Mar 10 2014, 8:46am CDT | by Forbes
Seattle and its neighboring cities can lay claim to some of the greatest American business success stories, well, ever. From Microsoft to Boeing, from Starbucks to Amazon, the Emerald City has been home to some of the most forward-thinking this country has ever known. But — and you had to see that coming — if all goes as expected, a week from today, the Seattle city council is going to vote on a proposal that will basically bury Uber, Lyft and Sidecar in the city. The result will be a win for the holders of taxi permits, but a loss for drivers, residents, and really for Seattle and the surrounding cities. None of this is to say that some appropriate regulation isn’t in order for these new ridesharing services, but as is often the case, government has no real idea what it’s doing and so has come up with a “solution” to a “problem” that isn’t there. Your city may be next.
What’s happening in the northwest?
The economic success of Seattle, thanks in no small part to technology companies like Microsoft, has led to a population boom there. The city had 515,000 residents in 1990 and 634,000 in 2012. In that time, it added no new taxi permits, according to reporting of recent city council proceedings done by GeekWire. As a result of this — and I say this with the experience of living near San Francisco and seeing a similar set of circumstances play out — the city has absolutely no idea just how far out of whack the supply-demand equation is for taxi-like services. It’s that very imbalance that Uber and its competitors were formed to exploit and they’ve been doing just that.
Uber’s Seattle general manager Brooke Steger told the Seattle Times that 300 Uber drivers are often out driving there on the company’s UberX service alone (Uber also operates its “black car” service, which includes additional drivers, though it didn’t say how many). Steger noted that those 300 active drivers come from a pool of around 900, suggesting about 1/3 are on the road at a given time. If the same ratio applies at Lyft, which told the Times it has 1,000 drivers in Seattle, then you can see just how much demand for these services already exists. That makes the council’s proposals especially laughable.
First, it wants to increase taxi permits by 100 each of the next 2 years. The good news is that most taxis are owned by companies so they’ll be out on the road most of the time. The bad news comes from the second part of the plan, which is to limit Uber, Lyft and other services like Sidecar to a maximum of 150 vehicles apiece at a given time on the road. So you don’t need to be a math genius here to see the problem. Add 200 taxis — by the end of next year – while subtracting 150 vehicles each from Uber and Lyft (300 total) immediately.
Who exactly wins here?
Let’s be clear on something. This isn’t about protecting consumers. The proposals before the council also include provisions regarding insurance, which has been a hot-button issue for ridesharing companies since an Uber driver hit and killed 6-year-old Sofia Liu on New Year’s Eve in San Francisco. There are also plans to make sure vehicles get inspected and drivers are appropriately vetted. But those can be handled whether there are 150 Lyft drivers out on Saturday night or 300, especially since the proposed restrictions don’t limit the total pool of drivers from which the actives can be chosen.
That said, drivers all around all losers, including the taxi drivers who rallied around the council and lobbied to cut off the sharing services. “Artificially capping rideshares serves absolutely no public interest,” Washington state Rep. Cyrus Habib told GeekWire. “It simply replicates the scarcity found in the traditional taxicab industry, which frustrates each and every one of us who has waited out in the rain for that ever elusive taxi.” And that elusive taxi means two things (1) fewer jobs for taxi drivers (2) taxis controlled by middlemen who lease them out to drivers who then struggle each day to dig their way out of a hole. In San Francisco, many of those drivers have given up the yellow cab for a better living with Uber or Lyft, according to Fortune.
With the ridesharing companies, they become their own boss, set their own hours and gain flexibility they could never dream of driving someone else’s taxi. Uber has taken to helping driver purchase cars through partnerships with major automakers, creating scores of small businesses within the service. If Seattle has its way, all that disappears.
The forest and the trees
The part these politicians don’t seem to get is that technology has facilitated the creation of a a level of demand that the old system is an order of magnitude removed from satisfying. It wasn’t so long ago, for example, that a late night out in San Francisco might be thwarted by one wondering: “Well, how would we get home from there?” With Uber, that’s no longer an issue. The city buzzes in the wee hours with countless pickups and drop-offs as the multitudes who have often had more than a little too much to drink can get from the trendy South of Market area back to the sleepy Richmond District all for a cost that is often less than the last drink they had that night.
Though Uber has been growing ridiculously fast down here, I have a sense that it could easily get many times more popular. The company is still seeking drivers and lots of folks I know still haven’t even tried the service yet. Seattle is not as big as San Francisco and surely not as far along in its adoption of any of the ridesharing services, but again there is no doubt in my mind that the potential is far beyond anything that the council is currently imagining. When they hear the concerns of cab drivers who think Lyft is shrinking their slice of the pie, the council is worried about divvying up that tiny pie. Instead, they should be focused on understanding the giant pie that no one can bake thanks to these antiquated scarcity regulations.
It’s hard to see past this kind of stuff. We’ve had a few years to get used to Uber here and there’s been a lot of skepticism along the way. Smart people I know have worried about the need to cap the number of vehicles because “drivers need to make a living.” Brier Dudley, writing in the Seattle Times made this analogy: “I keep thinking of the fishing industry, where operators may invest $100,000 or more in a license, betting and praying they can catch enough fish to make it worthwhile. Imagine what it would be like if a bunch of well-financed newcomers showed up on the fishing grounds, expecting to fish without licenses or limits, because they have newer fish-finding technology.” The failure of the analogy is that the ocean really does have a finite amount of fish. We can’t increase the supply simply by getting better at catching them. Ridesharing, on the other hand, is quite literally increasing demand and supply. Except perhaps in Seattle.
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