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Ride-hailing Drivers Want Commission Rate Cut, Discontent of Gig Economy, and the Relationship Between Ride-hailing Companies and Drivers

The Dhaka Ride Sharing Drivers Union, an organization of ride-hailing drivers, has raised a six-point demand including reducing commissions to 10% from 25%, not punishing a rider account without verifying an allegation, parking facilities in Dhaka and Sylhet for enlisted vehicles, and government exemption of advance income tax (AIT), etc. The Union said drivers will go on a continuous strike if their demands are not met by 28 November. 

The accusations against the ride-hailing platforms are long. Drivers allege that companies take away their hard-earned money in the name of passenger booking fees, insurance, etc. That ride-sharing companies deprive drivers of their just payments with pre-determined bills. And when companies raise fares, which is often the case during peak hours, rainy days, and natural disasters, drivers are the ones who need to negotiate with customers and deal with conflicts. 

On the other hand, ride-hailing companies maintain that they offer fair pay to driver-partners and that it is expensive to run a platform and ensure smooth service for both customers and driver-partners, which requires significant investment. Without the commission structure and current business model, it will be difficult to maintain the business. 

Ride-hailing drivers work as zero-hour contractors. Many ride-hailing companies call their drivers self-employed entrepreneurs. The classification does not allow drivers' labor rights and regular employee benefits. 

According to Dhaka Ride Sharing Drivers Union, almost four lakh people are involved with ride-hailing directly or indirectly. The union demands that the government recognize ride-hailing drivers as transport workers. A demand, if met, will change the dynamics of the ride-hailing industry in Bangladesh. 

It is important that ride-hailing companies and relevant stakeholders look into this challenge with due importance. Because unless there is a sustainable solution to the discontent of drivers, it will continue to negatively affect all stakeholders involved. Ride-hailing companies will lose business. Users will suffer. For regulators, it will create unnecessary chaos. Overall, the sector will not flourish. 

The discontent of the gig economy 

The gig economy has promised many things: from freedom to work at your own schedule to dreams of entrepreneurship. While it is early to say whether the new economy will flourish and bring promised freedom for its adherents, the market reality does not look good for the gig economy proponents. 

Ride-hailing drivers complain about lack of security, uncertainty, and limited earning. On-demand delivery people complain about inhuman working hours, job conditions, and pay. Experts suggest that the gig economy’s current design is exploitative and does not work for workers. This sentiment is true in Dhaka as well. 

In 2019, two groups of Uber Drivers — Dhaka Ridesharing Drivers Union and Bangladesh Ridesharing Drivers Association — announced a day-long strike to protest against “different irregularities”. That was probably the first such protest by ride-hailing drivers in Dhaka. Since then we have seen a few more large protests. 

Discontent among ride-hailing drivers is not a Bangladeshi phenomenon alone. It has been the case across markets where ride-hailing companies operate including the US, UK, Singapore, Indonesia, etc. 

The reason, many experts opine, is a lopsided model that fails to consider the concerns of various stakeholders. The role and relationship between driver-partners and ride-hailing companies often are not clearly defined. And a tendency, on the part of ride-hailing companies, to operate on a rent-seeking model instead of putting more emphasis on value generation. 

The growing discontent and discussion have led to regulatory initiatives in a number of cities concerning ride-hailing companies and their relationship with drivers. In February, Uber had to re-classify its drivers as workers after a ruling by the UK Supreme Court. A similar regulatory initiative has been in the works in California, US.  

The gig economy has largely been under-regulated in the past years. However, as the new economy matures and plays increasingly important roles in public life, more regulatory guidelines are expected. 

I have written about this changing dynamic before. From Uber Drivers announces Strike In Dhaka

“Drivers strikes have become a new normal for ride-hailing companies across the world. For example, Uber and Lyft have seen drivers strike over pay and conditions in almost all major cities where they operate.

The treatment of drivers by ride-hailing companies and their relationship with drivers have been an issue of hot debate among policymakers, regulators, and business analysts. California recently passed a bill titled AB5 to regulate gig economy companies where companies like Uber and Lyft have to treat their driver-partners as employees and provide benefits accordingly.

This has also been the case in this part of the world. In India, we saw a series of quite long strikes by Ola drivers and Uber drivers. Go-Jek in Indonesia and Grab in Singapore and Malaysia faced similar challenges. 

However, regulatory discussion around the relationship between drivers and ride-hailing companies remains limited in these markets. More so in countries like Bangladesh where internet companies are still a young phenomenon.

This scenario, however, is changing rapidly. As gig economy companies play an increasingly outsized role in public life, the regulations are a matter of time. 

The challenging part is that these companies are built on a business model where drivers are considered as merchants/partners like ecommerce platforms and when that relationship with drivers changes into a more permanent relationship like employees, as it is happening in several cities, it will potentially change the business model of these companies.”

Understanding ride-hailing companies  

Ride-hailing companies across markets have transformed their business model over the past few years. The global coronavirus pandemic has pushed these companies to accelerate this transformation. For example, Uber has become an on-demand company with a host of on-demand services along with rides. The same is true for companies like Pathao and Shohoz in Dhaka and Grab in Singapore. 

I wrote about this in The State Of Consumer Technology In Bangladesh At The End of 2017:

“Transportation is more like messaging in mobile, the ultimate deal in the physical world. To that end, ride-hailing is a major trend. It connects both offline and online worlds and does so efficiently. When you dominate the nodes of transportation, you can do a lot of other things. 

Ride-hailing services are app-based and a daily necessity which allows these service providers to have a dedicated space in users' mobile phones, which they can use for other purposes aka aggregating more services. 

To that end, ride-hailing allows a service provider to become an aggregator on top of which you can put layers. Go-Jek is a good example. In Bangladesh, a few ride-hailing companies will likely try to build layers, the examples of which we have already seen.”

I explained this nature of ride-hailing business further in Pathao Launches Pathao Food, Why Pathao Food, Pathao’s Leverage, and The Business Of Food Delivery:

“Pathao offers rides — both bike, and car. It has a logistics operation with hubs in different areas in Dhaka, Chittagong, Sylhet, and Rajshahi where it mostly serves ecommerce companies. It offers a parcel service, mainly an on-demand delivery service which you can avail for sending documents, accessories, packages and even gifts. And now it has launched Pathao Food which is, to some extent, an extension of its existing logistics and parcel service.

If you pay close attention you will see that all of these services are similar if not the same in nature: logistics service – taking people from one place to another and taking products and food from one place to another. There are intricacies. The dynamics of each service are different but theoretically, they are not much different.

Another key characteristic of all these services is that it makes Pathao even more powerful as an aggregator and makes its customers reliant on it for more than one reason.

Many people consider Pathao (and similar ride-hailing businesses) to be a taxi service or a mere transportation app or a logistics company. But to my understanding, this is a mischaracterization of these businesses.”

I wrote this take in 2018 and almost every ride-hailing companies have since expanded beyond rides.

The relationship between ride-hailing companies and drivers

As mentioned earlier, ride-hailing drivers are currently treated as contractors and don’t enjoy the benefits that other transportation workers enjoy in Bangladesh. 

This classification is not unique to the Bangladesh market. It is the case for ride-hailing drivers in many markets. 

This definition, however, has come under serious scrutiny of late. And we have seen that ride-hailing companies had to change this classification in a number of markets and offer greater benefits to drivers. 

To understand the demands of The Dhaka Ride Sharing Drivers Union we have to understand the power dynamics of ride-hailing relationships. 

I wrote about this relationship dynamics in Ride-hailing Guidelines, The Business Of Ride-Hailing, And Tech, Aggregator and Technology Policy:

“Ride-hailing is a demand-driven market and in a demand-driven market, it is not the supplier who maintains the upper hand, rather the one who controls the demand controls everything. In ride-hailing, platforms such as Uber, Pathao, etc control the demand meaning the customer interaction thus having the power to dictate the terms of the business.

Let me explain. For instance, in Dhaka there are two ride-hailing companies, hypothetically speaking, company X and company Y. And drivers and riders depend on these two companies for rides, albeit for entirely different reasons. Drivers for earning money, riders for transportation.

Essentially, drivers follow the riders. Wherever there is a rider, a driver will go to serve him/her because that’s how he or she gets paid. This means any company that can attract more riders can also attract more drivers. At the same time, more rides mean more liquidity of the cars and bikes and thus more rides for the bikers and better service for the riders.

Now, if you pay attention, it does not matter how many ride-hailing apps you use as a driver, you can serve riders from only one app at a time. Every time you take a rider from company X means you can’t serve a rider from company Y. When these numbers for company X continue to grow, the same numbers for company Y essentially diminish. This is why it does not matter how many apps a driver uses for finding riders, he/she can’t serve more than one customer at a time.

This is also the not-so-obvious network effect of the ride-hailing business that enables a kind of winner takes it all reality where it is not essentially more drivers bring more drivers, it is slightly different, more riders bring more drivers, and vice versa. This is one dynamic.

The other dynamic is that drivers don’t decide fair or any other important component of the business. Because they don’t own the customer interaction and don’t control the demand. Ride-hailing companies own the demand and customer interaction.

If the platforms see a point in changing the rules of the game, they can easily exclude a driver, punish a driver or take measures against any other stakeholder involved in the business. As we saw in the demands of the Union, ride-hailing companies do exercise this power. Moreover, while ride-hailing companies earn commissions from drivers, they operate merely as marketplaces and offer few sustainable benefits to driver-partners. 

Now the matter of concern is that should we allow this sort of power to any platform? And if so what should be the mechanism that we can use for making sure that the power is being used justly?

Tech is a different industry and dynamics are different. Moreover, ride-hailing companies will eventually move into other spaces, as I mentioned earlier because as an aggregator of riders and drivers, meaning supplies and demands, and connectors of the nodes of the physical world, they have the leverage and that is why these companies are valued at the billions. 

In ride-hailing, the most important relationships are 1) aggregator (company/platform) vs drivers 2) Aggregator vs riders. 

And a good regulation should rather pay attention to these two areas. One of the key aspects of any good policy or regulation I think is that it should pay attention to containing the power of the most powerful stakeholder of the said exchange so that everyone involved in the exchange gets their fair share. Now you can't do it because most of the time the market changes and regulators usually fall short of catching up. This is also why policies or guidelines are so important. One thing I find lacking in the approved draft is the clear guideline about how ride-hailing companies should deal with the drivers and what should be the exact relationship between the ride-hailing companies and the drivers. 

While the draft guidelines burden car owners/drivers with a host of responsibilities, it does not talk much about what they get in exchange. This probably does not matter now but it will be soon. For instance, who should be responsible when an accident happens? How are drivers going to be compensated in the long term? Because a ride-hailing company does get commissions from a driver in exchange for making the connection between a rider and a driver. There are nuances to it, I understand, but this is the most simplistic way of looking at it and a matter that I think demands regulatory attention. This is a critical question to ask today and it will be even more critical in the future once these companies become even more powerful.

Now, this is not a new question. This has been asked about ride-hailing companies in many parts of the world. Bangladesh is a unique market. Many things about Bangladesh market are unique and there are enough reasons to be concerned about this particular relationship, drivers, riders, and ride-hailing platforms, given the reality that over the years, ride-hailing services as aggregators are likely to accrue immense power.

Considering what has happened in several markets and the demands of the ride-hailing drivers in Dhaka, the wise decision will be to find a sustainable solution to this challenge. It will benefit all the parties. 

Mohammad Ruhul Kader is a Dhaka-based entrepreneur and writer. He founded Future Startup, a digital publication covering the startup and technology scene in Dhaka with an ambition to transform Bangladesh through entrepreneurship and innovation. He writes about internet business, strategy, technology, and society. He is the author of Rethinking Failure. His writings have been published in almost all major national dailies in Bangladesh including DT, FE, etc. Prior to FS, he worked for a local conglomerate where he helped start a social enterprise. Ruhul is a 2022 winner of Emergent Ventures, a fellowship and grant program from the Mercatus Center at George Mason University. He can be reached at ruhul@futurestartup.com

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