It isn’t everyday that our seemingly harmless new communication technologies shake an old industry’s very foundation. But that is exactly what is what is happening with new popular ridesharing programs that are powered by today’s GPS-enabled smartphones.
If you haven’t heard of these new programs, you either live in a small community where they are not available or you live under a rock. The two front runners in the business are called Lyft (its cars are recognizable by the whimsical pink mustaches affixed to their front grill) and Uber. A third, struggling to gain a foothold in the rapidly expanding market, is Sidecar. They all take slightly different forms and have different pay structures, but they function, essentially, the same way.
An individual, with his or her own car, passes a brief screening process to become a driver. The driver then loads an app onto a smartphone and heads out into a given city looking for passengers. Potential passengers with the same app can “request” a ride through the app’s interface. GPS technology whirs into action to select the nearest driver. The driver is alerted and directed to the passenger’s location. From there it is basically a cabbie-passenger relationship. The passenger states the desired destination and off the two go.
Again, pay structures differ. Lyft relies on a “suggested’ donation model. Sidecar allows drivers to set their own prices based on the quality of the car used and other other value-added items like local knowledge provided to out-of-town passengers. Uber has a mind-numbing “surge” pricing structure that can make costs sky-rocket during busy times — like when the bars close. All three services collect the fees through the app, so no cash is exchanged in the car. The companies also take a 20 percent cut for providing the slick ride-enabling technology.
Sounds neat, sounds simple and sounds just plain great. Truth be told, it is, for consumers looking for a lift. The rides often cost less than a traditional cab ride. The cars are usually nicer, newer, and cleaner than big-city cabs. And the drivers are usually interesting, sometimes eccentric, locals using the new platforms as a “side hustle” to generate extra cash while pursuing other ventures.
That sounds like it is a winning situation for the new drivers too.
Although 20 percent is a hefty cut, it can be. Some drivers report making $800 per week and boast a “work when I want to” kind of schedule. Sidecar claims that some drivers make $60,000 a year.
That means there is real demand for the service, and big money is changing hands. And that’s good for everybody except cab drivers. Cabbies now feel like they are being squeezed out by a new service that is not encumbered with the numerous regulations, fees, and insurance requirements that plague their business.
Traditionally, the passenger-rich space around a major city’s airport is a heavily regulated area as far as local transportation is concerned. In Los Angeles, for example, the Authorized Taxicab Supervision system was set up to help maintain order and keep the area surrounding LAX a safe place for professional drivers to operate. There is a strict rotation schedule that limits the number of days drivers are allowed to operate in the space. Cab drivers are also required to wait in designated areas to avoid flooding arrival areas with traffic.
Uber and Lyft drivers, for a long time, didn’t have to follow those rules. They were able to swoop in and pick up passengers; a distinct advantage over cabbies who were just following the rules. That led to a lot of animosity, and sometimes violent confrontations between cabbies and “amateur” drivers.
Ridesharing drivers have since been barred from prime LAX real-estate, and a story from early this year reported that police have started ticketing drivers who violate the ban. That provided some relief to cabbies. But the California Public Utilities Commission also voted last year to allow the likes of Uber and Lyft to operate freely in the state. The fight is far from over.
California has led the way in providing some guidelines by which these services should operate. In a way that’s to be expected considering all three of the ridesharing companies are based in the state. But the services are spreading like wild fire and municipalities where they flare up are struggling with ways to control the hitherto unregulated companies. The programs aren’t taxi services after all. They are just regular people in regular cars helping out fellow travelers for a small fee.
One solution has been to give them a new designation — recognize them as a different type of company — and then regulate that new type of entity. One city where the services are very popular is Seattle and the city council there deliberated for a year on how to deal with them. Last month they finally came to a decision. The city designated them as “transportation network companies” (TNCs) and set a 150 car limit on each company. That means each service can only have 150 cars on the road, in the city, at any given time.
“What we decide today isn’t a complete fix, but it is a start,” said council member Sally Clark.
She’s probably right. And given the rancor of the disputes in other cities between the ridesharing companies and the more regulated professional companies it may just be the start of a more protracted battle.
That’s plenty of arguing for two cities, and it only addresses, really, the objections of the beleaguered taxi drivers. Another issue that has yet to shake out is that of insurance. This point was driven home tragically on New Year’s Eve in San Francisco when an Uber driver hit and killed a six-year old girl.
The problem was that the driver wasn’t carrying a passenger when the accident occurred. But he was out that evening looking for passengers with his app activated. According to Uber’s policy at the time, he wasn’t covered by the company’s insurance because he didn’t have a passenger. All of the companies provided $1 million in liability coverage for their drivers.
Following the tragedy, Uber beefed up its policies to eliminate the gap in coverage. It issued this statement in a blog post:
"[I]n order to fully address any ambiguity or uncertainty around insurance coverage for ridesharing services, Uber is becoming the first and only company to have a policy in place that expands the insurance of ridesharing drivers to cover any potential “insurance gap” for accidents that occur while drivers are not providing transportation service for hire but are logged onto the Uber network and available to accept a ride."
Lyft beat it to the punch though . . . sort of. The day before the Uber announcement, Lyft said the company would “soon” upgrade its own policies.
The so-called “insurance gap” was solved, but that did little to help the family of the little girl who was killed. And the tragedy provided another opportunity for critics of the programs to call for either more stringent regulations, or just out-lawing the app-based services all together.
Socially, much of community-based, local transportation is brand new territory. Lyft currently operates in 30 metropolitan areas in the U.S. Uber is in over 40, and Sidecar is operating in eight cities. All three are growing. Lyft just secured $250 million in investment capita. And it was recently leaked that Uber is raking in $20 million per week in income.
With those kinds of numbers being tossed around, more fights are sure to come. Ultimately, consumers and even drivers could benefit greatly from the proliferation. And really, cab drivers may even jump to the less-regulated industry and find out they can make more money. But given the fervor, it will likely be quite a while before the industry reaches a sort of “norm” where everyone is happy. For now, hopefully more tragedy can be avoided.