Pirates of the Pavement: How Uber is Forcing the Taxi Industry to Change (Whether we like it or not)
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.
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, like what occurred during the 2014 Sydney Hostage Crisis.
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 (DEIC) 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 just $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 pirate organizations will never cease to exist due to their 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.