An inspection of the mobile app-based services run by companies like Uber, Gett (formerly GetTaxi), Lyft or Hailo raises important issues about the distinction between taxi and non-taxi ridesharing transportation for individuals. Developments of the past two years seem to have broken the boundaries of driving-for-pay. A utility that started as an option for hailing licensed taxis by a mobile app is turning into an unruly “business” of private drivers. Uber in particular is the source of disruption in the ‘private transport’ sector that is causing much public controversy and protest by professional drivers.

The convenience in hailing a taxi using a mobile app when needed from anywhere a passenger may be in town, instead of hand-hailing in the street until a free taxi shows up is clear and undisputable. Through technology a taxi driver in vicinity is notified and can arrive without further human briefing to the passenger to pick him or her up for the ride — it can save precious time and nervous waiting. It may also help drivers reduce wasted time and fuel whilst wandering between “jobs” until a new customer is found. The applications in market were aimed originally to connect between consumers-passengers and drivers of taxis, black cabs and limousines.

A crucial aspect to notice about those mobile e-hailing applications is that they allow drivers to take customers independently of a present employer or a fleet they may belong to. Briefly, an app of this type incorporates geo-location, reservation management and credit payment functionalities so that a driver is related only with a passenger on one side and the technology company operating the app on the other side. No cash is actually passing between the three parties involved. This arrangement soon proved to have a potential to involve a larger variety of employed and non-employed, trade-licensed and non-licensed drivers.

For taxi companies or syndicates the problem is twofold. Professional drivers often depend on local fleet operators for their license, car and livelihood because of the companies’ strong influence over issuance of new taxi licenses. A license and an authorised (properly marked) taxi vehicle are harder to get without affiliation to a fleet. The new app utility may open a window for changing the balance of power between companies and upset professional drivers. Furthermore, affiliated taxi drivers may occasionally take passengers reached via the mobile app without going through the fleet, and perhaps even without notifying the dispatcher. The fleet operator risks here a loss of control, authority and income (grabbed instead by the tech company — Uber for example collects 20% of the fare).

Some co-operation between the mobile technology companies and local taxi operators and associations may still exist (e.g., authorised taxi vehicles in Israel can be seen carrying a sticker of GetTaxi) but that is less likely now, especially after Uber expanded the scope of drivers it would work with. That is, Uber opened the gate for private drivers, anyone who has a driving license and a car, to provide “private ridesharing” transportation. Subsequently, frictions with taxi fleet operators have expanded into hostile struggles with unions and professional associations of taxi drivers as well as city and state authorities.

Uber, Gett, Lyft, Hailo, and others similar to them, are designated as transportation network companies ; the networks are constructed, accessed and managed by means of mobile applications. The challenge mounted primarily by Uber is the expansion of the network to allow non-formal drivers to transport other passengers in their private cars for payment. The schemes of Uber for this “ridesharing” portion of their network are known in different countries as UberX, UberPop or UberPool. However, the descriptive title of ‘ridesharing’ for this activity is contentious.

Many probably know car-pooling from their time in college or university: students group together to transport to or from campus in the car of one of the group members and share the cost of fuel between them. Frequently the participants are friends or acquaintances (e.g., classmates, sharing the rental of a house) but at the very least they are connected by affiliation to the same institution. Due to rise in cost of fuel, traffic congestion and air pollution, car-pooling has become more prevalent also among working peers employed in the same organization (as among colleagues whose work is in City A and live in City B). We may see another form of saving on transportation by a small group of people who rideshare a taxi (e.g., for an evening out at a restaurant or on the way back home, dropping each at a separate address). These are usually voluntary and informal arrangements where people related to some degree either ride in the car of one of the group members or hire together a taxi with a professional driver. Uber tries to emulate both and yet enables none of these arrangements.

The term ‘ridesharing’ seems rather ambiguous the way Uber claims to implement it. Uber, Lyft, and others like them, present themselves as platforms for “peer-to-peer transportation”, not as passenger services. But who are the peers when ridesharing with Uber’s schemes mentioned above? There is no guarantee that the driver and passenger are “peers” or acquaintances of any kind nor is there any requirement that a group of people “share” the ride with Uber’s driver. The driver is not formally required to have the same destination as the passenger nor does the passenger’s destination need to be on the driver’s route anywhere else. In real terms, passengers are actually hiring a driver known to them only via the mobile app with none of the assurances that normally accompany the hiring of a licensed taxi driver. Administrative and legal authorities in various countries noticed that this operation occurs in grey area and started to suspend or ban such questionable schemes by Uber in different cities or countries.

• Given the capital Uber has raised thus far it is valued as of May 2015 at $40bn. Uber operates in more than 250 cities in nearly 60 countries, though in some locations part of its activity is suspended due to legal disputes.

In the Netherlands Uber tried to argue that its UberPop scheme is a car-pool service as opposed to a taxi service. However, the Trade and Industry Appeal Tribunal in the country rejected this defence claim because it failed the legal requirement of taxi drivers to have a special license. The ruling on 8th December 2014 determined that “drivers who transport people for payment without a license are breaking the law“. UberPop was also banned a day after by a court judge in Spain because drivers lacked official authorisation to offer driving services. It should be noted that the cost of the ride is not estimated and agreed by the co-passengers with the driver to share but it is a fare determined by a third-party tech company. Moreover, people in a private, non-formal arrangement also usually do not deal with each other by credit cards. The claim of Uber sounds naive and unrealistic or simply a case of pretence.

By the end of 2014 Uber was dealing with additional legal restrictions and bans from the US (e.g., Portland, Orgeon; Nevada; and even in Uber’s hometown San-Francisco) and Canada (Toronto), through Europe (e.g., Paris, France; Berlin and Hamburg in Germany) to India (New Delhi) and Thailand in Asia. A map chart by The Telegraph depicts all the places where Uber is operating and where its activity has been banned or curtailed. The UberPop service is currently under scrutiny in Paris for failing a law passed late last year that regulates the services of chauffeured cars vis-à-vis taxis; Uber’s office in Paris was raided by police in March, confiscating mobile phones and documents (*).

In face of the rising criticism in Europe Uber adamantly argues that it is a technology company, not a transport company; thereby it does not own the vehicles nor hire any of the drivers who engage in its schemes, including UberPop. In the view of Uber, its mobile technological platform only helps in mediating between the drivers and passengers. Yet the European Commission is not hurrying to accept this argument, underlying Uber’s own complaints that national laws in Europe unjustly constrain its competition with taxi services. Uber may not directly transport people but its digital platform has an impact on transportation, a spokesperson for the EC commented in response. Indeed, can Uber defend itself as merely a technology company without taking any responsibility for the effects of its mobile app’s activity on the physical transportation services?  This matter is now under examination by the EC as part of an overall study of the taxi and chauffeur service industry.

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The brand (corporate-root) name “Uber” (originally Über in German) is problematic on two counts. The company transmits through its name that it owns a superior transportation network. First, it is an arrogant claim that may be perceived as provocative particularly by licensed taxi drivers for being contested by Uber’s network of private drivers who operate above them and the rules of transportation service that confine them. Second, the name is quite insensitive because of the associations it may bring to mind that carry a strong negative connotation from the 1930s and 1940s. In addition, the attempt of Uber to justify themselves as only a technology company not responsible for the operation of transportation itself alerts one to think that the company is not inasmuch “Über Alles” (above all) as it is “Über Chuchem” (over-smart in Yiddish). The choice of name was not clever. It is already wide-spread around the world, but the name is tainted and may levy a price in future.

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Uber and competing technology companies succeeded in introducing alternative private transport solutions for a reason: consumers who have become too frequently unsatisfied and even frustrated with the service delivered by licensed taxi drivers were open to the new type of “ridesharing” solutions. It may be triggered by complaints on low in-time availability, high cost and lack of reliability (e.g., not taking a shorter route, attempt to evade turning-on the taxi-meter). Sometimes it could be a feeling that the driver did not feel obliged enough to be kind to the passenger. Surely, many taxi drivers are honest, reliable and friendly, but the image of their service is tarnished by those who are less so. Obviously. the use of an e-hailing app is only part of the story here.

The main goal is protecting the quality and safety of taxi rides and other private chauffeur transport services. The business model offered by Uber is threatening to cause more damage than improve the situation — one cannot let these services be operated without oversight by official professional transportation agencies. There are some major concerns to address: (a) assuring the driving qualifications of the private drivers (though seeing how some authorised taxi drivers behave on the road makes one wonder also about their qualifications and the traffic rules they abide to…); (b) approving the physical fitness of the private driver; or (c) certifying the technical fitness of the private car used. Uber has already been charged with not making proper checks on the drivers who join them. Uber, though not alone, cannot be left to set its own rules for drivers.

The issue of cost and how ride-fares are measured is receiving special attention. Uber in particular has been charged with surge pricing (i.e., enacting a higher rate at peak hours when taxis are more difficult to get), a conduct other companies distance themselves from. More generally, the GPS-based assessment of fares is a subject of debate — is it accurate enough and can it be allowed in place of approved taxi-meters? According to Transport for London (TfL), fare calculations on smartphones are sufficiently divergent from taxi-meters’ for smartphones not to constitute a conventional metering equipment. Cab drivers in London went on strike to protest to TfL the special status of Uber, yet in a strange twist this stand may be used to protect Uber as a non-taxi service — TfL promised to investigate and resolve the conundrum. The fares at Uber are normally 15-20% lower than with licensed taxis. Passengers have to trade-off the expected saving against uncertain outcomes (e.g., reliability, safety) when riding with unauthorised private drivers. The decision may be different however if drivers applying Uber’s app were approved by official agencies.

A complex problem developed in multiple countries and is going to be difficult to sort out. In the short-term, taxi associations may collectively set-up or continue contracts with local mobile technology companies for operating sponsored e-hailing apps and guarantee 5-10% discounts to their users-passengers. In the long-term, it will be necessary to amend wounded relations between taxi drivers and consumers, and to consider if and how to accommodate different classes of authorised-licensed drivers, all kept under oversight of official professional agencies. Meanwhile, the mobile tech companies who probably sense the difficulties in the transport sector are already looking for new frontiers, to expand the use of their apps in other services (e.g., deliveries).

Ron Ventura, Ph.D. (Marketing)

(*) Uber Gets Reprieve in Paris in Fight on Low-Cost Service, International New-York Times (with Reuters), 1 April 2015.