Taxis and the Next New Thing

New York City's taxi system, like many others, has been for generations a well-protected one.  Periodically, the city auctions off small numbers of taxi medallions -- essentially the right to operate a single cab -- at prices of $1 million or more.

Over time, this has resulted in less than ideal results for taxi customers.  There have not been enough taxis in the city -- particularly in the outer boroughs -- and a politically motivated group, the medallion owners, have fought to keep things that way.  Who needs competition?

One example of the problem has been the sad fact that there are 20 percent fewer taxis on Manhattan streets during evening rush hour than at any other time of the day.

In 2004, the city attempted to address the situation by adding a $1 surcharge to taxi fares between 4 p.m.  and 8 p.m. on weekdays.  Seven years later, a New York Times article explained that this had not worked:

     "The hour from 4 to 5 p.m. has long been considered the low tide of taxi service, the maddening
     moment when, in apparent violation of the laws of supply and demand, entire fleets of empty
     yellow cabs flip on their off-duty lights and proceed past the outstretched hands of office
     workers seeking a ride home."

It turned out that cab drivers worked 12-hour shifts and changed shifts in the late afternoon, dropping their cars at stations located outside expensive Manhattan.  When it was suggested that the shift could be changed earlier -- say at 2 p.m. -- second-shift drivers objected because they did not want to miss the lucrative 2 a.m. rush of drinkers seeking cabs after bars closed each night.

So when taxis were most needed, the industry preferred not to be there.

There were other problems -- reluctance to pick up minority passengers, the illegal adjustment of rate calculators to assess higher charges, drivers taking naive tourists on roundabout routes from airports into the city -- that were just accepted as part of the system.

In short, you could say the taxi industry was not customer-facing.


Destructive Innovation

So in came ride-sharing companies that offered an alternative to traditional taxicabs.

Using well-designed cellphone apps, rideshare companies allow would-be taxi patrons to hail private cars.  When riders contact these rideshare companies, the apps locate nearby drivers, specify where riders want to go, negotiate and collect fees for trips and notify riders when their cars will arrive, even tracking the cars as they approach.

The rideshare companies are very lean operations.  They do not own cars but merely match private drivers with those seeking rides.  After deducting a portion of each fare, they transfer money to the driver, who receives a 1099 for tax purposes at the end of the year.  The companies also track and make available passengers' and drivers' ratings of each other, providing some quality-control information before rides are signed up.

There are now a number of these companies -- DiscountCab, Sidecar, Gett, Zimride, Ridejoy, Hailo, Uber and of course Lyft, which is best known for placing silly pink mustaches on the grills of its cars.

Not surprisingly, the traditional taxi regimes are fighting back.  City taxi regulators raise safety and liability concerns, all in the interest of protecting the riding public.  Taxi companies have tried to enlist government in banning rideshare companies.  Taxi drivers in Europe have been particularly aggressive in fighting the new operators.

Change is never easy.



The Battle for Market Share

The rideshare industry is new, but it already is consolidating.  Hailo recently pulled out of the North American market altogether after two years of failing to establish significant market share.

Various of the companies are fighting to get governments to grant them exclusive rights to send cars to airports to pick up and drop off passengers.

In January, the small rideshare company Gett charged that Uber employees had ordered and then cancelled 100 Gett rides in a three-day period and that Uber had tried to convince Gett drivers to join the Uber network.

Several months ago Lyft charged that Uber employees engaged in a similar effort involving false credit card numbers and the ordering of 5,500 rides that were then cancelled, often after a Lyft driver had arrived to pick up a passenger.

Uber has countercharged that Lyft has done the same thing.

These companies aren't competing for customers.  Each is trying to drive the other out of the market and to create a monopoly.

So far, Uber is the biggest company in the rideshare space.  It is valued at $18 billion and probably is looking to mount an IPO.  Pretty good money for a cellphone app.

It also is getting involved in government, as taxi companies used to do.  Recently it hired David Plouffe, who previously worked as a congressional aide and campaign strategist. NPR's story on the hiring carried the headline, "Uber Greases the Wheel with Obama's Old Campaign Manager."

The Washington Post  explained why Uber hired an expensive fixer.

     "Uber is the latest Silicon Valley heavyweight to discover that tech disruption requires
     overcoming political and regulatory barriers.  The past 20 years have been littered with
     examples of companies, from Microsoft to Apple to Facebook, learning, often late, that
     they must play in politics to continue to grow."


Plus ca change, plus c'est la meme chose.