “So Uber is in effect heavily subsidised by you, the taxpayer.”

Hadi remembers a moment of truth dawning when he experienced his first problem with violence. He had accepted a booking on the app for four passengers but found five drunken men waiting to get into his car. He refused them, as he was not licensed or insured for more than four. One of them smashed his car door in a rage. There was no friendly controller to call. The only way to report was a message through the app, to which he says he received what felt like a cut-and-paste reply.

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Many of those millions of drivers will be familiar with Uber’s fluctuating pay scale. When entering new markets, it subsidised drivers heavily to attract a pool of cars large enough to offer an instant service to customers and to undercut taxis. These subsidies involved spending billions of investors’ cash, and Uber looked to cut what it paid drivers as soon as it could, the leak suggests.

One presentation to dozens of Uber managers gathered for a summit in its Amsterdam headquarters in January 2015 reveals just how aggressively Uber subsidised rides in each city as it launched, and how it planned the price cuts that drivers such as Hadi experienced as a devastating loss of income.

In October 2014 in Madrid, the presentation shows, the hourly subsidy to drivers of $17.50 was almost twice the hourly fare it charged, which was only $9.10. In Berlin, the gross hourly fare Uber charged was $2.20, while the subsidy it paid out to drivers was $10.20 an hour.

Uber burned through cash to “buy revenue”, in the words of the presentation. At the same meeting a senior manager gave a talk about “burning the burn” – that is, cutting subsidies.

“Young city: you are still subsidising your market. Get a real feel for the net fare/hour at which supply scales. Make sure drivers don’t end up making more than they need to stick around,” one of the slides said. In cities such as Paris, where Uber had been operating for some time, the subsidy had been cut and the company was paying out incentives of only $0.10 an hour, while bringing in revenue of $23.40 an hour. Drivers were already being squeezed. In Cape Town, initial Uber subsidies equivalent to $4 an hour were cut to nearly zero.

Derick Ongansie, 66, remembers the impact of those cuts clearly. He had invested in three vehicles to become an Uber driver entrepreneur in Cape Town in 2014 after a break from work due to cancer. He was enticed by Uber presentations on how much could be made. For the first year, he said, it was very lucrative and he could make “fantastic” money, up to $290 a day. But a year later, he said, Uber started withdrawing some of the incentives and then it introduced a new Uber service paying a fraction of the fare. The commission it took went up. “That’s when we all started crashing. Uber was taking us for a ride,” he said.

In his third year driving with Uber, he says, he made about one-third of what he made in his first year. After expenses, including fuel, insurance, phone and car maintenance, he calculated his pay often came to less than $1 an hour.

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Uber disputed that initial large subsidies followed by inevitable cuts were an inherent part of its business model for expansion. “Our interests are aligned with drivers, ensuring they have a positive experience of earning on the platform,” said Uber’s head of public affairs, Jill Hazelbaker, adding that otherwise drivers would go elsewhere.

The Uber files suggest that where drivers fought back, Uber adjusted the algorithm to buy its way out. When it cut prices and driver payments in Italy in October 2014, a manager reported back on an “attempted strike/mutiny, with extremely low supply, around 50 drivers teaming up to be offline”, adding: “This led us to apply extraordinarily high incentives this past week, which worked better than expected: 300-400 supply hours more than forecast.” It had, he said, cost “a burn rate of 38%”.

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