When it comes to taking the world by storm with innovative, disruptive business models, new-age taxi and ride-sharing companies Uber and Lyft are the poster children for “disruption on the roads.”
In a good way, of course.
Their model is simple: Make it easier for customers to get around, put money in the pockets of thousands of part-time and full-time drivers, and create more value from cars, many of which spend 90% of the time just sitting in “park.”
But not everyone welcomes this disruption.
In many places, the traditional taxicab industry is highly regulated. Over time, that regulation tends to create a cozy relationship between taxi companies and the bureaucrats who regulate them.
The basic trade-off is that owners accept a certain amount of regulation they don’t like in exchange for a massive amount of regulation they do like. Chief among them are barriers to entry for would-be competitors and “regulated” prices that are well above the level at which a true free market would find equilibrium.
Needless to say, this cozy relationship benefits both owners and drivers alike – a smaller industry means higher fares in some cities.
So it’s no surprise that upstart companies like Uber and Lyft have run into problems setting up in many cities.
I mean, how dare they bring innovation and better service?!
The latest skirmish just occurred in what many consider to be one of America’s trendiest cities (at least in terms of its art, music, and food scenes).
And surprisingly, Uber and Lyft lost.
Don’t Mess With Texas
In Austin, Texas, bureaucrats and voters just shot down a resolution that would have exempted Uber and Lyft from some of Austin’s taxi regulations. Both companies stopped providing service within Austin’s city limits two days after the resolution failed.
There are two main regulations that the ride-sharing companies opposed…
~ Traffic Lane Law: This bans taxi pickups from traffic lanes. At first blush, this seems like a good idea. After all, stopping in traffic lanes can cause congestion and accidents. However, thousands of cities across the world allow taxis to make pickups in travel lanes without dire consequences.
In fact, requiring cabs to find a parking space in a busy downtown area is a bigger threat to traffic than a brief stop. Uber and Lyft are in the right here.
But the requirement isn’t discriminatory against Uber and Lyft. Traditional taxis must also abide by this rule and find their way off the streets or into a parking-only lane to make a pickup. Cities have the ability to regulate themselves, even when the regulations aren’t that smart, so while Austin’s rules hurt the cab business, adding time to every pickup and drop-off without improving public safety, the rules are at least fair in that they affect all parties equally.
~ Background Checks: Austin requires fingerprint checks for all drivers. It’s easier to side with Uber and Lyft on this issue. Neither company wants to scrap background checks entirely. They simply use different systems that are faster and much cheaper than the fingerprint checks that Austin demands.
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This is important because so many drivers work part-time. The whole idea is to give people greater flexibility and allow them to make a few bucks in their free time or while they’re in between jobs. But increasing the cost of signing new drivers squashes Uber and Lyft’s strategy.
Opponents claim that the systems Uber and Lyft use aren’t perfect. And they’re not. But neither is the fingerprint system. Austin, Houston, and New York City are the only places in the United States who do it – and none of them have produced evidence to show that fingerprinting has reduced criminality on the part of taxi drivers. Indeed, Lyft claimed that many Austin taxi drivers failed the company’s own background checks.
But the voters of Austin have spoken.
One of America’s most tech-forward cities has snubbed disruptive innovation from companies that would change the taxi industry.
So what lessons can the ride-sharing companies – and indeed any company taking on highly regulated, entrenched monopolies or cartels – take from this debacle?
Three Ways for Wannabe Disruptors to Beat the Bureaucrats
There are a few options available:
- Play Nicer: According to polls and reports, many Austin voters resented the massive amount of money that Uber and Lyft spent trying to get this resolution passed – $8 million, to be exact. That would have paid for many background checks. While people may be skeptical of their local governments, they’re even more skeptical of outsiders coming in and trying to buy their way into favor. Better to use the strategy that the taxi industry uses itself – quiet contributions directly to the campaigns of key city council members!
- Local is Local: Uber and Lyft made a mistake going after the prohibition on traffic-lane pickups – a rule that applies to all taxi companies. It would have been better to focus on other important issues and then join forces with the incumbent taxi industry to try to get that requirement changed over time. After all, those cabs would also benefit from the change.
- Save the Biggest Arrow for Last: Uber and Lyft have established an annoying habit of leaving cities where they don’t get their way, unless that city is particularly important (they operate in Houston and New York City, where fingerprints are required). This gives people the impression that it doesn’t take much to run the companies out of town. Even if they win one battle, they’ll threaten to leave the next time they disagree with something. Constantly catering to this threat is tiresome and eventually people will simply say, “Okay, bye – we’ll miss you.”
To living and investing in the future,