Uber, explained

Disclosure:  I work for Flywheel, an Uber competitor.  The opinions expressed here are my own, not endorsed by Flywheel.

Over at HN, in response to the news that London black cab drivers are angry with Hailo for getting into the private rides business, there are some questions about how disruptive startups like Uber and Lyft approach the marketplace, what advantages their services have, etc.  As this is a subject I know a fair amount about, I thought I’d explain.

Compared with the traditional process of either going out on the street and raising your hand, or calling a human dispatcher, and receiving a traditional licensed, liveried cab, here are the differences in a Lyft/Uber experience:

  1. Instead of waving on the street or calling a dispatcher, you request a cab via your smartphone.  You also pay via a credit card that you’ve pre-attached to the app, without an explicit end-of-ride payment experience.
  2. You do not get a cab with a fixed, published fee schedule — rather, the amount you pay varies depending on the demand level of your time and place.
  3. The vehicle you get is not a liveried cab, but rather a private vehicle, typically owned by the driver, that meets certain standards set by the intermediating company.  The driver’s behavior is generally tracked by passenger ratings, and low ratings can easily cause a driver to be, essentially, fired.
  4. The company and its drivers are not bound by certain regulations that have traditionally affected cabs.

At the core of some of the controversy around Uber and Lyft is to what extent each of these differences is a good or bad thing, and how much of a role each one plays in the undeniable fact that Uber and Lyft have significantly eaten into the demand for traditional taxis.  Detractors of Uber and Lyft tend to think that item #4 (not bound by some regulations) is a significant and unfair advantage for Uber, and a hazard to passenger safety or social justice, and also to think that #2 (surge pricing) is a bad thing.  Fans of Uber and Lyft tend to think that items #1 and #3 (the smartphone mediation and the standard of service) are the important ones, and to regard #2 (surge pricing) as a good thing.  Fans of the new transportation companies are likely to regard the regulations that do not apply to new companies as corrupt or obsolete.

Let’s go through the items one at a time:

#1 is pretty unambiguous.  There are a few times when it’s very convenient to just go onto the street and wave your hands, but essentially nobody likes calling a dispatcher, and the times and places where it’s inconvenient to try to stand on the street dwarf the convenient ones.  Smartphone hailing is here to stay.  It’s also, however, the least differentiating service.  There are a LOT of companies that provide a smartphone hailing experience, some with private car companies, some with taxis.

#2 is very contentious.  Clearly, passengers would, in the best of all possible worlds, like to both be able to get a ride reliably, and also pay a small, known rate.  This isn’t that world, and whether people think that surge pricing is an unpleasant necessity or tantamount to theft appears to be a very personal reaction.  But there is at least a sizable fragment of the population who are regard the tradeoff of “pay more, but get a ride reliably” as a good tradeoff to make.

#3 has traditionally been a strength of Uber — that is, the cars have been nicer and the drivers provide a better customer experience — but that advantage has decayed somewhat as they have moved downmarket.  Which probably comes as no surprise.  My personal feeling is that all the various taxi-like services will likely converge on a mostly equivalent service level for their price point — which may be a little higher than it was pre-Uber, as competition has shaken up some stagnant markets.  Others feel strongly that Uber provides a vastly higher level of service, and will continue to even when they’re more mature, the cars their drivers are driving are older, and so forth.  Still others — albeit a smaller number — appear to like the area knowledge and perhaps driving ability of taxis over the more traditional customer service of Uber, or the friendliness of Lyft.

#4 is a mess.  Everyone takes a different set of priors to the value of existing taxi regulation, taxi regulation varies from place to place, and I’m aware of no data that strongly suggests the objective reality of such value, nor the compliance costs.  Does the freedom from regulation that Uber experiences compared to a traditional taxi company give it a massive, unfair competitive advantage, where the costs are borne by vulnerable populations such as the disabled?  Or is this basically a bunch of smoke and mirrors that the taxi companies have used to pocket windfall profits under a legal monopoly?  I don’t know, and with all due respect, you don’t know either.  I’d wager than somewhere well under 1% of all the people who have an opinion on the taxi industry have terribly comprehensive knowledge of their local taxi regulations, much less other locales’.

The regulatory advantages allegedly held by Uber include the following:

  • Insurance.  This is everybody’s go-to example, though I don’t think that there’s actually a ton of difference here.  The new tech companies have a very different insurance approach than do taxis, but they largely speaking both insure the passengers to an acceptable degree.  Some holes in the coverage of Uber insurance have had tragic consequences, but in my view they will likely get patched over soon.
  • Paratransit.  This is the big one, in my view.  Taxis have traditionally been required to accommodate the needs of disabled persons, and to take paratransit vouchers to help the disabled get around.  Taxi drivers tend to regard paratransit as annoying and un-profitable, and are bitter that Uber drivers do not have to deal with it.  To what extent this actually causes measurable economic harm, I’m not sure.  There are also prevalent stories — but not, to my knowledge, hard data — of taxis ignoring their responsibilities and ditching the disabled.
  • Service areas.  Taxis tend to be required to serve the whole city, though what this means is very up-in-the-air.  The new tech companies have no such parallel duty to serve, say, poor, dangerous, or just inconveniently far areas.  That said, I’m highly dubious that in practice, the areas served are much different.
  • A hodge-podge of very random other regulations, generally local to each particular municiple area.  Compliance costs unknown.

So, not much in the way of answers here, but hopefully some perspective beyond that which a casual user of taxis or ride apps will see.  Now, go forth and flame each other about the optimal transportation policy!


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