Uber should fear the company formerly known as Google

Google’s restructuring under the Alphabet umbrella means that there’s nothing standing in the way of it taking on every company in the technology sector. That should give every company pause, but Uber in particular should worry about the possibility of Alphabet continuing a fight Google started.

It never made sense for Google to invest in Uber. Both companies want to experiment with businesses that are only slightly related to their original purposes, and these ambitions have often pit the two against each other.

Just look at some of the headlines from recent months. Uber is trying to make self-driving cars and buying companies to reduce its dependence on Google Maps, while Google reportedly works on its own ride-hailing service.

There are other signs that Google and Uber aren’t getting along as well as many investors and portfolio companies, such as Google’s decision to use data from an Uber competitor, Lyft, in an update to its Google Now service.

A cold war is being fought. Neither company has come right out and said that it’s competing with the other, but both have been working on projects that would give them the upper hand when they finally recognize the conflict.

That war has a chance to heat up now that Google founders Larry Page and Sergey Brin have created Alphabet, a new company of which Google will be a subsidiary, so they can work on things unrelated to Google’s online services.

Alphabet’s creation is a warning to every company in the tech sector. The company formerly known as Google no longer has to try to justify working on things like anti-aging research or wireless networks; it’s free to just do them.

It would make sense for Alphabet to focus on ride-sharing. The company has been working on self-driving vehicle technologies for a while, and if Uber chief executive Travis Kalanick is believed, self-driving cars will replace the human drivers currently utilized by ride-hailing startups in a few decades.

Then there are the already-referenced reports about Google working on its own ride-hailing service. It might have been difficult for the company to introduce that service before, but as one venture capitalist already joked, Alphabet isn’t bound by any promises Google might have made to Uber.

Alphabet is all about giving Page and Brin the freedom to do whatever they want. It was clear even when the company was known as Google that they want to compete with Uber — now that they have a little more leeway to explore that desire, it wouldn’t be surprising to see this cold war get heated.

After handing over license plate info, Uber re-opens its NYC bases

Uber has relented against New York’s Taxi and Limousine Commission (TLC) and handed over its data. As a result, it can now open the five Uber dispatch bases that the TLC shut down when Uber refused to comply.

New York City passengers won’t see much of a difference in service. The bases are locations for administrative work, so them being shut down inconvenienced drivers who needed to go for licensing tests and training, not riders. Furthermore, the TLC had decided to block Uber’s request to open a base in Brooklyn until it handed over trip information.

The ride-hailing company publicly announced its decision to offer more data to cities last month, starting with Boston. At the time, it said it would be anonymizing all the data and offering it in aggregate to cities so they can make policy decisions like planning public transit routes.

But the TLC required Uber to include vehicle license plate numbers if it wanted its bases reinstated. That means Uber will be giving that specific, non anonymized driver information at least to the New York City government. The company told the New York Business Journal it’s doing so “under protest.

Uber initially cited trade secrets for not wanting to give up its data. It may not have wanted local governments to being able to send their taxis to popular Uber areas at peak times, for example. But as evidenced by the blog post on giving data to Boston and other cities, the company had a change of heart, realizing that it could offer data to cities as an olive branch and potentially ease Uber’s local regulatory conflicts as a result.

Uber’s first test of crisis surge cap went unnoticed in October

All eyes are on New York, where along with a massive incoming storm, Uber is rolling out its emergency surge pricing cap. On Monday, there was a flurry of coverage by media outlets from Bloomberg to Time, with some saying this marks, “a chance for Uber Technologies Inc. to show it has learned from past mistakes.”

But this isn’t the first time Uber has capped surge pricing during a state of emergency — it’s the second.

According to a source familiar with the testing, Uber used its new surge price capping system in October during Hurricane Ana in Hawaii, which appears to have gone unreported by media. The company didn’t make a fuss of the development, choosing to introduce the system without scrutiny. Although Hawaii declared a state of emergency during that time, Hurricane Ana didn’t cause much damage.

Here’s how Uber calculates surge pricing in states of emergency: It chooses the fourth highest surge rate in the 60 days prior and makes that the capped rate for the storm. The top three highest surge rates from the prior two months will be ignored, in hopes of keeping the fare reasonable. It’s not clear why Uber won’t just cap surge at a designated amount, like 2x. The company will donate all of its revenue, which is 20 percent of each ride, to the American Red Cross during this time.

Uber announced the new emergency surge pricing policy in July, in light of tropical storm Arthur, which hit the East Coast. But according to an SF Examiner story, the pricing cap never went into effect because a state of emergency was never declared during the storm. Hawaii’s Hurricane Ana was its first test in October, but the New York blizzard will be its biggest.

The capped fare for New York’s upcoming blizzard Juno comes after the state’s attorney general penned a New York Times op-ed shaming Uber for what he called “price gouging” in the wake of surge pricing during Hurricane Sandy. The blowback for Uber surge pricing during times of crises stretch across the globe, with the recent outcry notably occurring after a hostage situation in Sydney. During instances like these, Uber has initially repeated the company line about how surge pricing gets more drivers on the road during times they might not otherwise drive.

This is true, but it doesn’t subvert the ethical quandary of leaving those who can’t afford the surge pricing in a potentially dangerous situation. The reoccurring outcry appears to have prompted Uber to have a change of heart.

As Uber, Lyft, and Sidecar count patents, warning signs ahead

Government regulators and the taxi industry can’t stop Uber — but maybe a patent can. At least that’s the hope of Sidecar, a small rival of Uber whose founder obtained a patent related to mobile ride hailing way in 2002, and who claims he thought up today’s version of the industry way back in the 1990s.

Meanwhile, Uber itself has been busy on the intellectual property front. The company has filed more than a dozen patent applications that seek a monopoly on not just Uber’s hated “surge pricing,” but also on other basic aspects of the car hire business such as dispatching and calculating tolls.

All this raises the question of whether a patent battle, like the epic one between Apple and Google that roiled the smartphone industry, could break out among the car companies.

Meet the patents

At first glance, Sidecar’s patent looks like it could bring Uber’s cars to a screeching halt. Titled “System and method for determining an efficient transportation route,” the patent describes the use of GPS-tracking to plot routes and connect drivers with passenger pick-up locations.

The patent, which confers on Sidecar the right to exclude others from using the invention until 2020, includes a drawing that shows a wireless network linking a car and passenger via satellite:

Sidecar patent

As for Uber, it doesn’t own any patents yet, but a Google search reveals it has filed more than a dozen applications since 2010 for car-related patents that list the company or CEO Travis Kalanick as the inventor. (It’s likely that Uber has filed even more applications since, under Patent Office procedures, an application typically remains secret months for 18 months before it is laid open – meaning any applications filed in 2014 have yet to come to light.)

Uber’s earliest patent application, filed in 2010, is titled “System and method for operating a service to arrange transport amongst parties through use of mobile devices,” while others refer to more specific features of the company’s operations, which are based on consumers using an app to summon nearby drivers.

The later patent applications include the infamous one for surge-pricing or, in Uber’s words, a method for “a user to verify a price change for an on-demand service.” It includes this diagram:

Uber surge pricing screenshot

Other applications include one published in 2013 that describes a system for rating Uber drivers through a star-system, and one that turned up late last year that describes the use of location data points to include tolls in a passenger’s final fare, and that refers to this diagram:

patent for tolls

All of these claims — related to tolls, driver-rating, services to “arrange transport” and so on — are for now just applications. But if the Patent Office grants Uber even some of these patents, the company could be in position to threaten its competitors, including Lyft and Sidecar, with the prospect of injunctions or multimillion dollar jury awards.

A spokesperson for Uber declined to state how the company plans to use any patents that the Patent Office might bestow.

As for Sidecar, the company simply replied “Yes” in response to an question as to whether it would exercise its 2002 patent.

Owning the ideas of Adam Smith

While patents in theory confer powerful 20-year monopolies, the reality can be different, especially when it comes to claiming abstract ideas.

“This application is really seeking to claim the basic idea of pricing and service, which is a concept Adam Smith discussed 200 years ago. The notion that’s a new idea in this day and age is far-fetched,” said Michael Strapp, a patent lawyer with Goodwin Procter, in a recent phone interview.

His comment was addressed specifically to the surge-pricing patent application, but Strapp is also skeptical that Sidecar’s patent or any of Uber’s proposed patents would stand up to scrutiny. His doubts stem in large part from recent rulings from the Supreme Court that have set stricter standards for the Patent Office.

Alice said tying a well-known idea to a computer or smartphone is ineligible,” said Strapp, referring to Alice v. CLS Bank, a seminal decision from last year that called into doubt the validity of thousands of computer-related patents.

This means that Sidecar’s swagger with its 2002 patent could be a bluff, given that Uber or another defendant may have a good chance to invalidate it under the patent law doctrines of “obviousness” or “ineligible subject matter.” And likewise, the Patent Office may point to the stricter standards in order to deny Uber’s applications altogether.

But despite what looks like a weak hand, Sidecar or another ride-booking service could try to start a patent war anyways.

Doing it on the cheap

While patents can invoke images of “eureka” moments and grand invention, in practice they’re typically just another tactic — like talent raids or squeezing suppliers — by which businesses try to get the upper hand on competitors. And while the legal costs of a full-blown patent case can reach tens of millions of dollars, a company can also wield patents on the cheap.

“If Sidecar was going to decide as a business matter that they were going to raise investment or look like a more viable competitor, they could [file a patent lawsuit] and take initial steps without a lot of costs, especially if they find a lawyer willing to operate on contingency,” according to Strapp, the lawyer.

In this context, a Sidecar lawsuit could amount to leverage against Uber, either to encourage acquisition talks, or else to further founder Sunil Paul’s narrative that Sidecar is the real, original ride-booking company. The risk of course is that Uber or Lyft might respond with an aggressive legal approach of their own, perhaps by buying patents to launch a countersuit (Facebook used this approach successfully when Yahoo sued it in 2010 over the rights to social networking).

And in the event Uber, which is known for bare-knuckle business tactics, succeeds in obtaining patents (or buys Sidecar), it has the deep pockets to hire as many lawyers as it thinks would help it to wipe every other car service off the map.

For consumers, this would be a bad thing since the costs of a patent war in the ride-booking industry would be passed on to them. But for now, it’s too soon to fear the worst. Not only are patents in this area still few and far between, changing attitudes to patents among courts and entrepreneurs (remember what Tesla’s Elon Musk did last year) mean that war is less likely in the first place.

The Silicon Valley lab is officially a defensive strategy

“Is Ford cool?” asked a curt tech reporter during the auto company’s grand opening of its new computing-focused Silicon Valley center in Palo Alto, California on Thursday. The reporter likely meant: Will Ford be able to attract the best Valley talent when it’s competing with the hottest companies and startups from Twitter to Uber to Tesla to staff its new center with up to 125 employees by year’s end?

In response, the company’s enthusiastic CEO Mark Fields, shouted “Yes!” That led the dozens of Ford engineers standing behind the exec to cheer wildly and pump their fists. If they’re not exactly cool yet, they’re definitely nerd-cute and will fit right in with the legions of T-shirt-wearing, mountain-bike-riding engineers who currently fill the South Bay.

A Ford engineer works on a sensor device for the biking data project.

A Ford engineer works on a sensor device for the biking data project.

But the awkward question does make me wonder: does launching a presence in Silicon Valley really work for these types of big industrial companies? The region is filled with Silicon Valley branches of huge global tech firms like Nokia, Samsung, and Orange, retailers like Walmart and Target, infrastructure giants like GE, and, increasingly, auto companies, all trying to tap into the ever-elusive means of creating innovation that seems to thrive in the Bay Area like no other place on earth.

Fields told the group of reporters “we want to be viewed as part of the ecosystem of Silicon Valley,” noting that Ford originally came to the region with a small group of eight in 2012. By the end of the year, Ford hopes to have “the largest dedicated automotive research team in the Valley.” Ford’s CTO, Raj Nair, said the center will help the company “accelerate innovation.”

Ford has created an experimental car swapping app for employees to test out.

Ford has created an experimental car swapping app for employees to test out.

The company is using all the right buzzwords. But most of the projects we checked out in the center on Thursday are, well, pretty tame. There was little evidence of the type of counter-culture thinking, and risk-taking, that often comes with the Valley’s truly disruptive innovations.

[pullquote person=”” attribution=”” id=”909051″]All companies are tech companies and if you don’t recruit talent from the epicenter of the tech industry you’ll be leagues behind.[/pullquote]

For example, the company is experimenting with car swapping internally for its employees and it has built a nicely-designed mobile app that facilitates the process. It probably won’t ever be a commercial product and execs said that they’re experimenting with the service to see how Ford cars operate under such conditions.

But car sharing isn’t exactly an emerging phenomenon. Zipcar, now owned by Avis, is a large, profitable 15-year-old company, and its customers’ reserve Zipcars every six seconds. There’s a wealth of data on car sharing in the real world out there, some of it even published.

A Ford engineer remotely drives a golf car on a parking lot at Georgia Tech.

A Ford engineer remotely drives a golf car on a parking lot at Georgia Tech.

Another project at the lab is focused on allowing Ford to easily upgrade the hardware infotainment systems in its cars, when pushing software upgrades to the dashboard just won’t do. The execs explained that gadgets and phones are upgraded every year or two, but the same cars will be used for six or seven years. This isn’t so much innovation, but a way to defend the real estate that is being usurped by the rate of innovation that’s happening with the cell phone.

Don’t get me wrong, Ford’s new Valley center seems like a positive step for the company. But these types of Valley labs these days are more of a defensive strategy than an offensive one. A company like Ford can’t afford not to have a presence in the Valley, as technology continues to cannibalize other sectors, and “software eats the world.” All companies are tech companies and if you don’t recruit talent from the epicenter of the tech industry you’ll be leagues behind.

Ford has created a virtual test bed, called aDRIVE, for testing algorithms for its autonomous vehicle tech.

Ford has created a virtual test bed, called aDRIVE, for testing algorithms for its autonomous vehicle tech.

Yet these types of Valley labs seem like they mostly have only geography in common with the high-stakes brutal world of startups and venture capital in the Bay Area where entrepreneurs gamble everything and often times lose. The billion dollar “unicorns” (as Fortune’s latest cover describes startups that became rapidly valued at billions of dollars) are inspiring, disruptive tech stories that keep the Valley going but they have little in common with these types of satellite corporate facilities.

Innovation doesn’t usually act like osmosis (though sometimes it can), where big thinking will just seep into the culture because there are big thinkers near by. Yet a company like Ford will need an increasing presence in the Valley if it wants to do deals and have partnerships with the tech leaders.

Of course not all the tech companies in the Valley are disruptive startups, but some of the most established internet companies like Google and Facebook are well versed on how fast innovation and disruption can fade in big corporate environments. That’s why Google launched Google X and its 20 percent time projects, and why both companies aggressively buy startups way outside of their core businesses.

If Ford really wants to embrace the innovation and disruption of Silicon Valley, it should mimic the way these older Valley giants try to constantly kick start their cultures.

This Change.org petition response shows how much Uber has changed

Uber has just responded to a group of Change.org petitioners protesting Uber’s background check policies in India, following the alleged rape of a passenger by a driver with an assault record. After the petition reached more than 63,000 signatures, Uber India safety lead Deval Delivala wrote a 600-word apology, explaining the steps the company is taking to improve its driver vetting process in the country.

Thursday night, the company said it will start doing its own background checks on drivers, instead of relying on government certification programs to vet the drivers adequately.

600 words might not seem too long to the average person, but by Uber’s standards this is a humble pie manifesto. It far exceeds the length of apologies or safety explanations Uber has sent to media in the past. I realized when rereading my old stories on Uber that it’s a complete 180 from the company’s response to assault incidents in 2013.

In the Change.org apology, Delivala covered everything from Uber’s reaction to the alleged rape (it was a “deeply sobering reminder that we must always be vigilant”) to what it taught Uber about background checks in India. She explained how the company is trying to strengthen its system, through things like a document verification system and an incident response team. She finished up with a bold promise: “We will repay [your] support with action and live up to the trust that you have placed in us.”

It may just be lip service, but it’s a new, refreshing kind of lip service. As recently as September, Buzzfeed found that Uber sent media the same two sentence response to any situation involving passenger safety, whether a rape, assault, or pedestrian injury. During one of Uber’s biggest scandals when an executive threatened to dig up dirt on journalists, CEO Travis Kalanick famously issued a 13 part tweet apology with very little apology actually included. After the rape of an Indian passenger in December, he published a blog post that was only 100 words.

These may be inadequate responses to terrible incidents, but they’re still far better than Uber’s old way of dealing with safety issues. In 2013, Uber used to claim it wasn’t responsible for its passengers’ safety. It didn’t think it was culpable for the actions of drivers or passengers on its platform (much like Facebook wouldn’t be responsible if one user threatened another on the site). Uber’s then-spokesperson told me that point blank after an SF driver hit a passenger. He said, “We’re not law enforcement…If law enforcement pursues this, we would cooperate. But we’re a technology platform that connects riders and providers, so it’s not our job to investigate.”

The Change.org apology shows how far the company has come. It still has major ethical issues and PR tactics to iron out, but at least it has started accepting responsibility for the incidents that occur through its service.

My 14 favorite energy stories of 2014

While the rest of the tech world focuses on things like Apple’s upcoming gadgets, which retailer is the latest to get hacked, or the ongoing drama around Uber, I’ve spent much of the past year (the past seven years, actually) looking at what’s going on at the forefront of energy innovation. Progress with energy — making it cleaner, more efficient and more accessible — can come in a variety of places, from university labs, within Silicon Valley startups, at big corporations, and even via government programs.

In 2014, there seemed to be resurgence of startups and entrepreneurs taking risks and daring to tackle the difficult world of energy. Perhaps they were inspired by the successes of Tesla CEO and SolarCity Chairman Elon Musk, or the Opower founders, who saw their energy data startup go public this year. Or maybe there was just a little bit more funding available to these types of strategic thinkers, after a couple years of political backlash in the U.S. and a backpedaling from energy investing by venture capitalists.

Looking back at the year, I think it’s one of the brightest ones we’ve had in awhile when it comes to the changing face of energy, using new technologies and new business models. Here were my favorite 14 stories, in chronological order, that I covered this year:

1. What 60 Minutes got right and wrong in its story on cleantech: The year kicked off with one of the most high profile — and most negative stories — to appear about the whole cleantech phenomenon in the long form television show 60 Minutes. While a lot of my peers rejected the coverage out right, I thought the producers got some things right (the VC cleantech crash angle), and some things pretty wrong (the politics and missing the solar panel boom).

Vinod Khosla – Founder, Khosla Ventures

Vinod Khosla – Founder, Khosla Ventures

2. The Hoover Dam of solar is now live in the desert of California, and why it’s important: The huge solar thermal plant Ivanpah was finally finished and started distributing electricity in early 2014. The project was one that highlighted the difficulties it takes to get a project like this built — it faced many delays, criticism from environmental groups (over desert tortoises), and also changing economics, as the cost of solar panels dropped dramatically as it was getting built (it doesn’t use panels, but mirrors to concentrate the sun). But the project also showed how the Department of Energy’s support of Ivanpah was crucial for it to get built, how a startup like BrightSource can innovate, and how companies like NRG and Google are eager to invest in clean energy.

A look at the heliostats and 2 of the 3 towers of Ivanpah. Taken from the 6th floor of the Unit 1 tower.

A look at the heliostats and 2 of the 3 towers of Ivanpah. Taken from the 6th floor of the Unit 1 tower.

3. The sheer size of Tesla’s massive battery factory could be a game-changer in many ways: One of the most interesting things to happen in energy in 2014 was the unfolding of Tesla’s plans for its battery factory, which is now planned for a spot just outside of Reno, Nevada. This is the article where I first started to realize how disruptive and unusual the idea was.

A recently raised spot of land in the Tahoe-Reno Industrial Center.

A recently raised spot of land in the Tahoe-Reno Industrial Center.

4. It’s easy to miss the meaningful parts of the Valley, if you ignore them: I went on a bit of a kick in the spring of this year, fighting back on the notion that the Valley doesn’t create anything meaningful anymore. Anyone who has followed the rise and fall of cleantech or is interested in energy innovation knows this isn’t true. A lot of times these Valley innovators are working on less sexy problems (so the media ignores them), and their innovations are taking longer to come to fruition.

Bloom Energy fuel cells.

Bloom Energy fuel cells.

5. As KiOR Crashes, it’s another cautionary tale for energy innovation: KiOR has always been a symbolic company for me when I think about some of the more unusual strategies that cleantech venture capitalists have taken around energy over the years. The company, which was largely owned by Khosla Ventures as well as Vinod Khosla personally, went public in the summer of 2011 at $15 per share, making Khosla Ventures’ share worth about $830 million at the time. But at the beginning of 2014 it was starting to falter, and by the end of the year it had filed for bankruptcy. I covered these guys from launch (first I heard of them was 2007) to the end.

One of Kior's facilities. Image courtesy of Kior.

One of Kior’s facilities. Image courtesy of Kior.

6. With Opower’s IPO, founders show meaningful tech can pay off: I was pretty excited to see Opower IPO in the Summer of 2014, and see that the company’s founders still held considerable equity at the time. Now Opower’s founders and longtime friends Alex Laskey and Dan Yates are the poster children for the growing meaningful tech movement.

Opower executives at the New York Stock Exchange ringing the closing bell.

Opower executives at the New York Stock Exchange ringing the closing bell.

7. As solar panels boom, it was the simple business model that the big energy players missed: While this wasn’t a huge story, I liked it because it shows that even in the difficult energy space there are things that entrepreneurs and innovators can do that big companies miss. Both NRG and GE lamented that they didn’t get in earlier into the solar-as-a-service financing business for rooftops that SunEdison started and companies like SolarCity are now dominating.

solar panels

8. An almond farm and a “big ass battery” show the future of energy in California: I visited the site of this flow battery in the little city of Turlock in the Spring of 2014. It stuck out in my mind because it shows how a really small company like EnerVault can use a tiny grant, and a lot of strategic thinking, to get entirely new energy technology built in very specific places for specific use cases. In this case, the battery is installed on an almond farm, and it bottles up energy from solar panels that help power an irrigation pump that waters about 300 acres of the farm.

EnerVault's battery on an almond farm in Turlock, California.

EnerVault’s battery on an almond farm in Turlock, California.

9. We don’t need solar roadways, we need to help unleash current solar panels: This story makes me laugh because there was SO much attention on it: 204 comments, some pretty interesting, some total garbage. Most of my peers in the energy tech sector (or covering it) I think agreed with my assessment, but didn’t want to come out and say it directly. After this was published, there were a variety of take-down articles written. Most people interested in sustainability are pretty nice and don’t want to come down on someone else’s project.

But a lot of readers out there across America did NOT like or agree with my opinion of solar roadways. Only time will really tell with these things, so I guess I’ll just have to review where the solar roadways project is in the spring.

solar panel

10. Behind the scenes with Tom Siebel, C3 and its data engine for the power grid: C3 has gotten a lot of flack over the years because it pivoted substantially early on away from carbon software and to energy data analytics for utilities. But I don’t think anyone should count C3 or Tom Siebel out just because their product has been a long time coming. Siebel is one of the world’s best salesmen, he’s all in on energy data, and the company has secured a large amount of customers in a short time frame. While this wasn’t one of the most popular articles, I thought it was a fun one.

Power grid

11. The Elon Musk playbook for disrupting energy: vertical integration and huge factories: I think it’s fascinating that SolarCity and Tesla are looking to disrupt energy and cars using similar businesses models. In this article, I tried to compare and contrast these methods and help entrepreneurs realize how Elon Musk is trying to scale these disruptions.

SolarCity panels on a Walmart, courtesy of SolarCity.

SolarCity panels on a Walmart, courtesy of SolarCity.

12. Behind the scenes of Aquion Energy’s battery factory & the future of solar storage: It’s exciting when startups that have been talking about a technology for years finally get to the point of commercially making and shipping it. I got a chance to check out Aquion Energy’s battery factory outside of Pittsburgh over the summer. It was still small, but represents a big leap for startups building the next-generation of grid batteries.

Battery stacks and modules in Aquion Energy's factory. Image courtesy of Katie Fehrenbacher, Gigaom.

Battery stacks and modules in Aquion Energy’s factory. Image courtesy of Katie Fehrenbacher, Gigaom.

13. The changing face of Reno: Why the ‘world’s biggest little city’ is attracting Apple & Tesla: Before Tesla announced that it planned to build its battery factory just outside of Reno, I took a trip up there and checked out the rumored Tesla factory site, as well as Apple’s yet-to-be-built-out solar farm up there. I also met with a variety of Reno officials as well as geothermal industry execs, who were in town for a conference. Reno, which has long been a gambling backwater, is slowly transforming into a high tech manufacturing hub, and Tesla’s factory will only accelerate that.

The Tahoe Reno Industrial Center. Photo by Katie Fehrenbacher/Gigaom

The Tahoe Reno Industrial Center. Photo by Katie Fehrenbacher/Gigaom

14. Lithium, the Salton Sea and a startup that’s trying to change the game: The Salton Sea is such a bizarre and fascinating place that any company trying to build something new out there would be interesting. But Simbol Materials turns heads because the startup is looking to recover lithium from geothermal plants, and it’s backed by Silicon Valley investors. I drove down to the Salton Sea in September and took a tour of Simbol’s demonstration plant in Calipatria, California.

Simbol Materials' VP of Business Development Tracy Sizemore stands in front of Simbol's demo plant that neighbors EnergySource's geothermal plant just below the Salton Sea. Image courtesy of Katie Fehrenbacher, Gigaom.

Simbol Materials’ VP of Business Development Tracy Sizemore stands in front of Simbol’s demo plant that neighbors EnergySource’s geothermal plant just below the Salton Sea. Image courtesy of Katie Fehrenbacher, Gigaom.

Uber adds $2 surcharge to each yellow taxi ride it hails in NYC

On Christmas Eve, Uber announced a significant change to its Uber Taxi pricing in New York City. The fare increase is simple: Any UberT hailed will come with a $2 “booking fee,” charged to the credit card on file. The new policy goes into effect today.

UberT is different from other Uber cars. Uber Taxi cars are fully medallioned yellow (or, in Manhattan’s far reaches and outer boroughs, green) cabs. Riders who hail one through the app pay a traditional metered fare to the driver, no different from any other yellow taxi in the five boroughs. Essentially, Uber could hail a taxi for free — especially handy for hailing cabs for friends or family if you don’t want to cover their ride on your credit card — and now it costs $2.

The pricing change is likely to push customers to Uber’s other car services, like UberX, which charge directly through the app. In fact, the second half of the announcement takes the opportunity to “introduce UberX, the low-cost Uber.”

In an email sent to customers, Uber says the new fee is “on behalf of yellow and boro taxi drivers who utilize the Uber platform,” although the fee is collected by Uber and the driver does not get a portion of the fee. I’ve reached out to Uber and will update the post if I hear back.

(Side note: When asking about tipping policies last month, Uber disingenuously pointed me to its Uber Taxi policy, because it’s the only Uber service in which the driver can collect a tip from a credit card, because Uber doesn’t handle the transaction.)

The text of the email is below:

Thanks for riding UberT. Starting today, December 25, all completed UberT trips will be subject to a $2 booking fee. This fee is a small charge added to uberT trips on behalf of yellow and boro taxi drivers who utilize the Uber platform. The fee will be collected through the app and billed to the card on file at the end of your ride. You will continue to pay the metered fare directly to your driver.

We want to take this opportunity to introduce uberX, the low-cost Uber. Cars on uberX are hybrids or mid-range vehicles in a variety of colors, and with rates cheaper than an NYC taxi, there’s no better way to get around! For more information, visit our city page here.

Feel free to contact us with any questions at [email protected]

Uber on,

Team Uber NYC

Tech’s push to “disrupt” workers is a legal & social timebomb

Startups that push the limits of labor law are getting socked by lawsuits, and risk paying out big to employees and the IRS. These episodes are not just a threat to the business model of many tech ventures.

The labor flare-ups are also a stubborn reminder of a growing, and possibly permanent, servant class who are powering the tech industry’s dreams of disruption.

The contractors who clean toilets

When two sisters sued maid-on-demand service Handy last month over alleged labor law violations, the lawsuit felt almost inevitable. Not only had Handy been filling Facebook feeds with ads to clean homes for the improbably low price of $29, the startup also adopted the bold legal stance that the workers who do the clearing are not employees but “independent contractors.”

This notion of a “contractor” wearing a uniform and scrubbing toilets for $29 may seem far-fetched (Handy, for its part, claims it pays $15-$22/hour and doesn’t require uniforms). But it’s just one of the more striking examples of a phenomenon in which more and more companies are re-classifying their workers as contractors in order to save costs associated with having employees.

“When the market tanked in 2008-09, we started seeing more independent contractor situations. We first started seeing it in landscaping and construction, then it spread to different industries,” said Nicholas Woodfield, a general counsel at the law firm Employment Law Group.

The upshot is that the traditional notion of a contractor, which invokes images of a skilled tradesman with tools, has expanded to include laborers, maids and, well, anyone — especially in Silicon Valley.

As New York magazine reported in September, the Valley is now awash in so-called “1099 companies,” a reference to the IRS tax form filed by independent contractors. These startups include well known firms like Uber and TaskRabbit as well as a slew of smaller outfits like Handy, Homejoy and Washio. All of them take a category of services normally performed by employees — washing, cleaning, driving and so on — and repackage it as a web-driven platform powered by contractors.

And for many people, this has been a boon. For consumers, the slew of contractor-driven companies means prompt and easy access to an unprecedented array of services. Meanwhile, for workers, the 1099 business model offers an easy way make a few extra bucks without the constraints of a formal job.

The trouble, however, is that many in this new worker army look more like conscripts than contractors. And their teeming ranks pose legal and ethical challenges to one of Silicon Valley’s favorite philosophies.

Disruption and its discontents

Transforming toilet cleaners into contractors is one example of how the tech industry is shaking up the labor market. But more broadly, Handy’s unusual arrangement also embodies a Silicon Valley ethos that tech boosters like to call “disruption,” and that detractors call “regulatory arbitrage.”

The basic idea is that a startup takes a run at a regulated industry and tries to break it with the help of cool tech and a big pot of venture capital dollars. If regulators object to its business model, the company often deploys a PR charm offensive to portray its would-be overseers as anti-progress — and to dissuade them from enforcing laws until the startup is too big or too popular to be stopped.

Examples abound: Airbnb flouted city zoning laws to compete with hotels in many cities; Uber and Lyft thumbed their nose at taxi regulations and are now a fixture of urban transport; messaging service Snapchat played fast and loose with privacy rules but became a hit messaging service.

Not every attempt succeeds, of course. Aereo, the startup that sought to challenge outdated TV rules, had to shut down after the Supreme Court found that its business violated copyright law. But many other companies are winning the arbitrage game, staving off lawsuits and persuading the public, and often politicians too, to take their side against fuddy-duddy regulators.

Skating over legal lines comes with a price, of course, but many of these companies are able to pay it. Uber and Airbnb, for example are up to their eyeballs in court cases but, since they are now super-charged by VC money and riding an enormous user base, it’s a safe bet they will survive whatever punishment comes their way.

And whatever you might think of such tactics, it’s hard to deny that consumers are often the long-term winners of the disruption that comes with regulatory arbitrage. After all, few would dispute that Uber’s app is way more efficient than a taxi dispatcher, and Google’s digital library (which you can call a copyright disruption) has been a godsend to readers and scholars everywhere. In short, whatever legal ripples these companies create, most of them deliver an overall net benefit to society — which is part of the reason they ultimately prevail.

In the case of many contractor companies, however, the net benefit to society is harder to see. Meanwhile, the penalties they are courting while skating on the edges of labor law could hurt far more than those that befalls other types of tech disruptors.

Disrupting wages… and the IRS

Abraham Lincoln reportedly asked, “If you call a dog’s tail a leg, how many legs does a dog have?” His answer was,
“Four. Calling a dog’s tail a leg does not make it a leg.”

The quote is from a California appeals court decision this summer, in which judges threw cold water on the idea that employees stop being employees if you call them contractors.

The case concerned the huge package company FedEx, which had insisted that its delivery drivers were independent contractors — never mind their uniforms, logo-clad vans and the company’s control over the drivers’ schedule and pay.

And FedEx isn’t the only delivery company to run afoul of the employee/contractor divide: Lasership, the company responsible for many of Amazon’s shipments, settled a similar case with drivers in Massachusetts late last year. Google, meanwhile, conceded under pressure last month that its security guards are employees, while Uber now has its own contractor case on its hands.

Disputes over employees versus contractors are hardly new, of course, and the court cases continue to revolve around a 1947 Supreme Court case that provides a series of factors to determine that classification. The question now is how those factors apply to the army of “contractors” powering the Silicon Valley startups.

Legal scholars suggest that these companies — the Task Rabbits, the Handys and so on —  lie on a continuum. On one end will be those where the worker brings capital or a specialized skill, and exercises considerable control over how the work is done. On the other end is, well, the maids.

“Arguments that janitors are independent contractors have mostly been rejected,” said Cynthia Estlund, a labor law professor at New York University. “With cleaning people, it’s definitely pushing the line.”

So what happens if courts conclude Handy and other companies have crossed that line? For starters, the companies will not be able to rely on their own contracts as a defense against lawsuits. As Estlund pointed out, federal labor rights are like anti-discrimination laws in that courts will not allow companies to claim that employees have opted out of them.

And the situation is more serious still since alleged labor violation by the likes of Handy would translate into real money owed to real individuals. Unlike others forms of tech disruption that fall afoul the law, such as those involving zoning or transport or privacy rules, the damages at stake are not abstract.

In the latter type of cases, companies can often cop to a symbolic settlement with an agency, since the harms are hard to quantify. In the case of underpaid maids, however, the damages can be easily calculated from business records in the form of dollars per hour, and would very likely be valued at hundreds or thousands of dollar per person.

And that can be just the first financial ordeal that befalls a company caught on the wrong side of the employee/contractors divide:

“The misclassification of employees is a substantial tax dodge that hits the Treasury,” said Woodfield the labor lawyer, who noted that fewer bona fide employees in the workforce means fewer payroll taxes for the IRS.

Woodfield said that the IRS is on the lookout for companies that disguise employees and contractors, and that it can impose fines and even criminal penalties on violators. In the worst case scenario, then, reimbursing maids for unpaid overtime could be the least of Handy’s worries.

Silicon Valley’s labor law disruptors thus face a unique and severe form of financial penalty, even if their move-fast-and-break-things ethos is not particularly worse or different than other disruptive companies.

Is there a solution to superfluous people?

Silicon Valley is incredibly good at solving some of society’s hardest problems, and its ambitions span everything from driverless cars to personal medicine to reusable rockets. Yet, there is one problem that the tech industry is not only bad at, but is actively exacerbating.

That problem is what to do with the legions of superfluous people that digital disruption keeps producing — and who now serve as spare parts to power Handy, Uber, Task Rabbit and all the other piece-work mills. While there’s no doubt such gigs are ideal for some types of workers, reports by the New York Times and others make clear that many people take them because they have no other choice, and are regularly exposed to fear, uncertainty or exploitation.

In tech land, however, the response to the rise of mass under-employment often ranges from indifference to outright insensitivity: behold the VC in Forbes who extolls the Handy workers of the world to salute their “uncollared” status. Or the well-meaning but hairbrained attempts to address homelessness by encouraging the indigent to act as Wi-Fi beacons or mine bitcoin.

Let them eat digital cake, in other words.

It’s true that no one has the an obligation to solve the surplus worker problem. The CEO of Handy has no more duty to fix structural unemployment than I do to cure cancer.

Still, given that Silicon Valley disruption is upending full-time jobs in a raft of industries, from media to movies, it seems fair to ask why someone, somewhere can’t make solving unemployment the next “moonshot” to go with health-monitoring nano-particles or bringing airborne internet to billions of people.

For now, however, it appears that the fate of the Handy “contractors” will not be resolved by a tech miracle, but by a slow grind in the courts. As the labor law professor Eslund suggests, the starting point may be to remember the maids of Handy deserve a real place in the workplace to begin with.

“These people should be treated as the employees of somebody. The appeal of this claim is to bring them into a system that they should be in.”

Uber gets investment from Baidu to aid China push, report claims

The Chinese web giant Baidu will buy a stake in Uber worth up to $600 million, according to sources quoted by Bloomberg. The ride-booking company, which raised $1.2 billion earlier this month to give it a valuation of $40 billion, is currently pushing into China, where it faces stiff competition from local rivals such as the Tencent-backed Didi Dache. Analyst Li Yujie told Bloomberg that cooperation between the companies could see Uber use Baidu’s mobile payment system in China. Integration seems to be the name of the game there – Didi Dache is conveniently tied in with Tencent’s WeChat messaging service, for example.