There was a time when you could go for a ride in a gig, a two-wheeled horse drawn carriage suitable for short journeys. Today, the "gig" is not the vehicle, it's the part-time, unregulated, seat-of-the-pants work done by the driver of your Uber taxi. But the meaning of gig may soon be about to change again after Wednesday's ruling by the European Court of Justice, which has just driven a coach and horses through Uber's business model in Europe.
The court in Luxembourg has ruled that Uber is a transport company, not an "information society service provider," Uber's clunky description of its own business. The U.S. company that controls the Uber app has always insisted it was just an intermediary, a so-called technology business that floated in some ill-defined space between a self-employed driver and his customer – someone with a smartphone and an immediate need to be carried somewhere.
The case was brought by a Barcelona taxi firm against UberPop, a minor offshoot of Uber that operates in a few European countries. However, the question that the ECJ had to address was whether the U.S. company was operating a transport business, subject to national and local transport regulation, or was it a software business, subject to the liberal regime of the European Union's e-commerce directive.
The ECJ judges didn't mince their words. They dismissed the company's assertion that it was just an intermediary. The court found that Uber "must be classified as a 'service in the field of transport' within the meaning of EU law. Member states can therefore regulate the conditions for providing that service."
It's not the first time that Uber's fluffy self-image has been swept aside by the courts. In November, the company lost its appeal against a British employment tribunal ruling that its drivers were employed "workers," meaning that they are entitled to minimum wage and holiday pay. The original tribunal judgment found the company's claims that Uber drivers were mere contractors as almost laughable, given the real control the company had over fares, routes and their behaviour. For Uber, the judgment could have substantial financial consequences in Britain and it has threatened to appeal to the Supreme Court. But the ECJ ruling is even more dramatic as it poses fundamental questions about the source of the fundamental value of so-called "tech" businesses.
European courts, at least, seem to have little time for the narcissistic self-regard of internet-based intermediaries and even in Europe's most liberal free-market economy, the government has had enough of the tech economy's lofty disdain for regulation. The British government is currently looking at more intense regulation of social media companies, including Facebook and Google, even as the internet colossi invest heavily in new headquarters in London. Dame Patricia Hodgson, head of Ofcom, Britain's media and communications regulator, in October lamented that she currently had no powers to regulate the internet media platforms. "My personal view is they are publishers," she said.
Were they to be so designated, the business model of Google and Facebook would be fundamentally altered. They would become liable, just like newspapers and broadcast networks, for the content that appears on their platforms. Google and Facebook would face a horrendous business dilemma: They would be forced either to employ vast armies of copy and image editors to police postings or they would have to keep public registers of the hundreds of millions of people and organizations that post material on their platforms.
The latter is the most equitable solution – force contributors to publicly "out" themselves as publishers, contactable by anyone – but it is anathema to Facebook. It would destroy the libertarian, free-for-all image that appeals to so many. Instead, the platforms are investing huge sums in employing so-called "moderators" (editors to you and me) to view offensive, abusive or dangerous content – the source of the British government's concern. Facebook already employs 4,500 people to sift out nasty stuff but in recognition of the terrible problem, it is hiring thousands more.
The underlying question (because this is about private profit, not free fun as Facebook wants you to believe) is whether the business model provides real long-term enterprise value or just charges a rent for space on a platform. In technology terms, Uber provides little more than a community car share – there are many such networks on Facebook local groups. The add-on that makes Uber a commercial business is its control of its drivers; hence, the European Court's determination that it is a transport business, not an intermediary. Likewise, Facebook and YouTube are really publishing and broadcasting organizations that sell advertising space – masquerading as a globalized community scrapbook and bulletin board.
The tech tag is of course a sham – these are very old business models. A horse, a buggy and a driver looking for a fare or a tabloid newspaper with screaming headlines that cause heads to turn or fingers to click.
Without the tech tag, it is debatable whether the platform intermediaries could sustain a regulated cost structure. They would certainly suffer a drastic stock market derating.
Carl Mortished