When Alexandre Meterissian, a senior strategy consultant at Hatley, needed a ride across Montreal in the early afternoon, he simply took out his mobile phone and booked a car to pick him up. He didn’t call a taxi; he used the popular yet controversial Uber app, which connects Uber drivers with passengers. When his ride arrived, Mr. Meterissian and his driver experienced a great deal of difficulty leaving the corner of Sherbrooke Street and St-Laurent Boulevard. Two taxi drivers witnessed the Uber driver pick up Mr. Meterissian and actually blocked the driver from leaving. The cab drivers and the Uber driver got into a heated discussion, which resulted in Mr. Meterissian ordering a different Uber driver across the street. The new driver was also obstructed, and actually had to pull onto the sidewalk to escape the cab drivers obstructing his vehicle.
This scenario reads like a chase scene straight out of a Hollywood film, but the controversy surrounding Uber is very serious, and affected cab drivers are not welcoming the service deemed illegal by numerous city mayors, including Denis Coderre, the mayor of Montreal. For those unaware, Uber’s business serves either passengers or potential drivers. An Uber driver can be anyone with a vehicle that meets criteria set by Uber, and these drivers act as independent contractors for the Uber company. A passenger uses the Uber app to order a driver to their location, and the app takes care of the fare (including tip). The driver gets the bulk of the fare, with the rest going to Uber. Passengers can select from a variety of vehicle types, from the general service UberX, which alerts every driver in the area, to more selective services like SUV (for larger groups) or LUX, which sends a luxury vehicle. Essentially, anyone can make money with nothing more than their car and their cell phone, and passengers save on cab fares. Seems great, doesn’t it? Not quite. The problem with Uber is that because these independent contractors also happen to be operators of unlicensed taxis, they run into numerous legal complications with regards to insurance. Uber drivers are not required to hold a taxi license or the particular insurance that comes with that. As a result, it is much cheaper for both driver and passenger to use the Uber service, and this is the core reason why Uber is able to undercut local taxi companies so fiercely.
The opposition met from local taxi companies is largely due to the fact that Uber drivers are essentially breaking the law and don’t have the financial burden of expensive taxi licensing or insurance, and have been labelled pirates as a result. Uber has also been criticized for surge pricing, which is when the price of service skyrockets in times of heightened demand. The anonymity of Uber drivers is also seen as a major issue; numerous reports of drivers sexually assaulting passengers have arisen in the past few years, and passengers have no way of protecting themselves against this due to the structure of Uber.
The street goes both ways, because drivers are also left unprotected against passengers if they turn violent. No standard for security cameras or other protective measures exists in the Uber driver code of conduct. Recall the allegation that Justin Bieber and his entourage violently assaulted a limousine driver in Toronto last year. That driver, Abdul Mohar, was in fact an Uber driver who answered a call on December 30th, 2013 outside Time Nightclub in Toronto. The driver alleges that Mr. Bieber punched him in the right side of the face repeatedly when he refused to turn the music up to maximum volume. If these alleged actions had have caused an accident, the driver could have in fact been sued by Mr. Bieber’s party because he was technically operating an unlicensed taxi at the time, even though Uber does offer insurance coverage of $5 million in general liability. The driver is currently suing Mr. Bieber for $850,000 in damages, but the case is muddled with the legality of being an Uber driver, and the driver could very well lose the case, especially considering Mr. Bieber can afford much better legal counsel. Mr. Mohar has since stopped using Uber as a result. Since Uber is such a new service, the law has not matured enough to properly accommodate cases involving the service.
Despite all of the opposition from local governments and taxi driver unions, Uber will continue to persist within the personal transportation economy because they offer a more enticing service to both drivers and passengers. What Uber is catalyzing in the transportation industry is not unique; this effect has been occurring for hundreds of years, and it all started with the efforts of the swashbuckling sailors we affectionately refer to as pirates.
Pirates came to be as a result of a revolt against the trade monopoly possessed by the Dutch East India Company back in the 17th century. Often described as the first multinational corporation, the DEIC controlled crucial shipping routes from Europe to Asia, and maintained a workforce that was estimated to exceed one million people. The DEIC possessed thousands of ships, maintained forts and staffed them with soldiers, and was essentially an economic juggernaut. That is, until some sailors decided that the current economic code wasn’t to their liking, so they decided to rewrite it. Pirate ships started out small, but as popularity of the movement grew, so did their targets.
Piracy eventually helped to break up the monopoly of the DEIC by helping to spur the change of employment standards. By today’s standards, the DEIC was not a good employer. Mortality rates were high, salaries were low, and employee safety was not on the map. Despite what we think of pirates, they actually introduced some revolutionary standards in employment quality. For example, it was written in the pirate code that if a man became injured on the job, his salary for that time would increase and he would receive subsidized medical care. Essentially, pirates helped create the world’s first draft of employee benefits – they weren’t just about walking the plank. Pirates have surfaced in various industries throughout history in order to enact lasting change. Past examples include pirate radio stations that broke up the monopoly that the state-run BBC had on radio broadcasts and the peer-to-peer music sharing service Napster, which forever changed the sale and distribution of music. Uber is the latest in a long line of pirate organizations to create change to the code of its industry. While taxi companies and municipal governments may be strongly opposed to the operation of Uber in the cities they serve, the company, or at least the change it is driving, is not going to disappear. Consumer support for lower fares, simplicity of operation, and a chance to earn money on the side as a driver has clearly won the favour of citizens despite backlash from taxi drivers and government officials.
Just as Napster forced the music industry to create better services when it came to distributing and selling music, Uber will force cab companies to alter their rate structure and drivers’ cab rental fees, and it will force cities to lower the price of a taxi cab license in order to compete with the services Uber will offer. For example, to purchase a taxi medallion in New York City, an owner-operator must come up with about $1 million. Corporate medallions can go for more, with prices reaching $2.5 million for a pair of medallions to own a mini-fleet of two cabs. In Toronto, the average taxi license fee has reached as high as $250,000, but that value has dipped to around $150,000 due to a recent legislative change that requires the owner of the taxi license to also be the operator of that vehicle. Toronto city officials estimate the average full-time cab driver makes $31,000 per year.
As problematic as Uber is, the lower fares and better income prospects are forcing positive change in a taxi industry that has seen the price of licenses balloon to unaffordable amounts. The ease of use of the Uber app will also force cab companies to develop their own cab hailing apps to compete with technologically superior services like Uber, Lyft, or car-sharing organizations. The good news for opponents of Uber is that while the overall ethos of the pirate organization will never cease to exist due to its role in the ongoing evolution of capitalism, individual pirate firms are often short-lived. This is due to the formation of new services or the alteration of existing ones.
For example, Napster is now defunct in favour of legally sound music services such as iTunes, Amazon, or Google Music, but that didn’t change the impact Napster had on the music industry. Uber may avoid complete dissolution by diversifying into a legitimate player in the big data scene, but like pirate firms of the past, legal opposition will eventually catch up to Uber and reduce its prevalence in the personal transportation sector. Like it or not, Uber will force the taxi industry to alter their pricing and digital strategy or risk being left behind. Like previous iterations of pirate firms before it, Uber will be remembered as a disruptive, albeit necessary, force of change within the transportation industry, and its influence will likely create lasting improvement, even if the service itself is far from perfect.