Unicorns, Magic, and Making a Buck

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.

6 comments… add one
  • CuriousOnlooker Link

    I am not sure this argument should be applied to Airbnb.

    They offer a relatively unique product; to travelers a selection of lodgings not available through a hotel chain. To owners a channel to reach a huge audience without huge capital outlays.

    That they already profitable is another strong argument.

  • TastyBits Link

    Every time I hear about another taxi driver committing suicide, I wonder how the hell Uber, Lyft, etc. are not regulated as taxis.

    In less regulated countries, the taxi experience is a little different than in the US. If there is no meter, it is best to negotiate the cost before you leave, and by “negotiate”, I mean negotiate.

  • The reasons that hotels are regulated are much the same as the reasons that taxis are: to protect lodgers, to ensure some measure of predictability in pricing, to prevent price gouging, and they do so by imposing barriers to entry. Increasingly Airbnb is a professional activity, i.e. people are purchasing properties expressly to rent them out via Airbnb. I see little difference between that and operating a hotel. Unless the owner is living full-time on the premises, such properties should be required to meet the same standards as hotels are. As I say, enjoy it while you can.

  • walt moffett Link

    Another reason to regulate hotels is keep track of who is in town and who left by means of the mandated police access to the hotel registry.

    I think what will do in these unicorns are the legal actions to dismantle gig work.

  • Guarneri Link

    “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.“

    It’s not really the thrust of your post, but an anecdote. I happen to be a guy who was approached by Yellow/Checker in in the early 90s for a loan to be dividended out to the owners. As the loan was to be collateralized by the medallions, almost the entire credit decision comes down to “is the fix still in.” We didn’t make the loan.

    I moved on and don’t know when the Chicago market was opened up, but someone later decided we would see more than the Yellow/Checker monopoly. I presume the value of medallions declined accordingly. I also presume the ride rates reacted to this.

    The drivers had a raw deal before and after the events. Uber cannot be helping. I can tell you that my daughter and all her friends hardly know what a dirty, smelly cab is. They have all gone Uber. They think nothing of it. I don’t see it going back.

  • Grey Shambler Link

    From what I hear the pay after expenses is so bad that Uber and Lyft depend upon lots of turnover with drivers moving on when they see the picture. What no one else here has mentioned is that GPS in a cellphone has replaced the taxi drivers’ most important skill, he knows his way around town.
    That’s true as well with food delivery, which I personally see no use for. But for those who do, you should know that in the Grubhub app the driver knows how much you’ve tipped when he leaves the restaurant, so tip well, your dinner is in his lap. You have the opportunity to rate the driver within the app but be aware the driver has the opportunity to rate you as well. Parts of town where he doesn’t feel comfortable will have poorly rated customers and non-tippers may find they have to go get it themselves.

Leave a Comment