Europe Teaches Uber to Do Business Better

(Bloomberg Opinion) -- On Monday, Uber returned to Dusseldorf, Germany, a city it was forced to abandon in 2015. This is a victory both for German regulators and for Uber, or rather, for its new version under Chief Executive Dara Khosrowshahi. It shows that the San Francisco-based company can actually function as a tech platform, rather than as a taxi business that pretends to be a tech platform.

Three years ago, Uber cut short its German expansion, quitting Hamburg, Frankfurt and Dusseldorf about a year after launching its service there. The company found out that German courts weren’t about to let it use amateur drivers without special licenses to carry passengers or insurance policies that go with them. It toyed briefly with getting its drivers licensed or recruiting people with the necessary paperwork already in place, but found out that there were too many bureaucratic requirements and that takeup among professional drivers with their own cars was low. In Germany, Uber only retained operations in Berlin and Munich, where, for the most part, a traditional taxi would arrive if one ordered a car through the Uber app.

The Dusseldorf comeback “reflects very strongly the new Uber,” according to the company’s head of German operations, Christoph Weigler. Now, the company has a three-pronged offering, all involving professional drivers only. Uber Taxi sends old-fashioned taxis to clients; UberX provides chauffeured rentals, and so does Uber Green, the electric car-hailing service.

Uber, of course, works with limousine companies, not just with individual drivers, pretty much everywhere it operates, including in the U.S. But Uber’s current German version has no room for amateurs with precarious jobs that often fail to provide a living income. Instead, it looks for partner firms employing professional drivers with all the worker protections that are normal for a wealthy European nation — or, potentially, for drivers who are independent entrepreneurs with the necessary legal status and licenses.  

If the company had always operated this way, the European Court of Justice wouldn’t have ruled last year that it provides a transport service rather than an information one.

This is a business model that makes perfect sense for a company like Uber, with its app-building expertise and worldwide network effects created by the headlong expansion under founder Travis Kalanick. It doesn’t really need the headache and expense of dealing with individual drivers, whose low incomes and sometimes insufficiently checked backgrounds tarnish its image. At the same time, by working with limo firms, it can still provide cheaper service than traditional taxis. In Dusseldorf, the 11.2-kilometer (seven-mile) taxi ride from the central train station to the airport will cost approximately 33 euros ($38). UberX and Uber Green offer the same ride for 18 to 26 euros.

At the same time, taxis won’t be driven out of business because limo companies won’t drive up supply to the point of destroying their own profitability, and taxis will still be needed to ensure that every customer can find a ride.

In places where the use of unlicensed drivers is still possible, as in eastern European countries and many parts of the U.S., the fare gap can be wider and Uber can log more cheap rides. But even if that’s ultimately worth it financially, it’s a messy proposition because it means dealing with lots of unhappy individuals, as Kalanick found out when an altercation he had with a driver contributed to his dismissal as CEO — and as Uber has seen repeatedly in cases when drivers have been accused of assaulting passengers. 

No-name limo companies and taxi drivers alike will sign up with Uber because of its instant name recognition and access to travelers who use the app in multiple cities. According to Weigler, a Berlin taxi driver gets an average of two more rides per shift through Uber than through established local competitor MyTaxi. Even if the statistic is hard to confirm, it makes intuitive sense, especially in cities with a lot of tourists and business travelers. 

European regulators got a bad rap for opposing Uber’s ambitious expansion. But they probably helped the company find a better way to do business. I wouldn’t be surprised if the professional-only business model Uber uses in Germany will gradually supersede the mixed model that exists in many other countries. Perhaps it won’t allow Uber to squeeze out competition from entire national markets, as Kalanick tried to do (and failed in some large countries, notably China and Russia, where Uber now is a minority partner of local operators). That, however, isn’t strictly necessary for profitability, which has drawn a little closer under Khosrowshahi but still isn’t at hand. What is necessary, in the long run, are stability and a good reputation with clients and cities. Professionalization helps Uber’s progress in these areas, while Kalanick’s cowboy ways didn’t.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Leonid Bershidsky is a Bloomberg Opinion columnist covering European politics and business. He was the founding editor of the Russian business daily Vedomosti and founded the opinion website Slon.ru.

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