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UberX: Driver Classification and Unit Economics

Kapil Agrawal
Former Global Head of Pricing and Strategic Initiatives at Uber

Learning outcomes

  • The potential impact on the unit economics if drivers were classified employees versus contractors

Executive Bio

Kapil Agrawal

Former Global Head of Pricing and Strategic Initiatives at Uber

Kapil joined Uber as the Global Head of Pricing & Strategic Initiatives in 2015 when the business was rapidly growing across developed but also emerging markets. He was responsible for formalising pricing structures across both UberX, UberPOOL and UberEats globally. Kapil left Uber after two years and joined Poshmark, the fast growing social commerce marketplace, as VP of Finance and Corporate Development where he has helped quadruple revenue at the business. Kapil has led $90m of capital raising for growth equity companies and has deep experience scaling marketplace businesses. Read more

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Interview Transcript

What is your view on the classification of drivers? Are they employees or are they contractors?

If you ask drivers what they like about this platform, is the freedom. They have, firstly, the choice, in terms of where they can drive, how much they can drive, when they can drive. It has provided a lot of benefits, to a lot of people who can’t find work at Walmart or Starbucks, such as a working mom, retired people. A large number of different groups of people have been provided with new opportunities and new freedom. Also, it provided a new platform for earning. From my perspective, Uber’s platform provides a lot of benefits and value to these drivers, in many different ways. Drivers do not care whether they are classified as an employee or a contractor, all the time they are getting this freedom and this earning ability.

From Uber’s perspective, yes, obviously, it provides an additional cost and additional friction, on the platform. My take is that it’s more of a regulatory and compliance battle, which continues to exist in the markets. In general, I would say that everyone, including consumers, will be better off, if the people continue to be classified as a contractor. It remains to be seen what will happen in the future. For example, if you think about those drivers, they did not have any of the insurance, etc. before they were driving on Uber’s platform. When they join the Uber platform, it provides them earning ability, it provides them with flexibility. If you create much more friction on the platform, it will bring down the innovation and the liquidity on the system and that could hurt, potentially, the drivers, in the long term.

Do you think it would break the unit economics, if they had to pay drivers, as employees, fixed salaries, plus benefits?

Yes, it will change the unit economics but, ultimately, their thought process will be to pass on those costs, back to the riders. That may, potentially, slow down the growth, but it will be very hard for Uber to take a hit on the unit economics because of this. It has happened in a lot of cities. For example, New York and a lot of other cities have introduced a tax. In general, the ride-sharing platform will have to pass on those taxes to the riders. That’s how, eventually, you create a friction on the platform. If you have liquidity problems, the drivers will suffer, ultimately, as well.

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