Uber's legal battles and robocars

Uber is spreading fast, and running into protests from the industries it threatens, and in many places, the law has responded and banned, fined or restricted the service. I'm curious what its battles might teach us about the future battles of robocars.

Taxi service has a history of very heavy regulation, including government control of fares, and quota/monopolies on the number of cabs. Often these regulations apply mostly to "official taxis" which are the only vehicles allowed to pick up somebody hailing a cab on the street, but they can also apply to "car services" which you phone for a pick-up. In addition, there's lots of regulation at airports, including requirements to pay extra fees or get a special licence to pick people up, or even drop them off at the airport.

Why we have Taxi regulation and monopolies

The heavy regulation had a few justifications:

  • When hailing a cab, you can't do competitive shopping very easily. You take the first cab to come along. As such there is not a traditional market.
  • Cab oversupply can cause congestion
  • Cab oversupply can drive the cost of a taxi so low the drivers don't make a living wage.
  • We want to assure public safety for the passengers, and driving safety for the drivers.
  • A means, in some places, to raise tax revenue, especially taxing tourists.

Most of these needs are eliminated when you summon from an app on your phone. You can choose from several competing companies, and even among their drivers, with no market failure. Cabs don't cruise looking for fares so they won't cause much congestion. Drivers and companies can have reputations and safety records that you can look up, as well as safety certifications. The only remaining public interest is the question of a living wage.

Taxi regulations sometimes get stranger. In New York (the world's #1 taxi city) you must have one of the 12,000 "medallions" to operate a taxi. These medallions over time grew to cost well north of $1 million each, and were owned by cab companies and rich investors. Ordinary cabbies just rented the medallions by the hour. To avoid this, San Francisco made rules insisting a large fraction of the cabs be owned by their drivers, and that no contractual relationship could exist between the driver and any taxi company.

This created the situation which led to Uber. In San Francisco, the "no contract" rule meant if you phoned a dispatcher for a cab, they had no legal power to make it happen. They could just pass along your desire to the cabbie. If the driver saw somebody else with their arm up on the way to get you, well, a bird in the hand is worth two in the bush, and 50% of the time you called for a cab, nobody showed up!

Uber came into that situation using limos, and if you summoned one you were sure to get one, even if it was more expensive than a cab. Today, that's only part of the value around the world but crazy regulations prompted its birth.

The legal battles (mostly for Uber)

I'm going to call all these services (Uber, Lyft, Sidecar and to some extent Hail-O) "Online Ride" services. They are threatening the existing Taxi industry. For the first time, New York medallions are actually dropping in price. People love the Online ride price, the app that shows you the vehicle coming to you, and the frictionless use, where you don't have to pay and a receipt shows up in your E-mail to make it easy to file an expense report. I've always known it was super-duper important to make a frictionless UI, but Online Ride services have taught me it's super-super-duper important.

It's seen that cab drivers are protesting but it's really cab companies. After all, it's very rare to think of cab driving as a career. It's something people do as a way to make a buck with one common skill. Uber even shouts that it hopes to replace all its drivers with robocars, and they don't get bothered by this at all. If cabs lose business to Uber, the cab drivers will just move to driving for Online ride services -- whether they make more or less I will discuss below.

The Online Ride companies have all, in my view, played semantic games to get around the regulations. They've pitched some of their services as "ride sharing," painting a picture of somebody out driving their car and picking up somebody and giving them a lift along the path they're going. They've declared that the payments are a "donation" and that any rider can elect to not pay the suggested donation -- though they would get a bad reputation. In Europe, where UberX type services have been declared illegal, they created UberPop, further pushing the rideshare viewpoint, but saying that drivers would not make a profit since that's forbidden. Even UberPop has been shut down, in part because that's a fiction. The reality is that all the drivers for these services I have used are people who decide to do a shift waiting for ride requests and serving them, as a way to make income. It definitely is a mobile summoned taxi service. I believe these companies have pushed a ride-sharing positioning precisely because there are antiquated taxi regulations which would unfairly impede their progress if they were viewed as too much like a taxi.

(Note that some of these companies do offer actual ride sharing products, even sharing with the driver, with Zimride, or with other passengers, like UberPool.)

The safety question

A very common tactic in fighting new competition is to invoke public safety. And indeed, this is one of the few remaining reasons for taxi regulation which still has some merit. It is here that we see the most lessons for robocars.

There have been some safety incidents. Some drivers have had accidents, including a famous one in San Francicso where a girl was killed by a car logged in to Uber but not working a ride. There have been scary allegations of assault or rape by drivers. Accusations of rape in New Delhi resulted in a shutdown of the service. There are questions about how much the services are doing in the way of background checks on drivers, and how much they should have to do. The companies want to do the minimum, of course. This is particularly true for the services that just use ordinary people as drivers, and I suspect these complaints apply less to the main "Uber" service which uses licenced high end limos operated by professional limo companies which generally exceed the standards of taxis.

Also in question is how much insurance coverage there is when you are driven by an ordinary (UberX or Lyft) style driver, and what is covered if there is an accident.

These safety questions are real, and there should be standards set for this. But this is, again, something different from the old concept of hailing a taxi on the street. With Online Ride services, you can pick your company and you can do it based on the level of safety they maintain and promise. Taxis need more regulation because the market is not operating. Online ride companies should be very clear on what they do with regards to passengers safety and insurance. The government can set a basic minimum standard, and even assign stars to how well services meet those standards. This is what happens with cars. All cars made have to meet the basic Federal Motor Vehicle Safety Standards, but in addition, they can earn NCAP "stars" for going above and beyond in safety. The public decides how much it wants to value 5-star crash ratings on the NCAPS or from the Insurance Institute of Highway Safety.

My initial feeling is that while the stories of assault and rape are frightening, passengers should generally be much less afraid in an online ride service than just being out in public. Every ride is recorded, and the identity of the driver is known. A driver that does something is sure to be identified, and indeed the drivers accused have all been easily found and charged. There is a risk, of course, in getting into a car with a stranger who is unknown to you, even if they are known to the system, because the driver now has you semi-captive. It does not help you if they are crazy and not scared of the fact they will be caught. But with this identification in place, is the risk greater than in other situations of life?

One solution might be to include an emergency alert button in the passenger's app to summon help, including a service employee on the driver's and passenger's speakerphone. Beyond that, cars might be equipped with a remote disablement feature which sounds a warning and later cuts the engine -- such tools were popular as antidotes to carjacking and car theft -- allowing a scared passenger to stop the car and get out no matter what if they are taken somewhere other than they desired. New drivers could also be forced to follow the planned route, with deviations requiring consent from the passenger.

And of course, they can improve the background checks. But is the average taxi driver any safer than the "amateur" drivers working for online ride companies? Taxi drivers don't have a better accident rate than average drivers, it turns out.

Attacks on the online ride industry will continue. The official reason for slowing it down will be a reasonable sounding one such as safety, but make no mistake, the real motive will not be a sudden fervor for public safety, it will be to block competition.

The other justification for regulation comes in whether drivers make a living wage. There is some truth here, because the Online Ride drivers make the very common mistake of acting as though the depreciation on their car costs them nothing because they have already bought the car. In talking to drivers, I have found that most do not account for the true cost of operating their car (around 50 cents/mile or about $20/hour) and rather mostly look at the cost of gasoline. They figure their income by just taking what they are paid and deducting very immediate costs like fuel. They are making an error, and this allows the companies to get drivers for less than the real cost. Robocars, of course, won't have this issue.

The shutdown of Uber in various places tells us the same will happen to robocars, which will threaten not just existing businesses but also the jobs of drivers. But Uber's ability to bounce back is also interesting. The public wants these services, and has had much less sympathy for the taxi protesters. When there was a protest in London, Uber did more business than it ever had before as people just switched. The Online Ride services have been deliberately ignoring the bad laws, and mostly winning. And so it should also go for the robocars, even though their fight will be even harder, because of the public's stronger fear of being harmed by machines.

As a postscript, I should note that Uber has also gotten into deserved trouble because of very bad privacy practices and abuses, and disturbing attitudes by management about the press, their opponents and even women. These issues are unrelated to the real question, and Uber deserves trouble for them. Though it's enemies will seize on its real mistakes in other fields to fight their battle.


I always see this when posting a comment:

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"The other justification for regulation comes in whether drivers make a living wage."

At least in some places, this is the real reason. There is a danger that people in need of fast money (and why else would they work for Uber?) will think that intake less immediate costs is profit, and thus actually get further into debt.

I do agree that it should be made more clear to drivers what they are paying for added maintenance and vehicle depreciation. They do make a profit, even with these things, but it's not as much as they imagine.

On the plus side, driving for an online ride service is actually a boon to many who can't find full-time work, or who are deliberately part-time. They get to supplement their income on their own schedule. Several of my drivers have been small entrepreneurs filling in gaps in their day and making income.

In addition, many cars are underutilized. So if you only drive your car less than 5,000 miles/year for your own purposes, it actually is more profitable to use it in an online ride service, because cars are designed to go about 10,000 miles/year on average. As such, they depreciate mostly by the mile but there is still a time component, which an idle car is wasting. And an idle person also doesn't get the time back.

But the point is that it should be laid out in a realistic way to the driver, who is really selling their time but also their car.

The NYC taxi medallion price price is not $400,000, that was years ago. It peaked well over a million, and is now in the $800k+ range. The drop has been attributed to Uber, btw.

(Price corrected -- Brad)

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