Uber: A Feisty Start-Up Is Met With Regulatory Snarl
nytimes.com
nytimes.com
As a Bad Person I take it as a given that there is some kind of corruption, more likely soft than hard, in metropolitan taxi regulation. That doesn't mean there aren't legitimate interests represented by those regulators, and those legitimate interests will be the rhetorical focus of the incumbent protection campaign. Uber would do well to appreciate those legitimate interests and get well and truly on the right side of those questions. Uber would also do well to understand the unstated agendas, legimate and otherwise, and strategize for meeting those.
Legitimate questions? IANA taxi expert but I would guess: - Value of incumbent licenses. In NY cab drivers and companies spend hundred of thousands for medallions. There are whole financing structures built around those values. Protection of those values is probably a key objective of the regulators.
That really is a legitimate problem. For one thing those values support an industry that provides jobs to working class people. For another the city probably views those values as a signal of the stability of its policy environment.
- Stability. Policy makers may well believe that the taxi system works on a number of dimensions, that systems like Uber may not work as well on all those dimensions, and that they may disrupt the system with unknown consequences.
- "Universal service". One of those dimensions may be service availability to low income neighborhoods. Cabs are supposed to take fares anywhere. Regulators may fear that poor people may not have iPhones to play in Uber, and that drivers would discriminate against some neighborhoods if the poor people did. It would not surprise me that the tacit model behind the cabs is "you take the high fare business traffic to the airports, but also the lower revenue low income traffic." The high revenue types effectively subsidize the low revenue types. This model happens EVERYWHERE in the regulated universe.
I wouldn't be surprised if the regulators were also simply trying to maintain their nests by maintaining control, and maybe some actual hard corruption.
But these folks are very, very capable at city politics. They've got their 10,000 hours in and they will kick your ass if you don't. I don't care how right Uber is, if they find themselves going up against race and class politics they will get erased.
My advice to Uber? Slow down. Figure out what the other side is about, and I mean all about, good and bad. Figure out how you're going to meet the real problems and the legitimate and / or understandable objections of the incumbents. Figure out the arena where the final decisions will be made (probably the city councils), get to know those players, and figure out how you can win there.
Uber can't probably do this on current staffing. They need first class political advice, and at a local level. Finding the right people won't be easy. But they need people with those 10,000 hours in the right places, and pronto.
I agree with most of what you said, except for this. They are in the land grab phase. If they don't continue to expand aggressively, someone will eat their lunch, ala Groupon.
My advice is for them to take some serious funding, and start cutting checks to lobbyists, PR, and god forbid, politicians. Play the game.
I feel horrible saying it, given that it helps feed the machine, but it's their only option to build a truly disruptive business in an area that needs disrupting mainly because of regulation and bureaucracy.
Google and Microsoft both learned this lesson too late, and it's hurt them both dearly.
Even if "corruption" were the whole story here -- and it is not -- it would be beyond simplistic to imagine it could be met by cash payments to the proper pockets. This board routinely laughs at idiot corporations attacking technology problems with mass expenditure. Well, this is a similar sort of problem.
There is no "land grab" here. This is not a technology problem.
There will some day be network dispatched cabs. For Uber the question is will they survive to be part of that architecture, or will it be built up around their mistakes.
Regarding the land grab, I really disagree. They already have a handful of domestic competitors cropping up, and I wasn't even aware of that Hailo company that objclxt mentions above, which sounds pretty formidable.
If they sit around doing a bunch of navel gazing on the nature of the political process and civil discourse, they are toast.
Groupon had no competitive advantage, barriers to entry, or economies of scale. If anything, they had a competitive disadvantage due to merchants' impressions of their brand (versus others), and diseconomies of scale, because of the Ponzi-like business model which has been discussed elsewhere on HN.
Uber has a major competitive advantage in that they already have drivers on the road. That's not everything, but it's a lot.
Also, regarding barriers to entry, Groupon and its competitors felt the need to hire all those sales reps and writers to put together deals. They may have been able to scale more efficiently, but all those hires were certainly a barrier to entry, to say nothing of their exorbitant land grab marketing budgets.
Also, I think the Ponzi scheme rhetoric is way overblown. You could argue that its investors were sold an over-hyped bill of goods, but Groupon's core product was/is sound. If they can scale down their head count a bit, maintain market share with only a maintenance marketing budget, and hopefully expand into local ecommerce, they can still do well. It just might not be a 30 billion dollar business.
Finally, Uber has gone from a near standstill to disrupting a major industry in record time, with almost no experience in the industry. As other commenters have pointed out, one of Uber's chief competitors is now Hailo, a rapidly growing service built by people with tons of industry experience and connections. I don't really see insurmountable barriers to entry here for their competitors, especially given that Uber's detractors would argue that its main competitive advantage has been to simply thumb its nose at what should have been its own barrier to entry: regulation.
My two cents: one of the big disadvantages Uber has is a lack of experience in the space at a senior level. This is not to say that Travis Kalanick and his fellow co-founders aren't smart guys, but they were not running taxi companies before they started Uber.
If Uber are not careful they will find themselves having some serious competition from companies like Hailo, which was founded by taxi drivers, and is thus in a considerably better place to understand the environment in which taxis operate (this is already the case in London, where Hailo massively outnumbers Uber in terms of popularity). Uber has software and start-up smarts, but Hailo is in a far better position to understand what drivers want.
For example, both Hailo and Uber are trying desperately to get a foothold in New York for taxi hailing, but the former's approach is considerably more nuanced (Uber trying a "let's go for broke" scheme that hasn't exactly worked out the way they planned, and Hailo taking a much more driver centric approach and holding off a launch until they know they can get full support).
Is this not what Uber's crying about? You want to have it both ways?
> and customers safety are still protected under exactly the same regulations as that of those who hail a cab in traditional means.
Not at all true. For one, Uber is using unapproved and therefore possibly fraudulent measuring devices. Again, you can't have it both ways: you can't both complain that existing regs are stifling Uber and need to go, and also that customers are fully protected by existing regulations.
Just wanted to jump on this. Black cars in NYC are not metered, they literally make up random prices. Protip to visitors: negotiate before the trip, not after!
Anyway, Uber couldn't possibly make this situation worse.
So does Uber. Restricted supply, and price fixing don't tend to create as many jobs. They are higher paid jobs, or would be if the drivers themselves owned the permits.
> Universal service
I've never been to New York, but I've never been on a Uber thread without hearing some New Yorker claim that taxis won't offer universal service (mostly refusing fares which take them out of Manhattan), but Uber does.
> My advice to Uber? Slow down.
Nope. They should keep their speed up, and hope they survive the political game of chicken. It's like Air-bnb - their best chance is to get the public on side, so the politicians won't screw them. It's not the right way to do things. It's dodgy. It might be illegal, and probably should be. But they aren't in a market where "should" wins.
Uber's business strategy in New York is (or at least should be) different from Uber pretty much anywhere else, because the New York market for taxis/liveries is so different (which in turn stems from New York transportation in general being unique).
I've asked every Uber driver I've had (in both NYC and SF) a few questions, both about themselves and their passengers, and every single confirmed my hypothesis that Uber in SF is seen much more as a replacement/alternative to the regular taxi cabs, whereas Uber in NYC is more of a luxury service - similar to a limousine, though to a lesser extent.
Outside the tech community, people here (NYC) don't seem to view Uber as competing with the medallion cabs at all, which is why their decision to sign yellow cabs (illegally) made no sense. One driver told me that he had just finished dropping of a passenger who only wanted to drive three blocks, just so that he could show up at the club in a black town car instead of a yellow cab(!).
That happens, but is an extreme minority case (and against the law). The reality is that Uber's markup means that even if get turned away by a yellow cab one out of every five times, it's still worth trying.
Maybe you can explain how advanced booking regulations for an already regulated industry that didn't need them ever before helps benefit the public good. Even if that were the case, does that outweigh the good limo drivers get from being able to make a better living? Most of these drivers don't own their own vehicles, they work for someone else, and are just trying to make a living. Requiring those hard-working drivers to have people schedule 30+ minutes in advance is taking money out of their pockets. It also prevents consumers from having a choice in how to get around, leaving them at the mercy of an often under-supplied taxi system. I can't see how any of the proposed regulation benefits the public, and I certainly can't see how it offsets the benefits of what Uber brings.
Tourists having a choice over a taxi or towncar doesn't hurt New York City's tourism industry. That seems like an absurd argument to me. I guess I fail to see how using licensed drivers who are already regulated, and who could be hired with or without Uber is a case against Uber.
Not all Uber drivers are licensed limo drivers or hold taxicab medallions. Moreover, there is a substantial difference between limosuine and taxicab services: by definition, limosuines are reserved in advance (and are thus not subject to fee caps), while taxicabs are hired on the spot (so the fees they may charge are stricly regulated to protect consumers).
Why is national regulation being pushed now, to require (among other things) towncars to be booked at least 30 minutes in advance? It certainly smacks of "big bad entrenched regulators" trying to fuck over a sprightly new startup.
It's not. You need to learn the difference between a national regulation and a bunch of major cities and metropolitan areas coming together to decide on a set of common rules that they will all agree to adopt. Here's a hint: a national regulation applies everywhere. A voluntary set of common rules applies only to those jurisdictions which agree to adopt the common rules. This is a good thing; it means that future market entrants will have an easier time figuring out the rules.
Maybe you can explain how advanced booking regulations for an already regulated industry that didn't need them ever before helps benefit the public good.
Booking regulations already exist in every major taxicab market. These regulations predate WWII.
Most of these drivers don't own their own vehicles, they work for someone else, and are just trying to make a living. Requiring those hard-working drivers to have people schedule 30+ minutes in advance is taking money out of their pockets.
If these drivers are working for someone else and using that company's cars, then they are generally required to book all trips through that company's systems. If they aren't, they are basically stiffing the company providing their car out of a portion of some of their fees. If that's true, then Uber could be liable for tortious interference with contracts (between the drivers and their cab companies), which is also crime in some states.
I can't see how any of the proposed regulation benefits the public, and I certainly can't see how it offsets the benefits of what Uber brings.
No, but plenty of other people can. Regulations exist to protect the common good, not to maximize the benefit of specific individuals (though in the course of protecting the common good many regulations will increase benefits to participants in affected markets).
What common good is being protected by requiring a towncar be booked 30+ minutes in advance? And if that was for the public good, why didn't those regulations come back when booking regulations were original drafted (apparently pre WW2)? The only people I've seen who have argued that Uber is against the "common good" are people who associate common good with the best interests of taxi medallion owners, and I haven't heard a compelling argument for how this regulation will help protect the common good (especially how it will outweigh the destruction of common good a free market with choice over transportation provides that would be killed).
Jason Fried recently said that he had made a point of talking to every Uber driver he rode with, and that he had gotten uniformly glowing assessments from those drivers about Uber. I'm running the same experiment later than he is, and getting very different results.
I've also found that I've gotten uniformly glowing assessments from all my drivers about Uber. This past weekend, my driver told me that "Uber is the best thing to happen to the transportation business ever". He had driven taxis, limos and worked as a delivery driver before. I hear similar stories from all my other drivers. It's certainly a different experience than riding in a taxi, but it's always hard to generalize from my limited number of rides/drivers.
My friend's driver didn't tell me he wasn't "licensed"; what he was telling me was that he was, for conventional livery companies, uninsurable. It seems clear to me that Uber checks drivers differently than black car companies do.
Go try and find a cab in Manhattan above 125th st. Drivers already don't go to lower income neighborhoods.
(Disclaimer: I haven't lived above 125th st in a few years. Maybe enough yuppies have moved in for cabbies to go up that far.)
And most people in lower income neighbourhoods can't afford Uber. Let's not make them out as some liberating force for the poor, now.
Just because they are supposed to doesn't mean they do. The first few paragraphs of this article[1] details one journalists' attempts to get taxi service in DC. When you force entities in an industry to subsidize some services below cost (such as rides out to the boonies), you don't always get the service below cost; sometimes the entities "forget" to pick up the fare.
(I don't mean to suggest that Uber is the only way of solving that problem.)
[1] http://www.theatlantic.com/magazine/archive/2012/05/why-you-... and the writer is an Uber fan so apply some grains of salt.
What it really did, though, was generate massive amounts of bad publicity as journalists took the opportunity to dash off quick "Price Gouging" stories, inflaming the public and giving ammunition to those who would like to take Uber down.
Uber had a golden opportunity during Sandy. They could have dug into their own pockets and paid their drivers the 2x pricing, while keeping the rates as-is, or even giving a Sandy discount. The monetary cost would have been absorbable, and the benefit to their image would have been immense. Instead of regulators pointing to their "price-gouging" during the storm, there would be journalists and riders coming to their defense, talking about what a good thing it was that we had a company like Uber in New York City.
If they failed that simple test of PR101, it's not surprising that Kalanick and his company are having a hard time navigating the insular and heavily political waters of municipal regulatory boards. There's more to succeeding in business than having a great product. You've got to learn to play the game.
"They're a young, inexperienced company"
True. But they're also challenging regulations saying they shouldn't have to play by the same rules as everybody else. Here they got burned, and they have no-body to blame but themselves.
Cab dispatch companies work in all the cities Uber is in, and Uber meets exactly the same regulations those companies do. Should Uber double drug test drivers? Should they double inspect vehicles for emissions? Or are we OK with knowing that all their drivers are already in compliance with all local regulations in each city? I guess I don't see what regulations they're skirting, or why there's a need for more regulation now. There's a considerable difference between what Uber does (provides a way for licensed limo drivers to fill their spare capacity) and what companies like Lyft and Sidecar do (allow anyone to drive without commercial licenses or commercial insurance).
Uber is a young company. I don't think anyone is advocating that they'll do everything perfectly. It's pretty easy to imagine stumbling through some learning experiences like they did their first hour after hurricane Sandy, when they went with the tool they're used to using in similar non-emergency settings. They quickly corrected their actions, and seem to be learning. If they continue to flub future post-emergency responses, then I could see the issue. Until then, I applaud them for learning (or appearing to), and don't fault them for not breaking non-existent regulations (they're following all local regulations in each city, and shouldn't need to ask for permission to run a legal business there). The criticism they face is from people with vested interests in an outdated business model. Those people deserve to be called out.
There are a few examples, but one was with tracking their travel with GPS instead of the approved meter that others were required to use:
http://blogs.hbr.org/hbr/mcafee/2012/08/bostons-uber-ruling-...
Uber was banned in Boston for awhile, and eventually the ban was overturned, but the fact remains that they did ignore (intentionally or unintentionally) the existing regulations for metering travel. I'm all for forward-thinking solutions to problems, and personally I think GPS is a better solution - but I grow tired of companies that repeatedly ask for forgiveness rather than permission as their modus-operandi.
Why should Uber ask for permission to run a legal business? The city of Boston agrees that their business is legal, and that GPS is OK. They're using commercially licensed drivers with commercial insurance, leveraging a system that existed well before Uber. They're simply making it more efficient for both sides (fill spare capacity with riders who need a car). Their drivers and cars meet all local regulations. Their outspoken opponents aren't doing so for the public good, they're doing it because they represent an entrenched power who is threatened. Legal businesses don't have to ask for permission, and shouldn't be asked to.
That would do nothing about demand (spiked because of mass transit closures). Discouraging consumption with price increases is to customers' benefit: it keeps the service available. You have choice of not riding by taxi, or paying twice the price; with a shortage, you have no choice -- you're stuck. (Of course Uber's PR is about the supply side; the demand effect is way too non-PC).
People prefer to have a shortage than feeling cheated.
This is a failure of political economics (not market failure). They didn't see the market choice. They thought the choice was political: don't buy, or get the police to make the guy lower his prices. They walk away with nothing.
Uber has a great algorithm to help supply meet demand through variable pricing.
They did forget to account for emergencies.
During the NYC blackouts not long after 9/11, not a single supermarket or corner grocer raised their prices.
I'm sure Uber has learned, and will have a plan in place next tme.
I am concerned about Travis' ability to beat the regulators here. He's taking an us vs. them approach.
May be necessary in reality - in fact, I bet it is.
But I wonder if he can get further by being outwardly less combative/aggressive.
It's very hard to negotiate with folks when what they want is your death. The compromise is what, exactly? That they only half-kill you for now until the rest of your support base erodes?
He's playing a giant game of chicken, because sometimes that's the only way to hope to win.
But, in the end, as the saying goes "You can always tell who the pioneers are because they have arrows in their back and are lying face down in the dirt."
The most likely outcome is status quo stays status quo, unless Uber can make enough noise/etc to matter.
* A rule to forbid luxury car services from using GPS to meter the precise time and distance * A rule to forbid drivers from accepting electronic hails * A rule that forbids limousines from arriving in less than 30 minutes.
The regulators are going to have a hard time convincing anyone they're actually doing this in the consumer's interest.
I think most consumers don't want this regulatory interference, and many would probably be willing to participate in a movement to protect Uber and the like. A consumer and voter movement would be far more effective than tangling with regulators and cartels.
I would certainly reconsider my vote for a politician playing this sort of protectionist game. "XYZ wants to take away your right to convenient transportation" may go a long way.
I remember doing that in 1998 by dialling a number.
These regulations and agencies were created in response to a wildly different system of car-based transportation from decades ago, one where drivers, agencies, payments, customers, and misbehavior were all harder to track and punish. A gypsy cab could operate unsafely, mislead customers (especially out-of-town visitors), and disappear with cash: no recourse.
Uber and more generally the category of mobile-dispatched-and-paid transport are now so different from that past that the best approach will be to let them operate to see what happens. The fears about 'anyone in a basement' preying on consumers and then disappearing reflect a pre-internet, pre-mobile, pre-credit-card mentality and may not be relevant at all, except in the imagination of threatened incumbents and bureaucrats.
New restrictive guidelines, like those from this "International Association of Transportation Regulators" conference, should only be crafted in response to any actual abuses that materialize. Even then, they should only be deployed to the extent that the standard laws of consumer protection (implied warranties, truth-in-advertising, liability law, etc.) don't work, and competitive consumer choice (aided by their mobile devices) doesn't work.
(There used to be special informational failures in cab-dispatching that made the usual consumer protections not work well. Those failures have been solved with mobile/reputational dispatch-and-payment. Every person, car, dollar, and ride is now far more accountable, even without government regulation, than ever before.)
This is just inflammatory, it's not accurate on any construal of the story
If you go to the NYT home page and scroll down to the Technology section below the fold, you should see the link/headline I used.
When I click through to the story, I still see the headline I used and I can't seem to find the one you are referring to, so maybe it customizes the headline based on which link you clicked?