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Fmr. Uber Chief Business Officer on future of the rideshare market in California

Emil Michael, Uber's Fmr. Chief Business Officer, joins The Final Round to break down the latest for Lyft and Uber in their fight against AB5 in California.

Video Transcript

SEANA SMITH: Let's get to a developing story that we've been following this week-- Uber and Lyft getting a temporary reprieve yesterday from a judge, granting the two companies a temporary stay in its driver reclassification case. Joining me now for more on this, we have Emil Michael. He's a former chief business officer at Uber.

And Emil, let me just get your thoughts on what we've had-- or the developments that we've seen this past week. Because the court announcement, to me, is essentially just kicking the can down the road. So how much trouble do you think Uber and Lyft are in? And then if they are forced to hire their drivers, does the business model work?

EMIL MICHAEL: Yeah, those are great questions. It's been a dramatic week-- that's for sure-- where they were going to be having to deploy this model, and then they were threatening to shut down in California. And then the appeals court came in and said, we'll give you guys a reprieve until the ballot initiative in November, where Uber and Lyft, as you know, and DoorDash, and Instacart have put together this ballot initiative to ensure that the drivers could be independent contractors, and who knows who wins.

But I do think if they lose and drivers are considered employers, which will happen-- what will happen is the business will just be a different kind of business. Because what happens is you have to then schedule drivers and say, hey, drivers, we want you to work these hours, not these hours. And they'll sort of reduce the number of drivers that are participating in that. Prices will go up, which may be fine because drivers are getting benefits. And it'll just be a less flexible earning opportunity and less availability for riders.

MELODY HAHM: Emil, when you think about prop 22, the ballot initiative you mentioned that Uber, Lyft, DoorDash, Postmates are all-- have all poured millions of dollars into making sure we'll be on the ticket come November, if there are so many carve-outs, if there are so many exceptions and exemptions for the very startups that AB5 was intended to go after, what happens to AB5? We know that the trucking industry already got an exemption earlier this year basically immediately after AB5 was enacted into law. How do you see this really shaping out and the future gig economy companies here in California?

EMIL MICHAEL: That's a good question. I mean, I think AB5 itself was kicking the can down the road because there are 52 exemptions to that law already-- hairdressers, barbers, construction, nail salon attendants, you name it. So if you were good at lobbying certain legislators, you got an exemption.

So instead of California figured out what the third way is-- how do you get benefits to people who are in these professions in a way that's not attached to any one particular revenue stream-- they just said, hey, we're going to pass this blanket law, and then we're going to-- you know, we're going to create exceptions for people. So it became a lobbying battle that will never end. So I think that was the original mistake and why we're here now.

So I hope it doesn't pass, and I hope legislators instead find the answer. What is the right answer for these people who deserve, you know, certain protections that they're not getting today?

JEN ROGERS: So did you just say you hope that it doesn't pass in November?

EMIL MICHAEL: I hope that the 22 passes, which then causes AB5 to be re-looked at more broadly.

JEN ROGERS: Got it. It is confusing with these propositions, how they're written, right? Where-- which one you're going for or against. But so let's say that-- I mean, look, they're pouring-- as Melody just pointed out, I mean, they've raised hundreds of-- $100 million has been raised, and the other side, there's, like, $1 million. So they're going to be hitting the airwaves. They've got a big leg up on the campaigning, certainly.

So let's just say, you know, it-- they get what they want. But is there a threat from other companies coming in? Because there are companies that are treating their drivers like employees. They are paying them an hourly wage. Is there a chance that that model actually could gain traction and be a threat to the Ubers and the Lyfts? Or are we already just kind of addicted to these cheap rides?

EMIL MICHAEL: Well, I'd say two things. Number one, the right measurement isn't how much Uber or Lyft and the companies are spending against the spending on the other side. The spending on the other side came in the form of donations to politicians, right? So if you were looking for an exemption for your industry, you were donating to the campaign of that state legislator to create an exemption. Or if you're, you know, a union and you wanted to have AB5, you donate to this assembly person or whatever. So those are the right comparisons on that.

When you ask about what the answer is for these folks, I think what you end up with is-- remember when Uber replaced black car services and taxis? And guess what? Black car services paid drivers by the hour, and they had predetermined pickup times. And they had a very rigid schedule so that the owners of the black car service made profits.

So I don't think, actually, you can go back to that model because it's not flexible enough for what consumers want. They're just going to get back in their car. So I don't think there's room for the old model again. It's just-- you're just going to have to put people back in their own cars, which as you know, Uber and Lyft reduced drunk driving. They changed the way people rode because it was so flexible and so affordable, and so I think you'll just go backwards.

SEANA SMITH: Hey Emil, what do you think about the franchise model? Because that was floated, and it's something that maybe they are still exploring because the future is unknown in California. But-- and this, of course, would be where Uber or Lyft would license their brands to operators of vehicle fleets in California, a way to get around this new law. But do you think that that's a viable option, and what does that do to Uber and Lyft's business?

EMIL MICHAEL: I worry about the franchise model-- oh, I know the details-- because that's just another person trying to take a piece of the pie. So if drivers feel they're not compensated enough and there's not-- and Uber's saying, well, we have to share the costs of the benefits for all these drivers, there's one pie. If you add a middleman in between like a franchisee, there's going to be less money to go around. So I don't know if that works. And remember, these local employers, if they're franchisees, set their own rules, and so you have a disjointed service. So I think-- I just don't know if that can work.

MELODY HAHM: Of course, taking a step back, amid this coronavirus pandemic, Uber did report that 75% year-over-year drop in rides in Q2. Lyft's active riders fell by more than half over that same period, revenue falling by 61%. It's a pretty abysmal time for the ridesharing business at large. How do you anticipate, you know, outside of the ongoing legal spat, that Uber and Lyft can recover after this? You know, investors are still waiting for profitability, are still hoping for, you know, Dara Khosrowshahi, his promise of making some of those bottom-line gains by this year. Do you feel like that's likely? What does the road to recovery look like for the business?

EMIL MICHAEL: Yeah, the road to recovery, I think, is going to kind of track what the road to recovery is in most small businesses because what are people doing with Ubers? They're going to airports. They're going to restaurants. They're going to bars. They're going to movies. And so it's going to track the recovery of those businesses, which looks to be slower than we'd hoped for 2020. And you hope in 2021 that comes back and the ridesharing business comes back.

And I see-- if you look at the stock prices, they're very close to what they were at the end of last year. And I think that's because investors are anticipating a rebound sometime in '21. And they're sort of throwing out '20-- 2020 as just-- it's just going to be a bad year.

JEN ROGERS: Is there any chance, though, that we have a little bit of-- I kind of think what happened with Airbnb, where when the pandemic first hit, everyone was like, no way am I going to stay in someone else's house. That's a crazy idea. And then people started thinking, well actually, maybe I would do that rather than getting in the hotel, the elevator there. It's kind of crazy.

And the same thing in New York I feel is happening. People are like, I don't want to get on the subway. I guess I'm going to go Uber. They've put up all these protections, and I can wind down the window and that there might actually be a resurgence back to and even bigger than some of the levels that we saw before? Could we see that sort of pendulum swing?

EMIL MICHAEL: I think you can. I think people will substitute other forms of transportation, like buses and subways and so on, for Uber. And then there'll be some people would just travel and go out less. What the net effect is, I don't-- it's hard to tell right now. But they're absolutely right that there will be a substitution from other more crowded forms of transportation toward ridesharing, I think, when the whole economy recovers. But still, people have to be going to restaurants and bars and movies and airports already for that to-- for us to see what's actually going to happen.

SEANA SMITH: Hey Emil, real quick, I'm just curious since you were an executive at Uber, what's your take on how the leadership teams at both Uber and at Lyft have handled this? Because I guess you can make the argument that maybe they should have gotten out ahead of this or there were things that they could have done a little bit earlier. How do you see that?

EMIL MICHAEL: I think they made a mistake by not getting ahead of this earlier, and that could have taken the form of lobbying legislators for this third way, like really being, you know, proactive about that. And frankly, doing all this ad campaign stuff they're doing now should have been done before the vote by the legislature. It's much harder to undo legislation than it is to make sure that you're being heard while the legislation is being crafted. So I think they just didn't react quickly enough.

We had the same situation in New York with Mayor de Blasio in 2015, and we were very early on in that. And we stopped bad legislation from happening. So I think that's the better model in this industry.