The Shiny Face of Uber, and its Ugly Underbelly

I love using Uber.

When you get into a taxi in Germany, it’s almost always a new Mercedes, BMW or Audi, generally the large model, and spotless. The driver is well-dressed. The ride is superb. And then you pay a LOT OF MONEY.

When you get into a taxi in the United States, say New York City, the car is usually beat up, no more shocks left, the seat is often torn and the cushions disintegrated. The cab is filthy. The barrier separating the driver from me is too close and my legs bump against it. There is less leg room than in a Spirit Airlines flight. The driver speaks no English. He can’t take a credit card, because “the machine no works” and I am still expected to tip. Since I deal with cash, the tip is too much in the end. The receipt is usually a dirty business card where I have to fill in my own data. All that, if I can FIND and HAIL a cab in New York City in the first place.

Enter Uber.

I go to my app, and within a few seconds a driver accepts my hail. I see the map and the car coming. I know the name of the driver, the type of car, and the license number ahead of time, so I can look out for him. Within minutes he pulls up. I get in, and the driver greets me by name, and he already knows where I am going. The car is clean, he hands me a bottle of water, we chat pleasantly, if I want to, and he drops me off. I see the fare pop up on my phone, and it’s very reasonable. I love that I don’t have to hassle with a tip. The driver is his own contractor/boss/service business. I rate the driver 5 stars. Within minutes, I have an easy-to-read receipt in my email that I can use for my expense report if I am on a business trip. It does not get any slicker than that.

From the consumer’s point of view, the business model makes perfect sense. Here is a service industry that is putting the taxi business out of business.

The way I see it, Uber should not exist. The taxi companies should have created the app years ago and streamlined their business to be consumer oriented. There should be a checkered-cab-app. But there isn’t.

  • Just like Google should not exist, because the dominant search engine at the time was Yahoo!
  • Just like Amazon should not exist, since Barnes & Noble, Borders, and Waldenbooks owned the market and should have gone online.
  • Just like Instagram should not exist because Kodak could have created it 10 years earlier.
  • Just like FedEx should not exist, because the U.S. Postal Service owned the mail and shipping market.
  • Just like Apple should not exist, because IBM was the behemoth of computing, and DEC was the upstart minicomputer giant.

But, alas, Uber exists because the taxi business sucks so badly and they created a much better mousetrap for a huge demand.

If you have ever wondered about the inner workings of Uber, how much money (or how little) the drivers make, and how it all works, read this superb article by Emily Guendelsberger in the Philadelphia Citypaper. It’s very long, but it’s exhaustive and serves as a great exposé.

After reading this article, it is clear to me that Uber is meeting a phenomenal demand left by the crappy taxi industry, that, with its bad business model, trashy service, inconvenient hailing system, and poor financial management, not to mention the outdated protectionist medallion system, is not able to cope very well with competition that is focused — what a novel concept — on the consumer.

Uber has to deal with the issue of commercial licensing and insurance. Uber has to deal with unionization efforts of their drivers. Uber has to take better care of its drivers, or some other company like it that does will gobble up those drivers eventually. But Uber definitely is focused on the customer, the consumer.

In summary, Uber (and its competitors) are an American service industry addition that was not there some years ago and has become a huge business because there was a gaping need. Its drivers are not making a living wage for the most part, but its customers are happy and well-served. Regulatory agencies and insurance companies need to catch up with “the problem” this industry created, but they eventually will.

Protectionism Never Works – Very Long

Daimler Benz uses Tesla’s batteries and their powertrain for their electric cars. Toyota uses a Tesla motor. Consumer Reports rated the Tesla Model S higher than any car it ever reviewed. Automobile Magazine and Motor Trend named it the Car of the Year in 2013. It exceeds 200 miles on a charge, and getting better. The Tesla is here to stay.

Yet, Texas decided that consumers cannot buy it in their state, since Tesla does not subscribe to the dealer-based business model, where dealers, which Tesla considers unnecessary middlemen, simply mark up the product. So any Texan that wants a Tesla has to travel out of state to get one.

The ride-sharing company Uber provides a superior service and an alternative to taxicabs. When you request an Uber car on your smartphone, you see where the cars in your area are. It tells you when it will arrive. You see it coming toward you on a map. You also see a picture of the driver, his or her name, a picture of the car coming for you, the make and model, and the license plate number. When you step into into the car, which usually comes faster than advertised, you greet the driver by name, he already knows your name and has your number. If he had trouble finding you he already called you. You get your ride and when you are done, there is no worry about the price. It’s set by the system. There is no tip. You need no cash or credit card. You simply get out of the car and the fare shows up in your account seconds later. No flagging cabbies. No strangers behind plexiglass walls. No racket with prices. The prices are better than cabs.  No hassles with tips. Much safer for both the ride and the driver, since both are registered by the system. It’s a truly superior service.

Yet, in New York City, they are now going to “study the impact of Uber” before they will allow it to grow. Well, of course it’s going kick taxicab butt! The day of the taxicab racket is over. In New York City, you have to have a “Medallion” to drive a cab, which costs more than $1 million. With Uber, you just sign up.

Protectionist regulation, like in the example with Tesla and Uber, never work, at least not very long. The new service or product, if truly better, will blow the old established ones away.

Why is there Netflix? Why are we not streaming Blockbuster into our televisions?

Why aren’t we uploading our pictures to Why do Instagram and Flickr even exist?

Why aren’t we buying our books at and all our products at Why was Amazon able to rise?

Why is Google a verb? Why don’t we “Excite” or “Yahoo!” or “Alta Vista” or “Bing?”

Why don’t we buy our music at instead of at iTunes?

Because in every case, the old stodgy institutional company was not nimble enough to realize what was happening to them until it was too late, and the newcomers provided superior products.

Good luck, Texas, with your trying to keep Teslas out of the state and propping up your car dealers.

Good luck, New York, holding up the medallion-based taxicab culture.

Good luck, protectionists!




Car Service Uber Faces Regulatory Challenge in Dallas

I recently wrote about how the startup Uber disrupts the taxi business.

Since then I have found this article showing how Yellow Cab is trying to make life difficult for Uber in Dallas. It exposes the donations from Brewley, the president of Yellow Cab, to Dallas city council members over the years.

What Dallas is trying to do is impose a number of regulations that would hobble car services like Uber, that use smartphone apps to hail rides. The restrictions include things like minimum times for drivers to pick up passengers and set minimum fares.

Think about this: with Uber you can request a ride and get that ride in minutes, possibly seconds, depending on where the car currently is, and the limo services require the car to wait 30 minutes? Then it sets the minimum fare to be equivalent with limo prices, making Uber uncompetitive.

This borders on the ridiculous. If a company has to protect its viability by slowing down competitors by regulation, that company is already dead.

Read Ayn Rand’s Atlas Shrugged to see what such regulation leads to.


Uber Disrupts Taxi Establishment

Have you ever been uncomfortable riding in a cab in a large city wondering if you are being ripped off? I travel a lot, and I rent cars whenever feasible, which is most of the time. My only exception is when I am going to be staying in a downtown hotel where parking a car costs an extra $25 a night and where I don’t really need one. I don’t like cabs, and I always feel I am better off renting.

There are several Internet-based services now that are intruding on space that taxis have held for almost a century. Uber is one such commercial “car service” that is threatening to transform the rigged urban transportation system. allows you to find a “friend” with a car to give you a ride, so it’s more of a personal service, but it still takes away business from cabs.

To use either service you download an app, which you use to locate nearby drivers, you summon them, and you pay the calculated fare online. It’s fast, it’s efficient, it’s safe and you don’t pay a middleman. Since all users, drivers as well as customers, are registered, it’s actually much safer. While I don’t have statistics or evidence of  this, it would seem to me that it’s less likely that you pick up a serial killer when your fares have to be registered, including payment information, and when the time and location of the pickup is memorialized in a database.

Of course, none of the syndicated cab services in the big cities like these companies. They are clearly taking away their business.

You need a “medallion” to drive a cab in most cities. Medallions are scarce, regulated and difficult to get. There are only 13,150 in New York City and they cost $1 million to get. Yes, if you want to operate a taxi in New York City, you must buy a taxi and you must obtain a medallion. So unless you have a way to get or finance $1 million cash you cannot drive a taxi in New York.

Somebody is skimming a lot of money off the taxi business, and it’s not the Bulgarian driver. I am using Bulgarian because I honestly cannot remember ever having an average American taxi driver. They all appear to be immigrants.

Uber faces a legal and regulatory battle in every city it enters, and they think of it as part of getting business done. The established cab companies are fighting back.

But I believe that resistance is futile. Consumers like the convenience of app-driven hailing of cars, the safety of a registered driver and a recorded pickup time and place, and the fairness of a consistent, market-driven fare that is not rigged. And consumers love to cut out the middleman.

Sorry, cabbies, a century of dominance is enough. Make room for the entrepreneurs.