Ajit Balakrishnan: Uber, Baazee.com redux?

The Information Technology Act needs another tweak to allow a different kind of information intermediary to flourish

This is the story so far: on a recent day in December, a 26-year-old woman executive in Delhi, returning home in a taxi at 10 p m after dining with friends fell asleep in the taxi and awoke to find it parked in a desolate area with its doors locked. When she tried to get out of the car, the driver took a threatening stance and assaulted her sexually. Afterwards, the driver dropped her home. All this would have counted as just another Delhi rape story but for the fact that the taxi service in question was Uber, the San Francisco-headquartered internet company, which in its fourth year of existence has been valued, according to The Wall Street Journal, at $42 billion.

Uber has been making similar headlines in cities as varied as Washington D C, Los Angeles and Chicago, and authorities in several jurisdictions besides India (Spain, Thailand, Belgium, to name a few) have moved to ban Uber's services.

If all this has left you bewildered, I wouldn't blame you. When we last looked, a taxi in Mumbai, Delhi or for that matter in New York was a creaky contraption manned by a near destitute driver. In Mumbai and Delhi, these drivers are normally the most recent immigrants from the most poverty-stricken parts of Bihar or eastern Uttar Pradesh; in New York they are usually impoverished Bangladeshi immigrants. How does all this square with the talk of billions of dollars in valuation for taxicab companies?

It turns out that the taxicab industry is not as peripheral as we have imagined it to be. Some estimates place it at around Rs 15,000 crore a year in India, most of it centred in the top four metro cities. And while the headline-grabbing cases have all featured young women taking late-night cabs after a social evening, much of the demand is from companies doing short-term hires for their executives or for airport collections and drops. The global market for this kind of taxi service, counting the revenue of all the current taxi services, is estimated by Aswath Damodaran of the Stern School of Management at New York University at $100 billion. But others point out that estimating the market by merely counting the revenues of existing cab companies is somewhat like, in 1910, estimating the demand for cars by counting the horse carriages on the road at that time.

Uber and Uber-like players (Olacabs, Bookmycab and TaxiForSure are some direct competitors in India) work only as information intermediaries, connecting taxi-owners with users and collecting a commission for this. The "radio-taxi" operators, Meru Cabs, Mega Cabs and Easy Cabs, differ from the Uber-type model because they own the taxis they run and employ the drivers directly.

All this takes my mind back to that day in December 2004. To jog your memory, in November that year, a 17-year-old boy, a student of the elite Delhi Public School (DPS) and a member of the Delhi under-17 cricket team, had persuaded a girl, a classmate, to have oral sex with him and then filmed her doing it with his mobile phone. This two-minute-thirty-seven-second clip was passed on from phone to phone all over the country. A student at another elite institution, the Indian Institute of Technology in Kharagpur, copied it on to a CD, created a storefront on Baazee.com, an auction site, and offered it for sale, giving it the title "DPS Girl having Fun". Avnish Bajaj, the chief executive of Baazee.com and a Harvard graduate, was arrested by the Delhi police and lodged in Tihar jail.

The Baazee.com incident created at that time as much furore as the Uber incident is causing now. The legal question that arose then was: are the organisers of a website marketplace like Baazee responsible for what the merchants who create stores on them do?

Every fundamentally new technical innovation has brought with it a new business model and with it a challenge to existing laws. For instance, when all goods were handcrafted in home-based craft shops, each handcrafted item was sufficiently different from the others to be easily identified if a worker, or anyone else, stole it. The theft of such artisanal goods was, thus, seen as a private dispute between the craftshopowner and his employee, to be settled between them. Once the Industrial Revolution came along, the factory emerged as a large-scale establishment employing dozens or even hundreds of workers making standardised, identical-looking products. No longer was it possible to identify one of the products by its mere looks if it was stolen by a worker. An offence called "embezzlement" was defined and judges had to be employed to pass judgement on whether embezzlement had occurred.

If the key productivity-enhancing instrument of the Industrial Age was the Factory, its equivalent in the Information Age is the information intermediary. Information intermediaries facilitate the buyer and seller discovering each other, and provide tools for price discovery and payment settlement. If the productivity gains of the Information Age have to be captured, we must craft a legal system that allows Information intermediaries to flower while at the same time protecting the users of such marketplaces.

The Baazee.com fracas was resolved by amending the Information Technology Act to provide a role for "information intermediaries" (disclosure: I served on the committee that re-drafted the Act). The Uber incident is a signal that another tweak is necessary to allow a different kind of information intermediary to flourish.

Ajit Balakrishnan, founder and chief executive of Rediff.com, is the author of The Wave Rider, A Chronicle of the Information Age
ajitb@rediffmail.com