The Internet has upended a whole range of businesses and business models. The music industry is still struggling to deal with the fact that online the price of listening to a song has effectively plummeted to $0. Meanwhile, newspapers and magazines are trying to figure out how to compete or take advantage of rapidly decreasing ad revenue and the competition from oodles of free content online. Brick-and-mortar bookstores have collapsed as Amazon gets more books to more customers more inexpensively.
And now, surprisingly, the next sector that looks like it might be done in by digital is the taxicab industry.
At first, it seems like cabs would be relatively safe from online commerce. After all, cabs are out here in the real world; you can't catch a ride from a digital file. But despite that barrier, several new companies, such as Uber and Lyft, have figured out a way to use digital technology to create a new model for getting customers from place to place. The companies are based around digital apps that allow clients to request a ride. The driver nearest to the client is then notified and goes to pick up the client.
This is an innovative use of technology and could certainly be convenient for some people in some situations. And the ride-sharing companies have another, overwhelming advantage: They aren't regulated.
Driving is so much a part of life in the U.S. that people tend not to think about how dangerous it is — but that doesn't change the fact that it's really quite dangerous. In 2012, there were 33,561 traffic fatalities in the U.S. In comparison, there were only 153 airplane fatalities in ten years combined, from 2002 to 2012.
Because cars are dangerous, they are heavily regulated in terms of safety — seatbelts, airbags, insurance. Commercial vehicles like taxis are even more closely regulated. As Scott McCandless, a taxi driver in Atlanta explains:
"Taxicabs are required to display the meter price, vehicle and company identification and contact phone number on both sides of the vehicle to protect the public and the consumer. They are required to display a top sign, usually marked ‘Taxi,’ to announce that it’s a public vehicle for hire, in order to prevent discrimination. They must carry special, expensive, vehicle-for-hire insurance, and be regularly inspected to protect public safety. They also must display the driver’s permit and the taximeter in plain sight to protect the consumer."
Uber and Lyft can avoid all of that. As McCandless notes, they are on call only for people with cellphones, credit cards and access to the app, which may exclude people with lower incomes or fewer resources. They do not have to be wheelchair-accessible either. If ride-sharing services drive taxis out of business, who will serve people with disabilities?
Even more disturbing is the question of insurance. UberX, the portion of Uber's service which relies on ride-sharing, carries a commercial insurance policy with $1 million of coverage per incident. However, in most cases, the policy is only applied if the insurance of individual drivers does not cover the accident. And further, the insurance does not apply unless drivers are driving to pick up a client or already have a client in the car. This is a problem because using a car for commercial purposes often negates a driver’s personal insurance. Thus, when an UberX driver hit a young girl between fares on New Year's Eve 2013, neither the driver's insurance nor Uber's seemed to apply (the family is now suing Uber). Similarly, a San Francisco UberX driver named Bassim Elbatniji told Reuters that his insurance refused to pay when his car was involved in an accident in September 2013. His passengers are suing both him and Uber.
In large part because they have lower (and often inadequate) insurance, and do not have other costs associated with taxi regulations, ride-sharing companies are cheaper. Cincinnati.com reports that UberX offers a $2 base fare and $1.40 per mile; taxi companies in Cincinnati offer a $4 base fee and $2 per mile. Obviously, if UberX had to have the kind of insurance coverage that cabs do, it couldn't charge such low fares and it wouldn't have the same competitive advantage. William Rouse, the general manager of Los Angeles Yellow Cab, says the lack of regulation allows ride-sharing services to charge fares 30 percent below those of cabs.
An opinion piece by Mike O'Brien and Rich Stolz in the Seattle Times suggests substantially increasing the number of taxi licenses and adding 300 licenses for app-based ride-sharing services. They also recommend "uniform safety and liability standards, such as vehicle safety inspections, driver training requirements and liability insurance requirements." In other words, ride-sharing services would have to meet the same standards as taxis. Meanwhile, in Houston, the city council has slowly moved to consider rule changes. Ride-sharing companies have moved quickly into the market, however, and cab companies are now suing in federal court, arguing that the companies are defying city ordinances and thereby taking money from the law-abiding taxi companies.
Ride-share services argue that regulating the industry will destroy it. They say they rely on semi-professional drivers who would not be able to afford expensive insurance or safety inspections. These considerations are serious ones. New business models and new services are good for consumers, and it's clear that there is a large demand for the convenience and reliability of ride-sharing services. The tight regulation of the number of cabs in many cities, and the large entrance price in many places (up to $65,000 in Atlanta) has obviously restricted growth and hurt consumers and cab drivers alike. Taxis could in many cases stand less regulation.
But the answer isn't to do away with regulation altogether. Commercial driving services are too dangerous to operate outside the law. Ride-sharing services should not be allowed to keep rates low by transferring their insurance costs to drivers, passengers and the hospitals and emergency personnel who have to deal with injuries and accidents. Ride-shares need to have the same safety and insurance regulations as taxis. If that means that they have to figure out new ways to be profitable — well, driving is a risky business.