Yellow Cab’s New Rivalry Uber

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Say goodbye to waving down, or chasing in some cases, taxi cabs. Uber makes looking for a ride easy, cool and collected. All riders have to do is hail the ride from an app (offered free on all app stores), pay for the service, and, well, ride. Proponents for the rideshare program say it helps provide Americans with jobs, reduces the high prices associated with traditional taxi service, and is friendlier to the environment. But opponents claim the service is dangerous, illegal, and hurts taxi companies in the long run. This sample economics essay explores Uber's history and its dominance over Yellow Cab.

Taxis come from the cloud: Uber’s digital history

Most everyone has heard of and has experience with cloud-based services, like MS Word and Google Docs. Well Uber is similar to these services, except the rides aren’t in the cloud but the orders are. Headquartered in San Francisco, California, Travis Kalanick and Garrett Camp co-founded the rideshare service in 2009, then named UberCab (Jackson, 2011). The two released their smartphone app the following year. And the start-up wasn’t very difficult to roll out; the company received its first investment from First Round Capital and a group of angel investors in Silicon Valley and raised more than $11.5 million within its first year operating (Ha, 2013).

Financial success

Uber has only been in business for less than six years, but the multi-billion dollar company is recognized as one of the fastest growing companies in the past decade due in part to Uber's business strategy (Pozin, 2011). Forbes reported in 2011 that Uber, in its infancy, already had $44 million and had services across the globe. And The Wall Street Journal that Uber has successfully raised more than $1 billion in investments from international entities, including sovereign wealth fund Qatar Investment Authority, New Enterprise Associates, and major national hedge funds Valiant Capital Partners and Lone Pine Capital (MacMillan, 2014).

Investment portfolios aside, Uber is growing bigger every day. The company expanded its international foothold faster than any other company (MacMillan, 2014). Uber chose France as its first international offering in 2011 (MacMillan, 2014). It soon added Canada, Australia, England, Singapore, South Korea, and Bangalore within 24 months of opening its Paris branch (MacMillan, 2014). By the end of 2014, Uber had representatives in every continent, all major cities, and most NATO countries (MacMillan, 2014).

All good things come with a Price: Governments challenge the Uber App

While the demand for Uber was increasing on the consumer side, taxi companies, cities, and, even, national governments started voicing their concerns about the new and, possibly, dangerous new service. Many of the cities that once welcome Uber with open arms were now forced to listen to the overburdened taxi companies, lobbying groups, and concerned citizens. The United States was one of the first countries to take action against the rideshare company.

The San Francisco Municipal Transportation Agency

The San Francisco Municipal Transportation Agency issued a cease-and-desist order to Uber in 2011 and declared it was operating an illegal taxi service and another legal claim from the California Public Utilities Commission stating it was running an unlicensed limousine service and disrupting the city's market structure (Siegler, 2011). Both city organizations threatened criminal sanctions and demanded Uber stop operating in the city immediately (Siegler, 2011). The following year, Massachusetts’ Division of Standards ordered the company to stop operating in the area because the GPS-based smartphone app was not a certified measurement device (Farrell, 2012). However, the agency reversed its decision after the Gov. Deval Patrick said the device was under study by the National Institute of Standards and Technology (Farrell, 2012).

The United States isn’t the only countries to challenge, ban, or punish Uber. In 2014, Transport for New South Wales, the areas transportation regulatory agency, released a statement that determined all Uber drivers must obtain taxi licenses and drivers must be accredited, as with all taxi and limo drivers under the agency’s jurisdiction (Transport for New South Wales, 2014). The same year, London’s Hackney taxi drivers staged a protest against Transport for London's refusal to stop Uber's fee calculation method, which they claimed not only violated London’s laws but was an unfair practice to taxi drivers in the city (Hern, 2014).

Should governments allow Uber-service?

Uber has disrupted more than just the taxi cab industry; it caused a domino effect in the entire taxi spectrum (WhosDrivingYou.org, 2014). It’s a trend seen over and over again in the platform businesses: new players enter and destabilize one side of the platform, which creates the beginnings of the death spiral from which some never recover. The hit to the prices of taxi medallions shows the impact Uber has on the taxi and tax-supported industry (WhosDrivingYou.org, 2014). The impact is seen in the decreasing price of taxi medallions.

Medallions are used to grant permission to operate a taxi in certain cities. Each city determines how many medallions to release based on population, taxi demand, the number of taxis already licensed, and the amount of market value (WhosDrivingYou.org, 2014). Think of it as a legal nod to monopoly or the city’s way of determining who can and cannot do business. While this is not desirable to many drivers, it reduces competition and ensures cabbies have a fair chance to make money. If a driver does not purchase a medallion they are not allowed to operate a taxi in New York (WhosDrivingYou.org, 2014). But Uber doesn’t follow these rules. This has caused the medallions to lose face value, and, for many drivers, there is simply no point in owning a medallion or working for a medallion company.

According to The New York Times, in 2014, taxi medallions in New York City dropped 23 percent from $1.05 million to $805,000 (Barro, 2015). Corporate medallions sold at an average of $950,000, 28 percent lower than its peak performance (Barro, 2015). Chicago and Boston’s medallion problem is worse and shows that owners of the licenses are looking to sell their portions. This is considered major since Chicago hasn’t sold a medallion since November (Barro, 2015). Evidence also shows the value of the medallion is still dropping since only 11 medallions have been transferred since July 1, 2014 (Barro, 2015). In 2013, the story was significant different. Drivers exchanged 225 medallions during a six-month period in 2013 (Barro, 2015).

Uber may not impact the market

On the other hand, many question whether this really impacts the overall market and wonder why taxi drivers don’t just go the Uber way. While taxi drivers may feel the crunch, Uber has contributed to U.S. job growth and stimulated the economy (O'Brien, 2015). Venture capitalist Bill Gurley, whose company Benchmark Capital is one of Uber’s larger investors, said the company is one of San Francisco’s largest employers, and he told CNNMoney:

“The company has 300,000 drivers across the world and is adding 15,000 more every month” (O'Brien, 2015).

In addition, proponents argue the rideshare program brings the industry back to true fair-market terms and allows true competition and money making opportunities. For example, with the before mentioned medallion situation, taxi drivers who are required to pay the city for the right to drive are being charged unfairly and say businesses should never have to pay for the right to operate. They liken the situation to New York’s infamous gangs and mobsters who collected taxes for the right to work in their areas. However, Uber evens out the market and gives others a fair chance to make money.

Beware of Taxi Cab Drama: Is Uber more dangerous than traditional taxis?

This question has plagued Uber and most cities since rideshare apps became popular three years ago. Many of the concerns are centered on driver safety, patron safety, driving infractions, and safety concerns caused by the app. But Uber insists it demands safe drivers and implemented policies to protect both the passenger and driver (Uber, “Safer Streets”). Uber performs background and driver's record checks, mandates full insurance coverage, provides additional end-to-end insurance, has strict workplace safety guidelines, and follows up on drivers to reduce risks after contracting them (Uber, “Safer Streets”). However, opponents say this isn’t enough, and Uber has had several severe safety issues within the past few years.

For example, Uber recently had a medical incident where a driver suffered seizures while driving and hit a pedestrian walking on the sidewalk (CBS San Francisco Bay Area, 2014). Immediately following the incident, Uber received negative feedback and protestors demanded the company started medically clearing their drivers – like most cab companies (CBS San Francisco Bay Area, 2014), and Uber announced the driver’s removal from the service pending a medical review.

Another potential safety threat was reported December 2014 by the New York Times (Richtel, 2014). Safety officials in New York City were concerned about the possible safety concerns caused by the app (Richtel, 2014). Uber's app tells drivers when customers are ready for a ride (Richtel, 2014). However, to accept the order and make money, drivers only have about 15 seconds to accept (Richtel, 2014). The time it takes to see the location of the requested ride, make a decision, and tap the button to accept can cause the driver severe distraction and possible accidents (Richtel, 2014). This time, however, the complaint wasn’t filed by a concerned citizen, passenger, or interest group. One of Uber’s own drivers made the claim (Richtel, 2014). The National Transportation Safety Board agreed with the driver and stated the app caused significant distraction to drivers since the contractors easily motivated to respond to fares while driving (Richtel, 2014).

The Verdict: Uber vs. Taxis

Choosing whether to hail a cab or order an Uber driver is based more on individual needs and the current situation. Local regulations also play a large part. Since many cities ban or tightly regulate the rideshare program, riders may have little to no choice in determining which mode of transportation is the best. However, if the rider lives in a city where it is easy to access Uber, they may consider the app traditionally have cheaper fares, are faster than cabs, offer a more comfortable experience. Additionally, riders may want to support the job initiatives and economic impact Uber has in the area. On the other hand, passengers may support the taxi system and prefer to spend their money on the tried-and-true services. Either way, both services have similar traits. And they both get you where you want to go.

Works Cited

Barro, Josh. "New York City Taxi Medallion Prices Keep Falling, Now Down About 25 Percent." The New York Times. 7 Jan. 2015. Web. 16 March 2015.

CBS San Francisco Bay Area. "Uber Driver Has Seizure, Hits Pedestrian In San Francisco’s Polk Gulch Neighborhood." CBS San Francisco. 4 Aug. 2014. Web. 17 March 2015.

Farrell, Michael B. "State reverses ban on Uber car service ordering app." The Boston Globe. 15 Aug. 2012. Web. 16 March 2015.

Ha, Anthony. "UberCab raises $1.25M to end your futile search for taxis.” Reuters. 16 Oct. 2010. Web. 16 March 2015.

Hern, Alex. "Boris Johnson says Uber ban in London would be 'difficult.'" The Guardian. 16 Jun 2014. Web. 16 March 2015.

Jackson, Nicholas. "Hailing a Cab with Your Phone.” The Atlantic. 16 Nov. 2010. Web. 16 March 2015.

MacMillan, Douglas. "Uber’s Investor Club Adds Two Hedge Funds, Qatar’s Sovereign Wealth Fund." The Wall Street Journal. 5 Dec. 2014. Web. 18 March 2015.

O'Brien, Sara Ashley. "Uber investor: Millennials just don't care about cars." CNNMoney. 15 March 2015. Web. 17 March 2015.

Pozin, Ilya. "6 Fast-Growing Tech Companies." Forbes. 11 Oct. 2012. Web. 18 March 2015.

Richtel, Matt. "Distracted Driving and Ride-Hailing Apps.” The New York Times. 22 Dec. 2014. Web. 17 March 2015.

Siegler, MG. "Uber CEO: I Think I’ve Got 20,000 Years of Jail Time In front of Me."TechCrunch. 25 May 2011. Web. 18 March 2015.

Transport for New South Wales. "Transport for NSW statement regarding ride sharing apps."New South Wales Government Media Centre. 30 April 2014. Web. 18 March 2015.

Uber. "Safer Streets." N.d. Web. 17 March 2015. WhosDrivingYou.org. "Frequently Asked Questions (FAQS)." 8 April 2014. Web. 16 March 2015.