David Olive: Uber has its benefits,
Taxi oligopoly doesn’t benefit customers
Uber, the ride-hailing business that threatens to supplant conventional taxicabs, is taking its place alongside Walmart Stores Inc. and the Standard Oil Trust as an enterprise that some people love to hate.
That sentiment, while perhaps unavoidable, is misplaced.
Using the technology afforded by smartphones, the six-year-old, San Francisco-based Uber Technologies Inc. is creating a new global business model for the short-haul conveyance of people.
At the touch of a smartphone app, a person in need of a ride can summon one with unprecedented ease. Uber’s service has caught on with millions of customers in more than 300 cities in 57 countries.
Uber’s business model provides higher-quality service at a lower price than conventional taxis. It holds promise of reducing traffic congestion and CO2 emissions by getting private cars off the road, or, as Uber says, making vehicle ownership “more of a luxury rather than an economic necessity.”
There is circumstantial evidence that Uber and its upstart rivals are increasing the size of the market, and not simply taking business away from conventional taxicabs.
Uber’s model also breaks the oligopoly of a traditional taxi-industry model that everyone knows to be unsatisfactory. The status quo is designed to serve the narrow interests of taxi companies, and not customers.
Taxi customers get little satisfaction from regulators when they complain. And switching taxi companies is pointless, as there is little to distinguish them save the colour schemes of their cabs.
For all that, Uber has met with opposition in almost every city, here and abroad, that it has entered. The resistance has been mounted by taxi industry incumbents and by municipal, regional and even national governments clinging to the status quo, from Toronto industry regulators to the government of France.
On Friday, Uber suspended its low-cost ride-hailing service in France in hopes of defusing an escalating legal dispute and sometimes-violent tensions with traditional French taxi drivers.
French authorities had ordered it shut down, but Uber refused, pending a legal decision at a top French court. Uber France chief Thibaud Simphaud said in an interview in Le Monde that Uber changed its mind “in a spirit of bringing peace” with authorities.
Simphaud and another European manager for San Francisco-based Uber were detained this week and ordered to stand trial to face charges including “deceptive commercial practices” and complicity in illegal activities.
Calgary and Vancouver have banned Uber. Germany earlier this year outlawed Uber’s discount UberPop service, as Toronto regulators have attempted to do. (That service is branded UberX in Canada.) Uber claims that “Taxi companies are pressuring city council to stifle competition and protect their monopoly on Toronto’s streets.
“Ride-sharing brings costs down for consumers and creates thousands of new jobs for drivers. It expands transportation options for Torontonians and will ultimately lead to fewer cars on our roads.”
To be sure, Uber hasn’t helped its case with some unattractive conduct. It has often chosen to operate illegally until the laws and bylaws arrayed against its new business model are scrapped or overhauled.
Uber’s UberPop service, which uses non-professional drivers, was banned by the French parliament last November. But Uber kept operating it. Last week, traditional Parisian cabbies staged a mass protest against UberPop, blocking roads, obstructing traffic near airports and even attacking suspected Uber drivers.
Uber also makes liberal use of “surge pricing,” instantly raising fares in times of peak demand. A proud Uber has filed for a U.S. patent on the algorithm it uses to continually calculate price depending on changes in demand.
During a 90-minute TTC subway shutdown last month, Uber fares spiked by 500 per cent. Uber fares jumped 400 per cent during last year’s hostage-taking crisis in Syd- ney’s congested financial core. In that case, Uber later apologized and refunded the surcharge.
Finally, Uber strives to maintain an “independent contractor” status for its drivers, though many put in a 40-hour work week. If the drivers were categorized under law as employees, they would be entitled to legally mandated benefits.
A California court has just recategorized one of Uber’s drivers as an employee: a precedent that could prove costly to Uber and its rivals. Uber is, of course, appealing that decision.
But there’s no question that Uber co-founders Travis Kalanick and Garrett Camp, Silicon Valley wannabe-tycoons, were spot-on in identifying an unmet need. Venture capitalists recognized the profit potential of serving that need, and financed Kalanick and Camp with an initial grubstake of $62 million (Cdn.) by the start of 2011. By the start of this year, Uber had accumulated an astonishing $3.5 billion in financing.
The funding is there and so are the customers and drivers, which Uber has been recruiting with ease. And so are the competing on-demand cab and ride-sharing services — the most compelling evidence that Uber identified a burgeoning new market. Among Uber’s rivals are the U.S.based Lyft; London-based Hailo; Singapore’s GrabTaxi; China’s Didi Dache and Kuaidi Dache; and India’s Ola, Easy Taxi and TaxiForSure.
Uber’s response to rivals is to keep innovating. New launches include its UberPOOL carpooling service in China; UberRush, a courier service; and UberFRESH, for online food deliveries. UberBOAT last month launched a water-taxi service crossing the Bosphorus strait in Istanbul. In India, Uber has just launched an on-demand rickshaw app.
Along with detractors, Uber has won support from a Competition Bureau in Ottawa that last November counselled municipalities to think twice before obstructing Uber’s “innovative business models.” Toronto Mayor John Tory hails Uber as a trailblazing service that’s “here to stay.” John Baird, the former federal external affairs minister, tweeted praise for Uber when it put an end to his 75-minute wait for a conventional taxi in Ottawa.
The Uber strategy is straightforward: Win every potential customer and you will attract an abundance of the most reliable drivers, which will cut wait times for customers, who will become loyal Uber clients and by word of mouth attract still more clients — a virtuous circle.
And it is virtuous, if hardly altruistic.
Before Rockefeller imposed a minimum high-quality fuel standard for gasoline, motorists were victims of unscrupulous filling stations that filled their tanks with, among other things, kerosene, coal oil and rubbing alcohol that ruined their engines. And the discounting era imposed by Walmart has for decades cut the inflation rate for the entire economy by about 1 per cent.
What’s needed now is a regulatory regime that ensures Uber doesn’t use the new standard in car-hailing to establish a monopoly for itself. A new job classification, besides “employee” and “independent contractor,” is also needed, one that covers workers now deprived of basic benefits such as full or partial payment of unemployment insurance and injury-compensation premiums.
A notoriously dysfunctional taxi industry has long held the door open to anyone able to provide a better alternative, on the assumption that no one ever would. That Uber walked through that door is not an unalloyed blessing, but a net blessing just the same. dolive@thestar.ca