Is Uber killing the U.S. middle class?

Last week, Uber managed to surprise investors with its earnings report showing shrinking losses and giving an optimistic profit forecast. The news pushed the stock price up by 9% at one point. Although that gain was short-lived, many analysts are turning from skeptics to believers about Uber’s future. Why?

People like to search for historic patterns in present-day market. Uber’s IPO flop is reminiscent of Facebook, which saw its price plummet after its IPO (much to the anger of investors who even sued the company at one point), only to recover to become, of course, the lead of the FAANG pack. Could Uber’s stock experience a similar reversal?

Uber is joining the ranks of mature tech giants that saw their leaders —  typically harsh entrepreneur-founders  —  replaced by experienced ex-bankers and ex-CEOs. Uber’s CEO Dara Khosrowshahi, who was brought on board in 2017, is on a mission to shut down moonshot projects and cut costs to bring Uber to profitability.

But isn’t his work just putting defense lines around Uber’s business model? After more than 10 years of Uber’s existence, its easy to forget the company gave rise to the phenomenon of the gig economy — and with it, the creation of thousands of Uber-like startups on a mission to disintermediate the “man in the middle.”

Uber was an idea to solve a genuine problem, but it has evolved into the worst nightmare of every management consultant.

Management consulting is an industry built on the idolization of intellect. Companies like McKinsey, Booz Allen Hamilton, and Boston Consulting Group sell enterprises the promise of corporate reinvention. They’ve also how to create and sell legitimacy.

In the 1950s, management consultants began glorifying top management and eliminating middle management. The key word was downsizing. Consultants like McKinsey deconstructed giant companies such as IBM to its constituent parts, removed redundant workers and processes, and put everything back together leaner and more efficient. Top management remained intact with even more control over how the firm was run.

Over time, consultants like McKinsey instilled a belief among companies that to reject or avoid their help was dangerous. Management consultants help to legitimize the role of top management and remove the need for middle management. Some like to point out that companies like McKinsey have, in fact, helped to diminish the U.S. middle class.

Born a hooligan, Uber has put this idea to bed. It has made the consultant’s job obsolete, replacing the consultant’s triple digit hourly rate, tables, and PowerPoints with by technology and sleek design. The company has achieved organically what every consultant strives for : It has severed the link between top management and workers. All of the intelligence and decision-making is kept at the C-suite level, while the workers are given the (illusion of) control and freedom over how and when they work.

If McKinsey indeed helped to diminish the U.S. middle class, Uber may kill it completely.

Uber keeps making huge losses, but it is driven by expansion, not by some fault in unit economics, as many like to point out . In other words, Uber can be very profitable on each ride as it continues increasing prices and cutting costs.

And Uber has become part of our thinking; the quality (intelligent simplicity) that made us like it remains intact.

For now, Uber also seems well equipped to withstand legislative challenges like AB5. The company is already testing app changes, such as letting drivers set their own rate, to meet AB5’s tests and avoid automatic reclassification of its drivers to full-time employees.

These and other legislative changes will continue to challenge Uber, but they won’t stop it because Uber is not a mere regulatory arbitrage; it is an evolutionary step in management.

Analysts are beginning to realize this. And that’s turning Uber into the conviction call of 2020.

(Source: VentureBeat https://venturebeat.com/2020/02/16/is-uber-killing-the-u-s-middle-class/)