Uber is shifting its ride-hailing supply (drivers) strategy in the direction of taxi & private hire, i.e. professional drivers, at the expense of the classic UberX ‘gig’ driver model. This is because gig drivers supply has become fragile and expensive, and future regulation, especially in Europe but also in the US and throughout the world, is expected to curb the attractiveness of the gig-economy model. This is a transition already in place; Uber has grown its European share of rides performed by taxi to 10% in 2022, an increase from 5% the year before. 

The ride-hailing industry, Uber included, is facing two main gig-driver supply challenges. First and foremost, laws and regulations aimed at allowing gig-economy drivers minimum pay and social benefits which bring them closer to an employee model. This adds to countries that have banned the gig-driver model altogether. Second, it has been evident that when the economy grows so does demand, but at the same time driver supply shrinks, leading to an expensive and unreliable service, eroding ride-hailing profits. 

Lawmakers & regulators challenge the gig-economy model, leading to increase in supply costs

Lawmakers are increasing oversight over the gig-economy model, allowing drivers more benefits and coming closer to mandating an employee model for ride-hailing drivers. Both the European parliament and the US Department of Labour are currently in proposition stages of laws that will redefine work in the gig-economy age. 

Uber’s answer to these challenges is to fight unfavourable regulation. Perhaps the most famous example is AB5 and Proposition 22 in California, where gig-economy companies successfully challenged lawmakers trying to classify drivers as employees by going directly to a public vote at a campaign cost of $200 million. In another famous case in the UK, Uber had to pay a £615 million (±$800M) VAT bill resulting from employee reclassification, in a legal battle that was actually a partial win for Uber. Similar cases, where Uber battles legislators and lawmakers can be found almost anywhere in the world; just recently Uber sued New York City to block drivers’ hourly price increase. 

That does not mean that Uber does not eventually negotiate with driver unions. Such is the case in many countries and states, where minimum pay, pension plans and holidays & sick pay are part of the driver package. For Uber this means increased supply costs, bringing gig-economy costs closer to those of taxi & private hire, and eroding Uber’s price value proposition.

In certain territories, gig-economy is banned, de facto or de jure, completely or partially. Such is the case in Italy, France, Finland, Denmark, Spain, Israel and the Netherlands (and others). In most countries there are ongoing legal battles, but they all require Uber to think outside of the gig-driver model and create taxi and licensed vehicle partnerships. 

Driver shortages hurt availability and increase costs

Driver shortages were most evident coming out of the pandemic. In Q1/21, Uber reported that 37.5% less drivers logged onto the platform vs. Q1/20, leading to “more riders requesting trips than there are drivers available to give them”. This was caused by the fear of the virus and pandemic-related unemployment benefits, but also by drivers switching to more profitable delivery services and the strong job market, which enabled drivers better paying full-time jobs. 

To tackle the problem, Uber offered drivers a financial stimulus of $250M (so did Lyft), but for most of 2021 the news was mostly about ride-hailing long wait times and high prices, up to 40% more expensive than pre-pandemic numbers. By the end of 2021 the driver shortage was alleviating, but only in 2022, with the general downturn in the economy and rising cost of living, drivers came back in numbers. Still, challenges exist in places such as France and Saudi Arabia, as local regulation and unions limit Uber. For example, recently in Paris Uber offered €250 for drivers to join the platform and up to €1,000 for referrals, with Uber saying that “We simply need more available drivers to meet demand”. 

The lesson coming out of the acute driver shortage was clear – as national economies grow stronger, so does rider demand, negatively correlated to driver supply. Driver supply proved to be fragile and costly, and a threat to Uber’s business model, which is expected to be cheaper than taxis and at better availability. 

While Uber is busy fighting in courts and in the public domain for favourable conditions – the company is actively working to increase partnership with taxi and Private Hire to decrease dependence on the legally fragile gig-economy model and ensure supply availability at all times. 

Uber ???? taxi 

Examples of Uber partnering with taxis are plenty. Notable partnerships are those with taxis in New York and Italy, which added 14,000 and 12,000 taxis, respectively, to Uber’s supply. But partnerships are everywhere – from Flywheel in San Francisco through Brussels and Munich and with the ‘Uber Local’ feature in the UK, used by many local private hire companies. 

In all of these cases, the available taxi and private hire supply is ‘brought into’ the Uber app. Pricing is dependent on local regulation. If applicable, Uber sets the price vs. the consumer; if unfeasible from a regulatory perspective, it adheres to local published taxi prices. 

Uber acquires Autocab – vertically integrating in the taxi space

Uber does not stop at taxi partnerships, and has attempted to vertically integrate into private hire dispatch software. In August 2020 Uber acquired Autocab, a taxi and private hire dispatch solution holding circa 40% of the UK market, with the goal of connecting the supply existing in the Autocab platform to its demand app. The move generated negative feedback from private hire companies and the software remained stand-alone, with companies opting-in, rather than opting-out, into Uber’s demand. 

While Autocab mostly kept its market share in the UK, it has not been able to increase it. There have also not been any substantial (or close to) gains in Europe. In Germany, Uber tried to enter the market for over a year, eventually pulling back. Similar acquisitions were not made in the US, indicating that, for now, Uber needs to partner with taxis first, before it moves to control their operations through their own dispatch solution. 

The future of Uber and the ride-hailing industry supply strategy is dependent on lawmakers. As long as the gig-economy model is more attractive to customers and drivers, it will sustain. My analysis is that in the future we will see increased regulation leading to Uber working with taxis in larger numbers, until the gig-economy model is just another tool in the ‘supply’ box, and not a differentiator. Furthermore, when taxi partnerships become more common, Uber will complete its vertical integration into dispatch software, becoming not only a business partner for taxis, but controlling the entire taxi software space.