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An example of why Sidecar and Lyft are Better than the Existing Taxi System

We’re seeing it everywhere.  Regulators and city/state attorney’s are trying to stop the rise of the Direct Economy (from AirBnB to Kickstarter to Sidecar), a new economic system that is making it easier for all of us to make an income and get the goods/services we want at the price/quantity/bundle we want.

It’s easy to understand why.  The direct economy cuts out the middlemen and much of the corruption that makes these middlemen rich and that change makes it hard to rig the system for the benefit of a few.

Here’s an example.

Boston, like most big cities, has a taxi system built that based on medallions.  Each medallion allows the owner to operate a taxi.   The owners use the medallions to build taxi fleets, which are then rented out to drivers.    Boston has 1,825 taxi medallions in use for its billion dollar taxi market.  

These medallions have been bought, sold and fought over for decades.  The result is a system that is incredibly corrupt (here’s a Boston Globe investigative series on corruption in the taxi system).  It gets pretty ugly.  Recently, the owner of the biggest taxi fleet — Edward Tutunjian —  was caught forcing his drivers to pay bribes and kickbacks in order to rent taxis (even though he makes tens of millions of $$ a year).  As a result of the pressure, he tried to cash out a bit by selling 200 of his 372 medallions at a going price of at least $600,000 each (!).  

So, with this in the foreground, why shouldn’t we embrace direct economy ride sharing services like Lyft and Sidecar into Boston as a replacement for a corrupt, tightly regulated taxi system?

Why shouldn’t it be possible for you, armed with an online service, to turn a bit of free time, a good reputation, and an idle car into some extra income????

 

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Discussion — 27 Responses

  • Eric November 7, 2013 on 9:24 pm

    No surprise here that government regulation backfires and hurts the consumer and entrepeneur. Open competition is what’s good for the consumer, that is what we should be striving for.

    Reply
  • Javier November 8, 2013 on 1:27 am

    Very good post

    Reply
    • John Robb Javier November 8, 2013 on 3:59 am

      Thanks.

      Reply
      • Javier John Robb November 8, 2013 on 3:13 pm

        This is one of the rare ocasions in which
        somebody in the circle believes and with
        sufficient reason that some aspect of the model
        that is emerging and we are observing and shaping,
        is not good.

        It is a call from the realpolitik of the street,
        and a wonderful opportunity to reorient.

        Reply
  • Uriah Maynard November 8, 2013 on 3:07 am

    On the other hand, here in Portland, where I drive cab, medallions (with car) go for $25,000, and the biggest company in town is driver owned, and people tell me all the time that they get far better customer service with us than anywhere they’ve been. Limits on the number of medallions are not the cause of corruption. In fact, they are the biggest reason our cab service is so good– they make sure we get enough business to make a decent living driving cab. Uber likes to point out the income their drivers currently make, but when they are done their industry rollup, will they restrict the number of drivers, or will they spread the drivers so thin that conditions for cabbies are even worse than they are now, even in more corrupt markets like Boston or NYC? And if they do restrict who can work and when, why should a big corporation get to decide that behind closed doors instead of an at least nominally democratic process, particularly when that same company is taking a huge share of the profits and has no incentive to look after the best interests of the drivers, especially once they have a dominant position in the market? These companies are not solving problems or ‘sharing’ anything, they are sidestepping democracy and the rule of law with huge piles of rich people’s investment money in order to create an oligopoly out of a previously decentralized industry. There are big problems with corruption in the taxi industry, but painting companies like Uber and Lyft as solutions to that problem is hilariously ignorant.

    Reply
    • John Robb Uriah Maynard November 8, 2013 on 4:08 am

      Sidestep democracy? That’s hilarious. How is it that a service that merely connects drivers and riders for a slim fee is a threat to democracy? In contrast, a government granted monopoly, when there doesn’t need to be one is crony capitalism.

      Reply
    • Mark Fischer Uriah Maynard November 8, 2013 on 1:19 pm

      Market forces will match supply and demand. If there are too many drivers for anyone to make decent money, some will fall away and do something else. If there are not enough drivers, the profit potential will lure more. The marketplace allocates resources very efficiently. What it does not do is protect your rice bowl from the cold hard world. It’s up to you to be flexible, nimble and creative with your opportunities.

      Reply
    • Javier Uriah Maynard November 8, 2013 on 2:39 pm

      I hear you Uriah, I see your point,
      and it is a very good point.
      Securing a volume is important,
      now, how about the person who wants to do a couple rides a day, not work 8 hours?
      This model can be implemented with a democratic
      decision making device incorporated, too,
      but then again you might not like the outcome of that either.
      In any case it is clear that a 25000usd entry barrier
      is not the way to approach the problem.

      Reply
  • Uriah Maynard November 8, 2013 on 5:11 am

    Uber charges 20% for dispatch services and the use of an iPhone, and I’m pretty sure that doesn’t include insurance. My company charges $10/day for dispatch AND insurance. Uber is pure old school extraction posing as a part of the sharing economy. Don’t mistake a well designed mobile app for substantive change.

    Reply
    • John Robb Uriah Maynard November 8, 2013 on 12:58 pm

      This article isn’t about Uber. Also, agree that “sharing economy” is a bad term for what is going on. This is all about money.

      Reply
    • Mark Fischer Uriah Maynard November 8, 2013 on 1:26 pm

      I’ll trade the fee and supplying my own insurance for not having to pay $25k up front for a part-time business.

      Reply
  • mildoc November 8, 2013 on 11:32 am

    The fundamental problem with the USSA is the gov, which seems intent on destroying anything that is productive and self reliant.
    The death of the USSA has been an intentional set of actions by a corrupted, compromised, illegitimate, and evil group of demonic minions who speak one thing, do another.
    There are several other countries where the gov in not the enemy and actually is helpful to some degree……Ecuador, Chile and a few other latino countries are a pleasure to visit and or live in.

    Reply
  • Uriah Maynard November 8, 2013 on 2:16 pm

    As we have seen in industry after industry, the end result of these entrepreneurial technology-driven industry rollups is massive oligopolies (or worse), where companies buy up aggressive competitors rather than compete with them, while less nimble/well-funded small operators go out of business, and everything about the industry becomes more and more uniform, with increasingly poor pay for the workers and diminishing innovation with a shockingly quick half-life. It doesn’t matter whether it’s Lyft or one of the incumbents– oligopoly power is bad both for consumers and for employees (now considered owner-operators in the sharing economy, pushing off all risk onto the workforce WITHOUT the necessary increases in compensation to make up for it). The profits, ownership, and locus of control have to be decentralized, if the assumption of risk is decentralized. Otherwise, we are fucking over our local economies, plain and simple. The taxi industry is far from homogenous– it is regulated at the city level, and that means that not all cities are even in need of substantive change. My cab company puts limits on how many cars a driver can own, and every owner has to actually be a driver. These limits prevent bad actors from emerging. They make sure the company is organized in the best interest of the drivers, who are treated (and paid) as professionals, and as a result deliver superior service, with the ability to borrow from our own credit union. We are the largest and most popular company in a fairly large market, and we aren’t even the only cab company organized to avoid making a profit in our market. Our cooperative does not produce the sort of revenue or profits necessary for having our own development staff the way a company that gets hundreds of millions from Google does (we make the lion’s share of our revenue from fuel sales), yet cooperatives like this one keep close to 100% of revenue in the community. We do not need everything we do paying some fucking entrepreneur in Silicon Valley, we need to be more resilient than that. The taxi industry is one of the last highly localized industries left. And yes, it is due to regulatory protection, but suggesting that regulation of industry is a blanket negative ignores the best interests of the community as a whole. We may be heading that direction, but that certainly doesn’t mean we SHOULD move that way, or even that it will advantageous for the customer. Lyft and Uber X are cost competitive with cabs, and probably provide a better experience than what you have in most cabs in most cities, particularly cabs with partitions (which we fortunately do not have), but that is not the case everywhere. We have many examples of different regulatory environments, and many different results. And frankly, cities with deregulated taxi industries are utterly terrible, just as the corrupt industries do. Reputation systems help with the general race to the bottom mentality, but they won’t help with the problem of the pay being so terrible that the best cab drivers, the professionals, the weird awesome people that drive cab, those who could do other work but like driving, they will all but disappear. And that is exactly what happens in these libertarian wet dream cities. The service turns to shit and there’s nobody left to care anymore, once the magic of growth wears off, it’s just generic bland grey goo exactly the same every time, just like the corporate chains always do. Just because the drivers for these sites make good money now doesn’t mean that will always be the case, you know. Eventually they own the market, and it’s saturated, and they start churning through workers like a minimum wage meat packing plant while we scramble to make ends meet every second of every day, editing high school kids’ term papers on a laptop in between fares which soon come all too infrequently. I’m sorry for calling you ignorant, but honestly I just don’t think you get the taxi industry or what the problems actually are or what the realities of turning all jobs into variations of Amazon’s Mechanical Turk will be for our local economies. When we’re talking about creating new jobs that might have gone undone or done poorly, like with any of the many task-based personal assistant services, that’s serving a new market. That’s treading new ground. But we already HAVE good car services. And you can ALREADY order a taxi with your smartphone. So what, we should let the existing players die because there’s a marketing advantage to having just a handful of national players and a business advantage to a) taking huge amounts of investment money, and b) not having to spend ridiculous amounts of money first obeying and then seeking to actually change the laws they’re breaking. What you’re arguing for is giving a fucking pass to the richest assholes on the planet for no other reason than because their service is new and shiny. If they didn’t want to go through the effort and expense of obeying the law, they could have made a taxi ordering app instead and everything would be nice and legal, but instead they want to run roughshod over our cities’ ability to regulate the people driving on our streets for money, tens of thousands of miles a year without oversight. Those regulations exist for a reason. Some are better than others, and some create massive problems, but that doesn’t mean that we should be rid of them entirely, it means we need to improve the system. If you’re gonna try to support your community, and make it strong and resilient, you need to keep the wealth at home. Not getting shipped off to Silicon Valley because of some clever marketing bullshit about ‘sharing’.

    Reply
    • Javier Uriah Maynard November 8, 2013 on 2:53 pm

      I think Uriah has a point there John.

      These systems lack a feedback and control
      mechanism that would prevent what he is explaining,
      and this is critical, for there is no use to all this
      if we end up fucking people over.

      Reply
    • Mark Fischer Uriah Maynard November 8, 2013 on 3:30 pm

      A couple of observations here. Big fish can’t buy smaller fish unless they are publicly-traded or the owners choose to sell. Strongarm tactics are and should remain illegal.

      If I, as a competitor, am hurting your business, you have the choice of sucking it up and taking the business consequences, or making changes to entice your market share back. That’s what competition does, it forces businesses to be more efficient and provide better products or services to the customer. That’s a feature, by the way, not a bug.

      The established players in the game have no rights that their competitors lack. The marketplace is Darwinian; you swim or you sink. All you are arguing is that class-warfare sloganeering justifies using government muscle to protect your market and block competition. You might be popular wih your customers, and that’s laudable, but it has no bearing on the problem that your customers lack choice and are at your mercy whether your service is good or bad.

      The idea that your market share is endangered by completion with a different obusiness model suggests that you realize that a segment of your market wants that option…but instead of tapping that segment yourself with some innovation, you are fighting to maintain a business model that is showing its age. I have no doubt that a lot of people will continue to prefer livery taxis with meters and lights and all that, but many do not, and trying to shut out change puts you in the same class as buggy-whip manufacturers.

      Reply
      • Javier Mark Fischer November 8, 2013 on 4:56 pm

        For example, what happens when these companies
        buy driverless cars?

        Reply
        • Mark Fischer Javier November 8, 2013 on 7:51 pm

          Then they buy driverless cars, which is apropos of nothing, since we’re not talking about a traditional taxi company or car service, they are simply taking customer orders and making them available to independent drivers with their own cars for a cut of the fare.

          Reply
        • John Robb Javier November 11, 2013 on 2:34 pm

          Anyone that owns a driverless car puts it to work using Lyft/etc. whenever they aren’t using it. The car works for you.

          Reply
      • Eric Mark Fischer November 8, 2013 on 7:26 pm

        Well said Mark.

        Reply
      • Uriah Maynard Mark Fischer November 9, 2013 on 11:59 pm

        In this case, the only business innovation is the scale made possible solely through massive outside investment. Unlimited competition doesn’t mean consumers get the best product, either. What is being measured by the capital market is not the fitness of the service but the ability to serve the interests of the investors, often to the great disadvantage of workers, customers, and the community. That’s why they call it capitalism. There are limits to how extractive a company can be before they start to look weak to other investors, but that is not a reason to replace one entrenched business with another by allowing them to skip the expensive and time consuming bureaucratic nightmare that all the local companies had to jump through to open their doors, just because they’re well-funded and have a bunch out marketing spin about building the future.

        Reply
  • Uriah Maynard November 10, 2013 on 12:07 am

    Also, it should be noted that the $25,000 doesn’t in any way prevent someone from working one day a week… You don’t have to own a cab to be a cab driver and make decent money. You DO have to own a suitable work vehicle to drive for these services. So which really has the lower barrier to entry?

    Reply
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  • Adam December 3, 2014 on 8:36 pm

    The idea is great, the delivery however is terrible. Drivers get screwed out of tips, and the fare is so low (only $1.10 per mile in LA) it’s very very hard to make a profit. Often times you need to drive 1 – 3 miles to pick up your fare, with a chance they are going across the street, riders think the driver made a cool $4 but they are wrong $1 safe rider fee goes to the company, 20% goes to the company, and if you didn’t drive much, they pay you even less of that $4 because even though there’s a minimum to the client, the companies still only pays you miles and time!

    The driver NEVER gets a tip because they claim to be only technology companies and not car services. But WE are the car service, the drivers, and thus deserve a tip. Also, if they were only technology companies, why do they get their hands dirty by controlling which drivers get to drive, or which ones they suspend, or warn, or what ever. Doesn’t sound like “just a technology” company to me, does it to you?

    Reply
    • Adam Adam December 3, 2014 on 8:37 pm

      Not to mention, they force you to take all their orders, if you fall below 80% acceptance rate, they boot you.. Even if the ones you reject are in a part of town you don’t personally want to service. Sound like just a tech company?

      Reply
      • Adam Adam December 3, 2014 on 8:39 pm

        Doesn’t seem like one to me!

        Reply