Imaginary Wager – The Uber Phenomenon

New on the radar screens of policy wonks is the Uber phenomenon. Events are developing quickly and battle lines are being drawn and soon some public policy decisions will have to be made. The question up for discussion can be framed like this: What to do about a new, high-tech entrant in a heavily regulated field (taxi cabs), when that new entrant does not abide by the existing regulatory regime?

It appears the range of possible outcomes is fairly narrow. And that suggests you can speculate, perhaps in an imaginary wager kind of way, on what outcome we will see. You shouldn’t have to wait long to determine if your bet pays off.

First a recap on Uber, the new high-tech entrant. It is an internet / WWWeb based service. It started in the San Francisco area and is now appearing in major Canadian cities. Some would call it an alternative taxi service. Others call it a ride sharing service. Uber connects drivers and passengers for short distance rides for a 20% slice of the fare.

Anyone with a fairly new model car can apply to be an Uber driver. They will check your criminal record, driving record and your credit rating. Absent any flags, you are almost an Uber driver. Sign the agreement and they will send you a smart phone, and shazam! you’re in business.

For passengers who need a ride, the Uber service has some appealing attributes. Using a smartphone with the appropriate ‘app’, the passenger connects with the Uber service. No need to explain where you are because the ‘app’ knows the location you are calling from. The passenger will then see what drivers are ready to respond, and asks the passenger to approve a driver. Interestingly drivers get to approve passengers as well, in that a driver will know the identity of the passenger before she will accept a particular fare. Remarkably Uber allows both drivers and passengers to rate the other, and those ratings are available to be viewed prior to a connection being established.

The passenger will see the estimated time of pick up displayed on the smartphone, and can even follow the driver on a map as the driver heads for the passenger. Apparently the financial end of things is all done through a credit card (part of the app) and an account the passenger has established in advance. Uber claims to be as much as 40% cheaper than regular taxis, but that figure does not hold during rush times when Uber charges what it calls “surge pricing”.

So what’s not to like about this ride sharing service? Plenty, if you are a holder of an expensive taxi license, or if you are a regulator of the taxi industry. Obviously Uber represents serious competition to the taxi industry, and regular owners and operators of cabs will feel the pinch of Uber eating into their revenues.

The traditional industry will rightly complain that the competition for fares is unfair because Uber does not pay the municipal licensing fees that they do. Critics will also say that public safety is at risk for reasons related to insurance coverage, driver screening and driver training all of which are monitored by the regulators for those within the regulated system. And without putting too fine a point on it they are saying in many places that Uber is plain illegal.

Even with these concerns Uber has some hard core fans. Not coincidentally many of these fans have some bone or other to pick with the taxi business. And for the record, for every concern someone raises about the Uber service, Uber has a come-back that can sound fairly convincing.

So what are our leaders (municipal and provincial politicians) supposed to do with these new developments? Some jurisdictions are taking Uber to court, and asking the court to prohibit Uber from operating in their community. Some are trying to work with Uber to find a middle ground. And some are waiting to see what other communities are doing, or are trying to gauge public opinion on the issues.

The point is that this is a clash of ideologies. It pits those who regulate (together with those who are content to be regulated) against those who would let the market place sort things out absent regulation. The stakes are high for those with vested interests in their taxi business, and vehicles. The stakes are also high for the regulators. As for Uber, it has some very serious money behind it and those investors seem primed for a good battle. (This past week a news item suggested that this 4 year old company had a capitalized value of $42 Billion dollars. By comparison, this is more than the value of global Kraft Foods.)

So ladies and gents, I invite you to place your bets. Will Uber be alive and well and operating successfully in Canadian cities 2 years from now? My take? I’ll wager a cold beverage that 2 years from now Uber will be alive and well, that there will still be some incomplete court cases, and that the Province will be talking about legislation to regulate the unregulated. Then again, your guess is as good as mine.

(For the record, the Uber service actually comes in a number of different flavours. One co-opts regular taxis as Uber vehicles and this is plain called Uber. Another offers high end limo like vehicles and service and it is called Uber Black. The third, reviewed above, uses ordinary passenger vehicles and is called Uber X.)


Michael Hennessy – 20141208