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Uber is somewhat threatened in NYC

June 3, 2015

There have been a couple of moves recently that make Uber slightly more threatened in NYC than I had thought would be possible.

First, last week de Blasio made Uber and other “hail a ride” companies very annoyed when he suggested a plan that would require them to get city approval and pay $1000 every time they want to change their app’s user interface.

If you know anything at all about how tech companies work, you know this would be a serious friction if it goes through; user interfaces are changed on a weekly basis, to add features or even just test them. In response, an angry letter was sent to de Blasio from Twitter, Facebook, Google, Yahoo, and a bunch of other tech companies. Kind of a tech posse wielding its power.

In a different story, Uber has been attacked by four credit unions who loan money to taxi medallion purchasers. They argue that taxi medallions come with contracts that promise the owners exclusive rights over hailing, but that Uber, with its hailing app, has taken over their business. In particular, the definition of “hail” is coming under scrutiny.

On the one hand, it does seem to be a different act to raise your hands on Broadway versus using an app on your phone. But by the time we have chips implanted into our heads, just thinking the words “hail a taxi” might do the trick, and that’s where the grey area lives. Or, put it another way, yellow taxis might also want to have hailing apps, and in fact they really should.

What do you think? Is de Blasio simply a pawn of the taxi commission? Should we feel sorry for tech companies? I’m conflicted myself, especially because I still don’t understand the way insurance works with these things.

Categories: news
  1. DJ
    June 3, 2015 at 7:59 am

    No matter what you think of Uber, the taxi medallion system is completely absurd. Licensing or insurance requirements cannot justify limiting medallions to a fixed number.

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    • June 5, 2015 at 8:56 am

      absurd to you. But its the law and taxis have paid hundreds of millions for the exclusivity of the street hails. Like it or not these rights have to be protected. If they can’t then the money has to be compesated…

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      • DJ
        June 5, 2015 at 9:24 am

        I don’t agree that so-called “rights” which are destructive to the public deserve protection. Fracking rights and mineral rights also cost hundreds of millions of dollars; are you saying therefore that we may not ban fracking?

        If medallions were necessary for a functioning taxi system then you might have a point, but they clearly are not: almost every city other than NYC manages without a medallion system.

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        • June 5, 2015 at 5:43 pm

          That’s your opinion…..Not mine…..If they sell it they must enforce it. Your just a child. You have a lot to learn

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      • Equity Val
        June 6, 2015 at 6:31 pm

        Abe Mittleman is a taxi driver and has an ax to grind. He’s been advocating for the taxi cartel and resisting competition for many years, see: http://www.leaderobserver.com/pages/full_story/push?article-It-s+the+Radios-%20&id=11549037&instance=lead_story_left_column

        The taxi industry has resisted virtually every rider friendly change that has been proposed since 1937.

        E-Hails are not street hails. The taxi industry has been very effective in its use of campaign contribution crony capitalism to defeat competition historically, but the public has voted with its feet on ride sharing and the genie will not be put back in the bottle. If you want to make things better for drivers, lift the cap on medallions and thereby cut the cost of leases.

        Medallion owners were never guaranteed that the price of their medallions wouldn’t go down, and they never shared the winnings with the city or anyone else when their cartel produced massive lease rents and capital gains over the years.

        Technology changes, time changes and businesses rise and fall. Go ask Kodak, Blockbuster and a host of others. Medallions are not some special class of business that deserves compensation, they just bet wrong that a cartel would continue in perpetuity.

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        • June 7, 2015 at 8:19 am

          Yes, I’m in the taxi business and I spent over 40 years slaving for what I own. You’re right, we were never guaranteed any value on medallions. What we are guaranteed is the exclusive right to street hails in the City of New York. It’s the law! You can read it for your self http://72.45.128.254/nyc/adcode/Title19 -502.asp

          Many came after me and paid millions to the City for the same privileges. Why? Because it’s the Law. Maybe times have changed but the law hasn’t.

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        • June 7, 2015 at 8:21 am
        • June 7, 2015 at 8:24 am

          BTW Equity Val, I’m not afraid to show my identify. You are…….

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        • June 7, 2015 at 8:45 am

          One more thing Val, E-Hails are Street Hails. The TLC defined them as such and passed rules last January confirming this: Here is the link to the rules past on Jan 29, 2015. You can read the definition of an on demand hail as shown below on page 5

          http://www.nyc.gov/html/tlc/downloads/pdf/ehail_rules_12615.pdf

          Hail.
          A request, either through a verbal (audio) action such as calling out, yelling, or whistling, and/
          or a visible physical action such as raising one’s hand or arm, or through an electronic method
          such as an E-Hail App for on demand Taxicab or
          Street Hail Livery service at the metered rate of fare as set forth in §58-26 and §82-26 of these Rules by a
          personwho is currently ready to travel.

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        • DJ
          June 7, 2015 at 10:33 am

          So the rules were changed on January 29, 2015, to define e-hails as street hails? And you are ok with this?

          Yet when I and others suggest that we change the rules to remove the limit on medallions, you cry bloody murder. Note: We are not even suggesting to remove your sacred exclusive right to street hails. We are merely suggesting that there is no reason to numerically limit the number of medallions. There is a difference!

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        • June 7, 2015 at 10:59 am

          I totally agree with the increase of medallions. NYS in 2011 authorized the issuance of 2000 more medallions. Only a few hundred were sold. The city is delaying the rest because of the downturn in the market. This is because of the illegal taking of property by TNCs. It is all in court now. Hopefully the additional medallions will come to be after this mess is straghtened out.

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  2. June 3, 2015 at 8:33 am

    Gregory Mankiw, at Princeton University’s 2015 reunions, remarked that its a shame, from an income inequality perspective, that there are no technologies which increase the wage of unskilled labor and decrease the wages of skilled labor: Uber came to mind as a counter-example.

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    • Zathras
      June 3, 2015 at 9:24 am

      Uber is not a counter-example. The average wage is still going down. It just drives the number of employees up.

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      • June 3, 2015 at 9:26 am

        Agreed, the actual effective hourly wages for Uber drivers are notoriously overestimated due to the lack of cost considerations.

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        • June 3, 2015 at 1:31 pm

          In general, I don’t think Uber is the *best* counter-example because its a good example of lower middle class skilled labor (cab drivers with medallions) having their wages lowered by the destitute with cars and other lower middle class laborers (Uber drivers) but it is a counter-example because unskilled wages increase and skilled wages decrease.

          @Zathras: the average wage for drivers has almost certainly increased since the advent of Uber; I have seen no analyses of any kind suggesting otherwise.

          @Cathy
          Even more realistic adjustments leave Uber drivers (who are less skilled than traditional cab drivers), slightly ahead of traditional cab drivers. Uber released more data earlier this year:
          http://time.com/money/3678389/uber-drivers-wages/

          @Cathy and Zathras

          Can you provide links to any sources suggesting that:

          A. Uber drivers are worse paid than traditional cab-drivers

          OR:

          B. The average wage of unskilled drivers has gone down?

          TYVM!

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        • Zathras
          June 4, 2015 at 10:00 am

          @mlachans, you say “Even more realistic adjustments leave Uber drivers (who are less skilled than traditional cab drivers), slightly ahead of traditional cab drivers.”

          This is only looking at pre-tax, just with direct income. Post-tax, you have to account for the fact that Uber drivers are independent contractors, whereas most taxicab drivers are employees. So you have to account for self-employment tax and benefits. After that there is no “slightly more” at all.

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        • DJ
          June 5, 2015 at 10:06 am

          All reliable sources that I can find indicate that most taxicab drivers are independent contractors, not employees. For example: http://www.unitedworkerscongress.org/taxi-drivers.html

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        • Equity Val
          June 6, 2015 at 6:15 pm

          @Mathbabe

          That doesn’t seem to be true if you speak to Uber drivers. Many of them are former cab drivers who say they make the same or more with less time behind the wheel, freeing them up for other work or responsibilities.

          Also, the presence of Uber has created competition for drivers and the garages and medallion owners have had to cut lease rates to keep their utilization rates up. As it is, they are now down in the low 90s according to Signature Bank (which has a medallion loan portfolio) on their last conference call.

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        • June 6, 2015 at 6:30 pm

          But again, this is partly due to their not having insurance sometimes.

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        • Hubert Horan
          June 6, 2015 at 9:04 pm

          Again, this discussion ignores the actual economics. Uber, like many other startups needs to run huge operating losses in order to build volume and drive less-well financed incumbents out of business. This includes offering drivers attractive rates to abandon other operators. There is no way that a mature Uber could offer lower taxi fares than Yellow Cab, while paying drivers more money for operating nicer, more expensive cars at lower rates of utilization. Everything in the “market” today is being subsidized by Uber’s investors who hope to make a massive equity killing once they eliminate the competition.
          There is also the issue of regulatory arbitrage noted in multiple comments (avoiding insurance and similar costs competitors have to pay) and labor exploitation. For a full-time driver to prefer Uber to Yellow Cab, they not only have to receive higher pay, but that pay has to compensate him/her for the full costs of extra commercial training/insurance/licencing, the much higher vehicle maintenance and depreciation (compared to personal use) and the full costs and risks of vehichle ownership and financing. To drive for Uber, you have to buy that nice Town Car, but Uber can drop you as a driver without notice and you’re stuck paying off the loan. While Uber offers drivers good fees today, it can cut those fees without notice. The articles that claim “uber driver earns $90K” or whatever always ignore the capital costs and use personal (not commercial) maintenance and depreciation rates. How many Uber drivers look narrowly at marginal gas and upkeep costs and fail to consider the rest of the economics? There is absolutely no evidence that the Uber business model (Uber+its allegedly independent contractors) can produce urban car service more efficiently than any moderately well run Yellow Cab

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        • Equity Val
          June 7, 2015 at 10:32 am

          Mathbabe, They are required to have insurance in New York, and they are covered by an Uber policy in other cities when they have a fare.

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        • June 7, 2015 at 10:41 am

          If you are dating there is no insurance gap I believe you are mistaken.

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        • Equity Val
          June 7, 2015 at 10:36 am

          Hubert Horan, You are ignoring that Uber drivers don’t need to pay $36K a year to rent a medallion from the owner. That is a tremendous amount of margin to fund other expenses or lower fares. Virtually all startups, particularly those that grow very rapidly, go global from an early stage, and must contend with entrenched monopolies in regulatory and court proceedings lose money. As they get scale and growth slows, they then become profitable. This pattern has repeated so many times that it almost seems redundant to state it, but it seemed to have escaped your notice.

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        • June 9, 2015 at 11:01 pm

          @Hubert Horan

          Is there any evidence for your claims? Uber seems to be following the normal path for any start-up and none of the reports I have read suggest that Uber’s long-term strategy is to drive its competition out of business then raise prices.

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  3. June 3, 2015 at 8:49 am

    I’m not at all a fan of Uber, but the idea that it should to get city approval and pay $1000 every time it changes the user interface is ridiculous. The most that will accomplish is that Uber will set things up so that, if you use the app within the 5 boroughs, you will get some version of the interface that is 30 generations behind its state anywhere else.

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  4. FogOfWar
    June 3, 2015 at 8:56 am

    Agree^3.

    FoW

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  5. rhcaldwell
    June 3, 2015 at 10:09 am

    As far as I can tell, Uber is a “private car”, and novel only to the extent that it, like a “gypsy cab,” is brashly acting as a scofflaw, eschewing following existing law and regulation. I think it proper that Uber, Airbnb and the like be subject to vigorous application and enforcement of existing rules, and not be allowed to operate under cover of their self-serving “sharing economy” nonsense. Are NYC taxi rules long overdue for a rethink? Yes, but not by simply abandoning the existing regime.

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    • curlydan
      June 4, 2015 at 4:56 pm

      Totally agree. Uber is an unregulated company competing against regulated companies–of course it’s cheaper because the drivers assume all the risk while Uber siphons off the money. But because it’s “got an app” and is better than hanging out on the corner and competing for a ride at 5:30PM, no one wants to say anything about it except the taxi companies.

      I feel the same way about Uber as I do about bulk phone “metadata” collection. Maybe there’s a place for it, but both are against the law as is currently written (Uber is a unregulated tax/limo service; bulk phone “metadata” collection is against the Constitution’s 4th Amendment).

      Should we get Uber in the market? Sure, but make sure what they do complies with the law…or change the law to apply to all. Right now, Uber is just an MBA’s biz case wet dream come true: corporation gets the profits, workers and “customers” assume all the risk.

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  6. David18
    June 3, 2015 at 12:30 pm

    The claim that e-hailing is the same as regular hailing is ridiculous. UberX is less expensive than a taxi, you can order a black SUV, and one can e-hail from inside a house/building which is useful in less safe areas or inclement weather.

    UberX is complaining about $1000 fee when they gouge New Yorkers on their rates. I would tell the city to charge Uber a much larger fee until they stop gouging New Yorkers.

    UberX Rates

    NYC: $3.00 base fare + 0.40 / min + $2.15 / mile

    Philadelphia: $1.25 base fare 0.18 / min + $1.25 / mile
    Chicago: $1.70 base fare + 0.20 / min + $0.90 / mile

    https://www.uber.com/cities/new-york
    https://www.uber.com/cities/philadelphia
    https://www.uber.com/cities/chicago

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    • DJ
      June 3, 2015 at 3:19 pm

      NYC taxi fares have always been ridiculously high due to the paucity of medallions. This isn’t Uber’s fault.

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      • David18
        June 3, 2015 at 3:53 pm

        The fare’s that I quoted are UberX rates which are Uber’s fault. They’re a $50 billion company crying about $1000 fee every time they change their app yet their UberX (cheaper version of Uber) rates are twice that of Chicago, Philly. Since there is no medallion limit for Uber, their fares should be more consistent with Chicago, Philly.

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        • DJ
          June 3, 2015 at 4:11 pm

          Uber/UberX and medallion taxis are substitute goods, so from microeconomics theory we would expect the price of the latter to influence the price of the former. We should not expect Uber to have the same prices for NYC as for Chicago and Philly.

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  7. June 3, 2015 at 3:51 pm

    – as long as you don’t get in too many accidents – you can be a “professional driver” in NYC. Uber started uber “pool” – it’s considerably cheaper than the other uber “products”. They also added many new drivers in NYC in the last year. Uber “pool” is cheaper based on the premise that the driver can pick up more than one fare per ride. Except that it almost never happens that some rider hails Uber pool within the route that the original rider is taking. What ends up happening is the rider who uses “pool” rides to her destination alone, as though she hired regular Uber, and the driver gets paid less than if she was using regular Uber. The last time we used Uber pool, it seemed to us that the driver was basically paying Uber to drive us. He was stuck in traffic, using gasoline, in a beautiful new, spotless 6 cylinder car, and we paid $5! (That was a special Uber was running for a week in April.) I asked the drivers how much they were making for these “pool” rides, and also for the regular rides. They both said they couldn’t really pinpoint what their checks reflected. And THERE IS NO CASH in an Uber ride. We just dropped a $5 bill on their front seat so as not to get them in trouble. It was disgusting. Usury. Haven’t used them since – don’t know what Uber pool charges without the specials.

    to Mlachens: why do you say Uber drivers are “less skilled” than taxi drivers? The Uber drivers I’ve met have all been ex black car or limo drivers since Uber put their previous companies out of business. I drove cabs, limos, etc., in NYC and your skill is up to you. You can learn where everything is in town, or you can remain pretty clueless

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  8. June 3, 2015 at 3:54 pm

    My post above got re-organized accidentally. It’s supposed to start at Uber started Uber “Pool”,
    and the first line, “as long as you don’t get in too many accidents – you can be a “professional driver” in NYC.” was meant as the last line to commenter Mlachens.

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  9. David18
    June 3, 2015 at 4:40 pm

    Well there is microeconomic theory of course, but that doesn’t mean firms must act that way. Since drivers in Chicago and Philly are driving at those quoted rates, the drivers in NYC *could* drive at similar rates. We need a “Walmart” of taxis (and other services).

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    • DJ
      June 3, 2015 at 10:11 pm

      It is unreasonable to insist that Uber violate microeconomic theory. Uber is a for-profit business, just like any other. They have every right to follow the profit maximizing strategy. If they were breaking the law then that’s one thing, but you are not arguing on this basis.

      If the city raises punitive fees on Uber in the manner you suggest, then Uber will RAISE its prices, not lower them, because its costs will have increased.

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  10. Aaron Lercher
    June 4, 2015 at 11:19 am

    Our blog host asked a straightforward question for my opinion.
    The vast majority of New Yorkers will continue to take the subway and buses, which work well for the majority of this majority. Taxis are a luxury good.
    A cultural/environmental argument: In the NYC that I know, the only people who ride taxis are rich people and tourists too afraid to take the subway. Mass transit is the energy efficient and environmentally friendly means of transportation that makes NYC a better place to live by that standard than the rest of the country. Ride the subway and enjoy the dignity of living in a place in which one does not have to own a car in order to travel. Life is better that way. So we need higher prices for taxi rides because life is better that way for more people. The efficiency of Uber is destructive of more important things.
    A political argument: In NYC almost half of medallion drivers are immigrants from South Asia, while 42% of passengers make more than $100000 per year. (Taxi & Limo Factbook http://www.nyc.gov/html/tlc/html/about/statistics.shtml) A flourishing NYC has a wide variety of jobs for immigrants, not just high salary Wall Street or tech jobs or very low wage jobs in restaurants or cleaning jobs. This is part of NYC’s dynamic role as an immigrant gateway to the US, which is what makes NYC great.
    Labor markets need all kinds of barriers or protections for many reasons in order to maintain the dignity of majority of people who are not lucky enough to win according to whatever counts as “success” at the time. That means workers compensation insurance, rights to organize unions, and also licensing barriers like medallions, among other things.
    Taxi drivers, including Uber drivers, need a strong union. They are similar to butlers, nannies, maids, and chauffeurs in NYC, who also need a union.

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    • David18
      June 4, 2015 at 1:10 pm

      It seems that you do not live in NYC. While traveling North-South in Manhattan which has subway service works well, cross town except at 42nd St and 14th St (where there is a subway) is a total disaster and forces people to take taxis. Outside of Manhattan, the subways don’t have enough coverage.

      The reason why so many taxi passengers earn over $100,000 per year is because of the exorbitant cost of taxi service compared with Chicago, Philly, and other cities. Housing is very expensive in NYC and even $100,000 incomes is not nearly the same as $100,000 in other cities.

      As things are, taxi drivers using medallion cabs have to pay exorbitant rates amounting to about half of their take. By having more competition with taxis and lowering the rates you’ll have more people taking taxis, more taxi drivers, and more people who have a low skill set doing jobs.

      It would be interesting to model how many more people would be taking taxis and saving their time, how many more unskilled workers would be employed if taxi fares were consistent with Philly and Chicago.

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      • Aaron Lercher
        June 4, 2015 at 2:21 pm

        You are a New Yorker who believes that New Yorkers know better.
        I agree!
        That’s the New York attitude my arguments rely on if they are to be persuasive to anyone. I’m a New York transplant unfortunately living far from New York. I visit regularly and never have trouble getting around by mass transit.
        Selling services to the wealthy is a big and growing business. But it’s no reason for policies that help wealthy people drive down the cost they pay for these services. That’s what Uber is: a way to shift bargaining power from sellers of a service to buyers, in part by bringing in more sellers (and for Uber to take its cut). In this case, my sympathies are not with the buyers. Both political and cultural/environmental reasons show there is more at stake than just the transaction and taxi ride.
        Since it is expensive to live in NYC, one more reason for less well-off folks to take the crosstown bus or to walk, and one more reason to preserve living-wage jobs selling services to wealthier folks.

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  11. Hubert Horan
    June 4, 2015 at 7:04 pm

    1. None of the comments so far directly address it Cathy’s initial question was whether totally different legal regimes should apply to taxis you hire by waving your arm versus taxis you hire with a smartphone app. Answer is simple (no) but it is important to recognize that none of the tens of thousands of articles/posts about Uber address it either. The legal issues are insurance, safety (driver training, vehicle maintenance), whether market entry should be totally unrestricted and various consumer protection/public service issues (protections against price gouging, requirements to serve non-rich neighborhoods, etc). Uber is fighting to protect systems where its competitors are bound by these rules but it is not. One can plausibly argue extending existing rules to “hail by app” taxis, or establishing new regimes that would create a level playing field for everyone, but no one can defend the current bastardized arrangements. All existing regulations were designed to achieve specific ends, but you won’t find a single article that examines whether they actually served the public interest, or whether alternative rules would serve the public interest better. Nor will you find a single article that seriously argues that Uber’s ultra-laissez faire approach (no taxi customer can ever know whether the vehicle they enter is properly insured or maintained, no oversight agencies can intervene against drivers who rob, assault or injure passengers) is best for the public interest.
    2. Cathy’s “taxi medallion interests versus tech interests” question buys into a false PR framing that Uber has been spending millions to push in order to keep people from thinking about what a “level playing field” regime would look like. Uber is a worldwide company; NYC type medallions are found in just six US cities. There’s absolutely no evidence that inflated medallion values in these six cities had anything to do with medallion owners pocketing obscene taxi profits at the expense of riders and drivers (there are no obscene taxi profits in any city; medallions are a financial instrument, and inflated in line with comparable instruments). The “heroic innovators versus corrupt protectors of the status quo” framing is designed to prevent anyone from actually examining whether Uber can produce taxi service much more efficiently than a reasonably run Yellow Cab, or where these massive efficiency gains might come from, or whether they are sustainable over time, or why no one else had ever thought of them. Taxis are a huge part of the overall transport system in large cities. A “good guys versus bad guys” framing is designed to prevent people from examining whether a Uber dominated industry would actually provide more service to more people at lower cost than a Yellow Cab dominated industry or an industry where Yellow and Uber competed side by side following the same rules.
    3. The tens of thousands of Uber posts and article ignore what should be the central issue—Uber has absolutely no efficiency/service/technology advantage over existing companies. A mature Uber would have higher vehicle ownership, operating and insurance costs than any existing company. As with many “startup companies” today’s fares and driver payments are not sustainable. Uber’s model prevents it from balancing long-term supply against local demand as well as legacy taxi companies. Uber’s app and peak pricing policies do not constitute sustainable competitive advantage (the Long Island Railroad introduced peak/off-peak pricing 75 years ago; pizza delivery companies have all moved to “apps” without claiming that it created $50 billion in valuation). No large scale intra-urban transport service anywhere in the world is highly profitable; most are structurally unprofitable. No one can explain how Uber found massive efficiencies that no one else could ever find, because they haven’t actually found any efficiencies. The entire “disruption” of the taxi industry is a perversion of classic capitalism—(relatively) more efficient companies and assets are being destroyed to make way for the domination of a company using assets less-efficiently. Yes, Uber’s initial VC investors will get fabulously rich, but absolutely everyone else gets screwed.

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    • Laocoon
      June 8, 2015 at 11:16 am

      Good analysis. I can also see similarities to the mortgage securitization business. When processes and their attached legal rights are unbundled to capture efficiencies, there can be blowback down the road.

      In fairness, one can’t think of everything. However, there is a role for public policy to protect all participants.

      Like

  12. Laocoon
    June 8, 2015 at 11:10 am

    What most people are probably missing is that the “technology” is a mask for disruption of the existing business model.

    In Uber, the technology facilitates distribution of the cars and the dispatching. Think of the evolution from Medallion to Livery to Uber. The costs from the earlier business models are distributed to the drivers (their own phones, their cars, their operating costs).

    Insurance is the trickiest part of the model. Uber can insure itself out of its revenue stream for catastrophic lawsuits, pushing the small stuff back to the driver.

    Since insurance is a highly regulated and highly structured industry (risk analysis and measurement over large data sets), any change will be slow to be efficiently adopted by the industry. They won’t know how to really price it until there is an established history. It seems to be still working itself out.

    I don’t see much difference between Uber and the Domino’s Pizza model as case studies. Domino’s looks great – your kid has a delivery job, gets tips, keeps costs down for the company, what’s not to like. The cost-shifting in the Domino’s model comes when the delivery car needs repair or replacement. Hence, the delivery person made a lot of money up front and gets strapped later if he has a big bill. (Or Mom and Dad get pay the bill.) The driver doesn’t look at this depreciation when the cash is coming in.

    I see Uber as fundamentally a cost-shifting and distribution model. The insurance will get worked out over time and probably squeeze the margins, like any maturing company. Uber will make it up on volume. Then on to the next thing.

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