Ravengate
Partners - Stock market, economic and political commentary by Patricia Chadwick

Here to Stay – Side by Side with the Taxi Industry

It’s easy to bash Uber — a brash new-age “bull in a china shop,” gunning to upend the traditional order of life that was the yellow cab system of transportation. And it’s fair to say that Uber’s cofounder and CEO Travis Kalanick has done little to make himself loved by the powers that regulate the taxi industry.

That being said, Uber is a prototypical example of “disruptive technology,” whereby an emerging technology upends existing markets and products. In this case, Uber is fulfilling a need — specifically, providing the public with rides on demand, something the taxi industry has been unable to achieve. Why? Because the taxi medallion industry has for years been able to limit the supply of taxi cabs.

Now, smartphones (themselves an example of disruptive technology, by annihilating regular cell phones, MP3 players and a horde of other now-defunct hand-held devices) are allowing ride seekers to get on-demand service.

There has been much hand-wringing over the safety of hiring an “unvetted” Uber driver or the Uber drivers’ lack of insurance coverage, as well as their paltry wages. Much of that angst is unwarranted, and as Uber expands, so does the sophistication of its communication and security.

Two days ago, I ordered an Uber-x (the cheapest and least flamboyant option) in Boston. Because it was during the evening rush hour, my smart phone told me I would have to pay 1.6 times the “normal rate,” and I had to type in the digits 1 and 6 to confirm that I understood and accepted that premium. As the vehicle approached my hotel, I received a notice on my smart phone: “Be sure to check this picture and license plate before getting into the car,” and below the notice was a picture of the face of the driver and the license plate on the vehicle. That was the first time I had ever received such a notice. Is Boston ahead of New York? Or is this an example of Uber responding to the social media rumors that Uber rides were unsafe?

I love to chat with taxi and Uber drivers. This driver shared with me that he had been on the job for three weeks, having left his cab company after forty years. Why did you quit? I asked. He replied that the cost of the medallion fee was too much ($800 per week, whether he worked or not), and now he was able to work whenever he wanted and keep 80% of the revenue he generated. But you’re using your own car, I said, and putting all those miles on it. I know, but it’s worth it to be my own man. What about insurance, I asked, knowing that some people have made an issue about Uber drivers being underinsured. He had the answer: Uber has a $1 million policy on each car, the driver told me.

When I arrived at the restaurant, not only did I receive an email receipt on my smart phone, but I also had the opportunity to rate my driver (I gave him 5 stars), and I was able to see exactly how many minutes the trip took (15 minutes and 31 seconds) and, importantly, the route that the driver took. In other words, Uber itself can monitor how its drivers take you to your destination. Oh, and by the way, the 1.6x fare for the trip cost a total of $12.38. That implies $7.73 during non-peak hours, which I thought was very reasonable.

Pondering that conversation, I realized how Uber is providing the opportunity for individuals to be entrepreneurs, in control of their hours and their earnings. If an Uber driver does not want to use a personal car, Uber will provide one on lease, and from my discussion with other drivers who use that approach, the weekly lease payments are far less than the medallion payments paid by a taxi driver.

Is this the end of the yellow taxi industry? Certainly not! When I’m in New York, I grab a taxi first and go for Uber second. And in my conversations with taxi drivers about the impact Uber is having on their business, almost all of them acknowledge that there is enough business to go around.

The medallion industry is smart, and I fully expect that it too will develop an on-demand service. Uber is the wake-up call the industry needed; if they respond creatively, the outcome will mean even better and faster service for consumers. That is good news.