How to Fix Uber? Give It Away
by Gabe Luna-Ostaseski, Co-founder and CRO, Braintrust
I’ve had my fair share of hourly jobs — from selling Christmas trees to making sandwiches and prepping takeout orders at Chevy’s.
While these roles were in different industries, they shared one common theme — misaligned incentives.
Despite the quality of work I put in, I was paid a flat hourly wage. As an ambitious and highly competitive person, this bothered me.
So, I went in search of stronger incentives, which is what drove me to my first job in sales, and later, to become an entrepreneur and investor.
The lesson learned? Incentives really matter — in fact, they drive everything around us.
Let’s take a deeper dive.
The Problem with Incentives
Dan Pink, author of Drive: The Surprising Truth About What Motivates Us, speaks to the challenge with incentivizing teams and individuals in a 2009 TED Talk, “The Puzzle of Motivation”, that is still very relevant.
Pink shares that there is a “fundamental mismatch” between the incentives businesses provide their workforce, and the motivators that help individuals and teams succeed.
This lack of understanding leads to a loss of time, resources, and ultimately, to turnover within the team, which is costly to a company’s bottom line.
“What’s alarming here is that our business operating system…is built entirely on extrinsic motivators,” says Pink.
Extrinsic motivators — think financial rewards — work well when tasks are simple and the means to hitting your goal are obvious.
But rewards narrow our focus and concentrate our minds, which is why they may work for employees in accounting or financial analysis.
Most workers, however, don’t face simple challenges when driving business growth or developing innovative products, which means that extrinsic motivators don’t lead to the same outcomes for work requiring creative and strategic thinking.
In fact, they often get in the way.
Pink’s advice to leaders for successfully operating a business? Ensure your workers have the following:
- Autonomy: Allow your employees to direct their own work.
- Mastery: Provide employees with the opportunity, time, space and resources to consistently improve at something that matters.
- Purpose: Give employees an understanding of how their work makes something larger than themselves possible.
Despite this framework, leaders often face the challenge of inspiring their teams — even when operating in the most innovative and disruptive of companies.
And, misaligned incentives at the employee level greatly impact a company’s long-term, sustainable growth over time.
What Happens When Incentives Don’t Align
Let’s look at a specific example of a company’s growth when facing the challenge of misaligned incentives.
In 2009, Uber launched, and as a result, fundamentally changed the transportation industry at a rapid pace.
And, according to this Knowledge at Wharton article, their success to-date has been based upon their innovative model — but it may also be what’s causing their profitability to stall.
In fact, Uber’s model is designed in such a way that it may cause them to lose users in the same way that it’s losing drivers.
“The main theme of Uber’s business model is the positive network effects. With more drivers, the value for riders go up — lower wait times, cheaper prices,” said Wharton Business School Professor Gad Allon, in the article. “The more riders, the higher the value for drivers — or more work, and less wait time. The combination of the two can result in a powerful cycle, in which the firm’s costs go down and revenue goes higher.”
But in recent quarters, Uber’s growth has slowed, as has their revenue. The challenge they’re facing, according to Wharton article authors Wessels and Sherman, has to do with misalignment of incentives.
Because Uber operates in both driver and rider marketplaces, it cannot pay drivers more to incentivize them to continue to operate for Uber — and only for Uber — without driving up the cost for riders, who would then abandon the app for competitors.
Similarly, in keeping the prices low for riders, Uber struggles to properly incentivize drivers through earnings alone.
The authors also point out something critical — Uber isn’t the only company in its industry facing a profitability challenge. All ride sharing companies across the world are struggling to become profitable despite their rapid expansion, even those operating as a monopoly.
In returning to Pink’s research, we can determine that while Uber and its competitors offer autonomy for drivers to work when, where and how long they would like, they haven’t found a way to motivate their workforce when it comes to mastery or purpose.
And furthermore, because Uber drivers lack ownership, they’re not incentivized to remain loyal to Uber in the near- or long-term, nor are they inclined to help Uber’s product and operations teams consistently work toward the most innovative solution within their industry.
What if instead of a business model in which Uber investors stand to profit off the success of the platform, the drivers and riders profited as well?
A New Model with Aligned Incentives
In considering the challenge that Uber faces in keeping both sides of the marketplace healthy, it’s helpful to revisit their initial vision.
Uber launched to disrupt the transportation industry by connecting people within a community looking for a flexible way to make additional income, with those looking for on-demand, door-to-door transportation services at an affordable rate.
And while their growth to-date has been impressive, their mission could be achieved with an entirely different design.
What if instead of a business model in which Uber investors stand to profit off the success of the platform, the drivers and riders profited as well?
And no, I’m not talking about hourly wage increases or discounted rides.
What if instead, Uber had been built as a cooperative?
Consider the examples posed by Andreessen Horowitz General Partner Chris Dixon, on the evolution of centralized networks.
This gets a bit technical — but it’s worth it.
According to Dixon’s article “Why Decentralization Matters”, at the time of launch, centralized networks (think Uber, Facebook and LinkedIn) work in favor of their users to grow their user base, as well as third-party participants — including software developers, companies, organizations and media outlets.
For Uber, this meant attracting not only drivers and riders, but corporate accounts, which paid the cost of their employees’ transportation.
“They do this to make their services more valuable, as platforms (by definition) are systems with multi-sided network effects,” says Dixon. “As platforms move up the adoption S-curve, their power over users and third parties steadily grows.”
In Uber’s case, their power over drivers, riders and enterprise accounts grow as the platform expands.
But, upon reaching a specific stage of network growth, the relationship between the platform and those very users shifts dramatically.
“When they hit the top of the S-curve, their relationships with network participants (think Uber riders and enterprise accounts) change from positive-sum to zero-sum. The easiest way to continue growing lies in extracting data from users,” shares Dixon.
Extracting that data leads to new sources of revenue in which to pay investors, while the core company grows, and to reinvest in new products (hello, UberEats, UberHealth, and yes, even UberCopter).
This new type of relationship begins to negatively impact the users (Uber riders) who have, as a result of their data, become the platform commodity.
The most critical aspect of that contract between the cryptonetwork and their participants? Alignment.
The Rise of the Platform Cooperative
While platform models have seen great success in recent years, Dixon points to another option for sustainable growth, in which users, software engineers, companies and media organizations have consistently positive experiences as members within the decentralized platform: cryptonetworks.
“Cryptonetworks use multiple mechanisms to ensure that they stay neutral as they grow, preventing the bait-and-switch of centralized platforms,” says Dixon.
“The contract between cryptonetworks and their participants is enforced in open source code. Participants are given voice through community governance…and can exit by leaving the network and selling their coins.”
The most critical aspect of that contract between the cryptonetwork and their participants? Alignment.
And within a tokenized network, alignment with participants is written into the very blueprint of the platform.
Decentralized tokenized networks are successful, therefore, because incentives are aligned.
Re-envisioning the Uber Model
Let’s return to our proposed model for Uber.
Imagine if Uber had designed a business model in which both the drivers and riders controlled the business through a decentralized tokenized network.
Drivers would have greater control and flexibility over their work, as well as the company, which would create lasting loyalty and eliminate their desire to work for competitors.
Riders would earn control within the network by welcoming new users to the platform.
As a result, both drivers and riders would be incentivized to provide valuable feedback to Uber’s product and operations teams to consistently enhance the user experience. They would also enthusiastically grow the network, given that they stand to earn more control and keep more of their income as it expands.
In essence, both sides of the platform would not only have autonomy, but mastery and purpose as well.
This would lead to creating strong partnerships between the supply and demand sides of the platform, and with the core team that makes strategic product decisions.
With aligned incentives across the business, Uber could create new, user-centric innovations unmatched by competitors.
It would also lower Uber’s need to continuously attract new drivers due to high turnover, and would help to retain riders once acquired, decreasing the cost of acquisition on both sides of the marketplace.
And, because both drivers and riders would be inspired to nurture the growth of the market, they would lower the cost of marketing spend over time.
Riders would pay reduced fees as Uber’s core business expenses would decrease, while profits increased due to sustainable, user-centric expansion.
The business, then, would operate like a cooperative, supported via a tokenized network, and would be designed to continuously—and sustainably—grow well into the future.
Why I’m Invested
As you can tell, I spend a lot of time thinking how about how to redesign existing companies using cooperative-based platforms — it’s one of my core responsibilities as the co-founder and CRO of Braintrust — envisioning a new model for how work gets done.
In fact, our mission at Braintrust is to build the first user-controlled talent platform in which highly-skilled freelance tech professionals can work on game-changing innovations with global organizations that need their skills to remain competitive.
It’s one of the very reasons I’ve studied Uber’s growth — and why I use it as an example of how existing enterprises that might re-envision their business models by leveraging blockchain and tokenized networks.
There are many opportunities to use emerging technologies to design new and existing models — and I welcome your thoughts.
Please leave comments below, say hello on LinkedIn, or drop us a line at info@usebraintrust.com or visit us at www.usebraintrust.com.
