Uber recently launched its service in my hometown of Calgary, despite much controversy and talk of a crackdown on the service by city bylaw officers. The service has been running for a few weeks now and the crackdown has yet to happen, yet nearly every day there is a news article in the local newspapers that debates the legality of the service and how they seem to operate outside of the existing taxi laws. Some also claim that Uber drivers are not as well trained and have not passed as strict of a licensing test as the drivers in the regular taxi fleet. All arguments aside, the controversy is probably great advertising for Uber, as it does create a mystique around the service for those who have yet to try it and some incentive to check it out before it potentially gets shut down.
The local taxi drivers are understandably threatened by the entry of a new, disruptive, and powerful competitive force in their once protected market and are lobbying to shut the service down. As with any industry group that has enjoyed protection from market forces for a long period of time, the natural reaction is to push to maintain the status quo. The reaction to Uber’s entry in markets around the world has ranged from acceptance and quick adoption to massive protests by local taxi drivers and government shutdowns of the service. In France, the service has been shut down in the entire country and Uber executives were even put in jail and charged criminally for breaking the country’s taxi laws. This was probably the most heavy-handed reaction, but it does illustrate the controversy that the service has caused as it enters markets around the world.
It is interesting to note that Calgary’s mayor and city council enthusiastically promoted the introduction of food trucks a few years ago, against the protests of the established restaurant industry who argued against the unfair competition from this new entrant. The introduction of food trucks in Calgary has largely been a success and contributed to a wider variety of food offerings downtown and in other areas as well as offering much more interesting food choices at outdoor festivals and events. To accommodate the introduction of food trucks the city adopted new food safety and inspection regulations to permit the safe introduction of this type of mobile food service to the public. It appears that our city’s government has chosen to promote more competition and choice for consumers in one segment of the city’s economy, but fight against it in other areas.
I have used the Uber service in a few cities such as San Francisco and Los Angeles, where the service has been running for a number of years and taxi rides provided by Uber and their main competitor Lyft make up over half of the taxi rides in these markets. The service is remarkable in its efficiency and ability to deliver a decentralized, but high quality service. Uber doesn’t own any cars, but simply links passengers to drivers that are willing to drive them.
This past weekend I took my first a ride in an Uber car in Calgary after a hockey game and it was a great experience. I am usually frustrated when trying to find a taxi in the city after a sporting event or concert ends and this occasion was no different. When 20,000 people exit the arena at the same time, the available taxis are snapped-up in a hurry. After walking a few blocks and finding that every taxi that approached in the distance was already taken up by another person ahead of me, I pulled out my iPhone to see if Uber was an option. The Uber app showed a number of cars circling within a few blocks of me. I hit the ride request button and within two minutes, the driver was pulling up in front of me in a black Mercedes Benz SUV.
Source: www.Uber.com
Uber has an interesting feature called ‘surge pricing’ where fares actually go up when there is higher demand. After the hockey game, the app notified me that there was high demand and that a 30% premium for ‘surge pricing’ was in effect. I quickly accepted the offer, as I was perfectly happy to pay a bit more and actually have a ride on the way to pick me up within two minutes, as opposed to continuing my fruitless efforts of wandering around waving my arms at the passing taxis in frustration. Instead of costing me about $15 to get to my destination, it cost me $22, but it was much better than standing at the side of the road. It is a win-win scenario for drivers and passengers alike. I had a choice at the outset to pay a bit more and actually get a ride during a peak time, while the driver is paid a bit more and has a higher incentive to be on the road to capture a better fare when demand is higher.
If you haven’t used the Uber app before, it is a very slick service. I originally thought: “So what? It’s just a taxi service, you still ride in a car from A to B.” However, once I tried it out, I realized that there are a few significant advantages that make it a far better experience. Signing up for the first time takes about a minute, as all you have to do enter your name, phone number and email address and then take a photo of your credit card. The app reads the card numbers in the photo to save you the step of even having to enter the numbers manually. When you need to find a driver the process is totally transparent. The app shows a live feed of exactly where all of the nearby Uber drivers are on a map of the roads nearby and how many minutes away they are from picking you up. You simply push a button in the app to request a ride and one of the nearby Uber drivers picks it up from the app on their end. You are then notified that a driver is on the way and you can watch them approach your location in real time. The notification also gives you a photo of the driver, his or her driver rating, as well as the make and model of the driver’s vehicle and license plate number. There is no calling a dispatch line, waiting on hold and then trying to describe the address or location of where you want to be picked up. The system eliminates the unknown waiting times or wide ranging pick-up times. It has happened to me on several occasions that on a busy night you could call every taxi dispatch line in the city and never get through to a dispatcher. It is especially useful if there is bad weather, as you can actually watch your reserved car driving towards your location on a map on your smartphone and know exactly when to step outside to meet the driver.
Safety is a controversial issue that surrounds the entry of Uber into a new market. The taxi lobby generally argues that their drivers have better training and higher licensing standards than an Uber driver, that could be basically anyone who signs up to drive part time. I personally find this claim debatable, as I have been in taxi rides where the driver is such a poor driver that I find it hard to believe that driving is an activity they do on a regular basis, let alone something that they basically do all day every day. Driving a car in a safe manner is not a particularly difficult skill to attain, and when the powerful incentive of a live rating system is in place to encourage safe driving, it is debatable that any non-Uber taxi ride is really any safer than a ride provided by a part-time Uber driver. The Uber website details all of the background checks that drivers are required to pass before they are accepted into the system. Uber also monitors the driving records of all of the drivers in their system for legal infractions. Uber drivers are also covered under Uber’s corporate insurance policy that covers any accidents while the drivers are carrying passengers.
Why don’t the local taxi companies just create their own app to compete? To be fair, the taxi companies are creating their own apps to handle dispatch, but they are struggling to catch up. I have tried out the app from one of the major taxi companies in my area and comparing it to the Uber app is like comparing a high school programming project to the latest software from Apple or Google. Uber is a very well-funded private company, having raised billions of dollars from venture capital firms over the years. They have hired top programmers to develop and scale their apps and systems and have the goal to expand globally. They also have the ability to analyze the data they gather from every ride that ever happens in their system to continuously improve their service offering. The taxi apps from local taxi companies don’t have any rating mechanism to rate the quality of each ride or the performance and behaviour of the driver.
The driver rating system that Uber uses is the key to the so-called ‘sharing economy’. The rating system creates a strong incentive system for the drivers to provide excellent service and for passengers to be on their best behaviour. The passenger can rate every ride and if a driver’s rating falls below a certain level, they can be kicked out of the Uber system and can no longer drive for them. Passengers can rate the driver’s friendliness, the cleanliness of the vehicle, driving safety, route taken, among other things. The ranking system is also a two-way street, drivers have the ability to rate passengers on how they behave as passengers. This is a strong incentive for passengers to treat the driver well, as a low rating can prevent a passenger from using the Uber system. I can’t even count the number of poor taxi rides that I have taken in various cities around the world where the driver was rude, drove like a maniac or the car was dirty or poorly maintained. This type of situation shouldn’t happen in an Uber car as in theory the driver wouldn’t last long in the Uber system. While Calgary’s taxi drivers are generally pretty good in terms of their standard of service, there is still the occasional ride that I would rather forget.
Other ‘sharing economy’ services such as Airbnb use a similar rating system to track the quality of the rooms offered and the behaviour of guests. The system provides a strong incentive for the people renting out their properties to provide clean and friendly service to their customers. It is also a strong incentive for the customers to take good care of the properties that they are renting out. If someone rents a property and damages it or makes a mess, they could potentially be kicked out of the system or get a bad rating and hurt their chances of being able to rent again through Airbnb.
‘Sharing economy’ services are popping up in other areas, like a service that allows people to lend out or rent out their unused tools. For example, if you have a table saw or other specialty tool that you purchased to for a project, but won’t use it again until the next big project it generally sits collecting dust in your garage for months or years at a time. This type of service would allow you to rent it out and make some money from owning an otherwise unused piece of equipment. If the user damages the tool, they would have to repair or replace it or be kicked out of the system. The system could also administer damage deposits, insurance or compensation if the tool is lost or stolen.
Uber has also studied the effects of their entry into new markets on the incidence of drunk driving arrests. They have linked their entry in markets like Seattle to a 10% decrease in DUI offenses in the subsequent months. (duinewsblog.org/2014/10/23/uber-effect) It is tough to put forth a credible argument against the overall safety for society that having more ride options available for passengers after concerts and sporting events is not a positive force. Uber recently upped the ante and with their extensive technological expertise, they have incorporated ‘Amber alerts’ to notify the drivers in their system of any missing children through the national amber alert system. If their drivers are already in the area where a child is reported missing the can easily become another set of eyes in the search. (newsroom.uber.com/2015/10/amberalerts)
The debate surrounding Uber is more a philosophical debate around whether one group or sector of the economy that has enjoyed a protected market should be able to maintain this protection indefinitely. Markets have changed significantly over time and there are numerous examples of cases where a protected group has been disrupted, but society overall has benefitted from better service, convenience and innovation. It is almost like arguing for going back to nationalized airlines or government control of the telephone companies. In a sense, I do feel for the people that have invested in taxi medallions and other permits to allow them to operate according to the laws of their local area and now have a new player that has an advantage by potentially side-stepping these regulatory costs. There isn’t really a right answer on how to phase-in the introduction of a new service like Uber, but these issues will need to be addressed as the alternative is holding back progress to the detriment of consumers and society as a whole. Uber co-exists with the established taxi industry in other markets and surely, Calgary is no special exception.
The financial services industry, which I happen work in, has been subject to enormous new competitive forces in the past few decades. We have witnessed the introduction of everything from high-speed trading, online brokerages, robo-advisors and trading algorithms that are all competing against the human talent in the industry. As an advisor in this industry, I need to continually adapt and add value for my clients in new ways to stay ahead of these trends. Most new technology is a benefit to consumers and drives down the cost of trading and improves the quality of products and services available. Other than the specific examples where high-speed trading algorithms are simply gaming the system of multiple exchanges to the detriment of traditional players and consumers alike, I welcome the introduction of new tools and services that benefit clients overall. Compared to the introduction of Uber into the taxi industry, there isn’t much protest to the introduction of new and disruptive technologies in my industry, nor should there be.
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