Works – Uber’s Gamble

What is Uber Works?

In Nov 2019, Uber launched Works.co, a platform that connects shift workers with businesses that have available shifts. In other words, an ‘Uber’ for freelance workers. Not the online/digital kind but the offline kind – waiters, dishwashers, packers, cleaners, cashiers etc. It is currently live only in Chicago.

From a US perspective, on-demand temp staffing is certainly good pain point to solve and a decently large market as well (think no. of waiters, car cleaners, packers, etc). But I am not going to delve into ‘the opportunity size’ or ‘how the solution will work’ here. Rather, I want to explore why Uber entered this business from a strategic point of view and how it fits into their overall plan.

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Why’s UberGO-ing into staffing?

At the surface level, it seems like a diversification move in its (elusive) quest for profitability. Uber’s pitch of expanding its core expertise of ‘tech-driven on-demand matchmaking’ to another market makes sense.

But at a deeper level, I believe it is a strategic move to solidifying its ride-hailing business. Before jumping into how it relates to the ride-hailing business, it is important to understand a problem Uber faces in that business.

Uber’s Premier trouble – Drivers!

A significant problem that Uber faces in its cabs business is extremely low driver retention (this is a worldwide problem but let’s stick to the US for this analysis). This WSJ article talks about how Uber and Lyft are struggling to hold on to drivers. A 2017 report claimed that only 4% of signed-up drivers remain on the platform a year later.

Solving driven retention is extremely important to Uber since it is a crucial part of Uber’s famous flywheel.

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Source: andrewchen.co

Why are drivers leaving Uber?

  1. Most are part-timers: They can easily jump-ship or stop driving altogether.
  1. They aren’t earning enough: As per this WSJ article, drivers in the US earn anywhere between $9-$16 per hour after accounting for major expenses like fuel and maintenance. Equivalent wage workers from the retail industry are earning a guaranteed $15 per hour at minimum.

How can Uber get drivers to stick around?

With driver incentives being rolled back and Uber staying committed to treating drivers as independent contractors, offering ‘benefits’ or ‘job security’ are not options. Even if they were, Uber could not afford these options, not with its margins still in the red.

To lock drivers in, Uber needed to find a way to convert them to full-timers and ensure they earned enough to make a living entirely from Uber. And achieve this without doling out money.

Enter Works.co – Uber’s XLent move

With Works, Uber can capture a larger timeshare of the driver, effectively locking him to the Uber platform. A driver can oscillate between finding rides and finding other gigs and thus keep himself/herself occupied throughout the day and also make enough money to do this full-time. All this solely through Uber’s platform. For Uber, the drivers are a ready pool of vetted candidates available to be matched with businesses.

The two big assumptions I am making here are that drivers will switch work profiles regularly and that staffing gigs will pay decent (if not handsome) hourly rates. Hence my use of the word ‘gamble’ in the title of this piece.

On paper, it does seem to make sense. Gigs like cashier, dishwasher are no-skill/low-skill jobs, unlike plumbers and electricians. This low friction from a skills perspective and the temptation of higher income are strong enough reasons to make drivers give staffing a shot.

In fact, this is exactly what Uber tried to achieve with Uber Eats too. Getting drivers to also deliver food was another low-friction way to get them to stick around with the platform (Again, from a US perspective where cab drivers often double up as delivery partners). However, it wasn’t sticky enough given the razor-thin margins in the food delivery business.

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Will Works.co ride to India?

On-demand staffing for low-skill work, while a huge market in India, is not a major pain point for businesses given an abundant supply of labour and a functioning labour mandi. Cultural differences like the social status of cleaners, waiters, etc might also deter cab drivers from signing up for Works. It will be interesting to see how Uber solves its driver retention problem in India without Works.

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