“Disruptive” Technologies

Posted Friday, Aug. 29, 2014  comments  Print Reprints
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Before they ever visited a new car dealer’s showroom, many people shopping for new cars 20 years ago often read reviews in Car & Driver of new products that might interest them. Some potential buyers would stop by their local convenience store and purchase an invoice book, showing what new car dealers paid for any given vehicle. And then many called their local banker or credit union to find out what the NADA Used Car Guide showed as their current vehicle’s wholesale trade-in value.

Back then, most credit union officers had business connections with dealers to whom they could refer their customers; they actually knew the people who owned or ran those particular dealerships. So a car buyer went shopping armed with a review, an invoice price, his or her trade-in’s approximate value and often the name of a good dealership manager or salesperson their lender knew and had recommended.

Then came the Internet’s so-called “disruptive” technology, which today claims to make the car buying process easier. But in reality, though people may use the Internet to look things up now, they still look up the exact same things they did before buying a new car 20-40 years ago. It’s only the speed and the cost of that information, not the quality of the data, that has been altered over the years.

The one thing that has changed is how you get referred to your new car dealer. Bankers and credit unions used to refer their clients to dealers they knew and respected for free. Today Internet lead providers charge for that service — but the only criterion of quality they look for is whether the dealer will pay the referral fee.

Travis Bickle Syndrome

Currently the biggest online movement in transportation seems to be the battle between Uber and Lyft to replace the nation’s taxi service. Many analysts are using the phrase, “disruptive technology,” to describe the way, with your smart phone, you can summon a private citizen using their own personal car to drive you to whatever location you desire. But how this is any different from simply using a smart-phone app to summon a taxi to wherever you are?

Oh, that’s right. There is no difference.

What the movement really denotes is another movement to knock down any given industry’s regulations, purportedly to lower the cost of its services. But in the case of these new Internet start-ups one has to ask, “Are the regulations in place to protect the public, or are they in place to protect and shield an industry from competition?”

Bear in mind that, in general, regulations in our country were not put in place just to infuriate business owners. No, regulations came about because many business owners were not conducting themselves in a fair, prudent or reasonable fashion. In the taxi industry’s case, regulations covered how companies’ fleets must be maintained and the maximum rates they could charge the public for the service — and, to a lesser degree, what criteria determined who was competent and fit to drive unsuspecting citizens.

It is equally true that many established businesses would use those same regulations to keep the number of young upstart competitors to a minimum, thereby protecting themselves.

But don’t be misled; this newest Internet battle for supremacy is not about a better way to get around the block for people who need only occasional personal transportation. This is a capitalist society; it’s about money.

“Uber” Future

Take Uber, for example: The company’s market valuation is already north of $17 billion. Not bad for a company that doesn’t even own its own fleet, but instead relies upon its independent drivers’ privately owned cars.

According to Uber’s own website, becoming one of their drivers is an easy job to get. All one needs are a valid driver’s license, any size four-door car (likely 2005 or newer) and auto liability insurance. Uber claims that your current auto insurance policy is all the coverage you need; but it does provide a blanket commercial insurance policy, most likely to protect itself from passenger lawsuits.

Here’s the best part. According to Business Insider, Uber has been promoting the idea that drivers can earn over $90,000 a year in New York City or over $60,000 in Dallas. And that publication also discussed an Uber driver in Dallas, who proudly claimed he’s averaging $27 an hour as one of their independent drivers. That works out to $56,000 a year in income.

But that’s the gross figure. One has to subtract the cost of fuel, any fees and certainly depreciation on one’s vehicle — not to mention repair costs and down time, when one would have no money coming in. Here’s the rub: That Dallas-based driver, who has a background in finance, figures that after gas and fees he would net $36,988. But one still has to subtract the depreciation and potential costs of repairs, because sooner or later the car will have to be fixed or replaced. Now it is reasonable to believe that one is driving 40 hours a week and clearing closer to $30,000 a year net.

Ironically, that’s the exact figure the Washington Post printed as the national average income of a taxi driver.

“Disrupt” as in “Break?”

To illustrate how twisted this all becomes, Andrew McAfee is an MIT Sloan Business School scientist predicting our economic future based on technology. McAfee posted a blog entry at the Harvard Business Review about just how wonderful our new American technological future really is. His proof? A ride with an Uber driver. Only this driver graduated with a Masters in IT Project Management. He owes more than $100,000 in student loan debt and has no future in the industry he was educated for. Instead, he’s driving his personal car for Uber clients more than 60 hours a week — and all that does is make him enough money to pay his bills.

And here’s exactly what Andrew McAfee has to say about this poor kid’s lot in life: “To which I say good for him, and for Uber. This is a guy who could be sitting around waiting for the dream job he’d gone to school for, collecting unemployment, defaulting on his loans, and/or dropping out of the labor force for good.”

Really. How ironic. This kid earned a Masters in IT Project Management. Theoretically, if technology really is the exciting career choice that’s changing our economic future, that degree should make him extremely employable. But here he is working as a private contractor, using his personal car as a taxi — and this MIT researcher thinks that’s just great and that it proves that new technology is bettering our economic society.

I wonder, does this MIT guy know you can become a taxi driver without a $100,000 Masters degree?

What this actually shows is that a so-called “disruptive” technology has taken an obviously very smart young person and driven him down to the lowest possible service job available.

School of Engine Knocks

For over a decade I’ve pointed out how our automotive-based economic society has changed many people’s lives, yet that Uber story still drove me nuts. On the other hand, now we all know that some disruptive technologies are fully capable of taking someone with a Master’s degree and turning that individual into a taxi driver. Apparently that’s something for which at least one researcher at MIT is cheering.

Then too, investors have driven that company’s stock valuation to $17 billion-plus. That may mean they’re betting this is the smartest way to take new college graduates out of their upper-middle-class futures and use them to replace the nation’s taxi drivers. Outside of Wall Street, who would call that progress?

© Ed Wallace 2014 Ed Wallace is a recipient of the Gerald R. Loeb Award for business journalism. He hosts Wheels, 8:00 to 1:00 Saturdays on 570 KLIF AM. E-mail: wheels570@sbcglobal.net; read all of Ed’s work at www.insideautomotive.com

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