Speaking of magic, I think there’s a comeuppance brewing for the entire gig and sharing economy. But first, a word about taxicab regulation.
Taxicab regulation goes back to the 1840s. Taxis are regulated by federal, state, county, and city governments with most of the regulation being at the city level. You may not know it but the federal government regulates taxis by establishing standards for how taximeters, those gadgets next to the driver in the front seat of a cab that ticks off the mileage and charges for your ride, function. Notionally, the purpose of laws regulating taxis is to ensure the safety of the passengers, predictability in the amount customers will be charged, the elimination of price gouging, and allow owners and drivers to make a reasonable return. The primary mechanism that has been adopted to do that has been to create barriers to entry. The practical effect of taxicab regulation has been to subsidize the owners of permits, medallions, certificates, or whatever other barrier to entry has been put in place and increase rates.
Lyft, Uber, Airbnb, and other similar startups that depend on creeping into crevices in taxi or hotel or other regulations will all fail for a simple reason. The regulations exist for valid reasons and the crevices that gig and sharing economy startups depend on will be closed. Enjoy them while you can.
In her latest Washington Post column Megan McArdle muses over the first inklings of the comeuppance I spoke of earlier:
WeWork isn’t the only tech “unicorn” that has lost some of its magic. Uber and Lyft were probably the most famous of the unicorns — companies valued at more than $1 billion in private funding rounds. They’re also trailing their initial valuations by quite a lot since both companies went public this spring. Now another of the best-known unicorns seems to be molting. And perhaps that’s not an accident.
These companies got so famous, and got such stratospheric valuations, because they promised to be revolutionary rather than evolutionary. With Uber and Lyft, for example, investors were buying into not just a better way to hail a taxi but also an option on a future in which everyone outsources their car ownership.
The reality is that in 50 years anyone who can afford one will still own their own cars because they provide freedom and flexibility and those are worth quite a bit. You can’t get those with ridesharing services and when the dust has settled and the regulations have caught up with the technology the cost of a cab ride to the airport or grocery store will be as high as it’s been for the last 75 years.