How to kill San Francisco’s ride-sharing start-ups

Ride-sharing start-ups Lyft, SideCar and Tickengo are helping San Franciscans get around faster and cheaper than ever before… much to the chagrin of local cabs.

But ride-sharing isn’t quite like catching a cab or even an Uber.

Instead of managing a fleet of taxis, each of the three manages their own cooperative ride-sharing community. They don’t own the cars, pay the drivers, or even act as dispatch.

Passengers use mobile apps to directly request rides from any nearby, participating driver.

The apps show information like driver ratings based on previous passenger experiences. The ratings cut both ways, so drivers are able look at a prospective rider’s rating before accepting the request.

Sidecar on the iPhone

The apps also facilitate payment via a credit card linked to the user’s account. Passengers simply indicate how much to pay their driver and the app takes care of the rest—this is also where the companies hope to profit, by taking a bit off the top of each transaction.

Unlike using a taxi or a limo, payment is treated as an optional ‘donation’. The idea is that by treating payment as a ‘donation’, it becomes legally equivalent to giving a friend money for gas.

Since there is no set rate or obligation to pay a particular amount—or any amount at all1—the trio qualify as ride-sharing, and therefore aren’t subject to licensing requirements … maybe.

In September, The California Public Utilities Commission (CPUC) and the San Francisco Metro Transit Authority (SFMTA) both issued cease and desist orders to the companies. All three start-ups elected to continue operations.

On November 13th, the CPUC came down on Lyft and SideCar2; it’s unclear why Tickengo evaded the fine, but not the original cease-and-desist order.

Lyft and SideCar are continuing with operations while they negotiate with the CPUC. A general petition has also been started as a show of public support.

Ultimately, these new business models don’t fit into the current regulatory framework, so there is a lot riding on what the regulators and the courts do next.

Legal interpretation aside, the underlying concern is that consumers are being put at excessive risk out of a lack of oversight.

But ride-sharing has oversight — it’s just private.

For example, Lyft vets all applicants and only approves around 5% of would-be drivers. The process includes background checks as well as basic training. Vehicles must also meet minimum standards for maintenance. Beyond that, the company carries insurance coverage for up to 1 million USD over drivers’ personal policies.

Community driver sporting Lyft’s trademark pink ‘carstache’. Photo courtesy of checkdoublecheck.blogspot.com

SideCar and Tickengo have taken similar measures to improve safety and mitigate risk.

These companies represent competing regulatory systems, not just ride-sharing.

People may want the security of uniform standards for drivers and vehicles. But there is no reason these standards need to be set by a central authority.

If the system certified by SideCar or Lyft loses credibility, it withers and dies. These competitive pressures are on the side of the customer.

In addition to oversight from each of the service providers, the networks themselves enjoy a form of self-regulation via the ratings system which establishes a member’s reputation in the community.

Reputation is an old form of social technology. Knowing Bob’s reputation can help you decide if you should trust him; it also makes Bob want to be trustworthy because if he’s not, others will eventually find out—with negative consequences for Bob.

In this case, Bob the driver risks never getting another ride request and Bob the passenger risks never getting another ride.

But ride-sharing is only part of a much larger wave of P2P markets or what’s being termed ‘Collaborative Consumption‘.

RelayRides and Getaround enable P2P car rentals. Airbnb helps users rent out extra rooms to vacationers. Vayables connects travelers with locals who act as tour guides.  And Taskrabbit … is for just about everything else under the sun.

These platforms allow people to create brand new markets and better use the resources they already have at hand.

But exactly how these new systems figure into the current political-economy is anyone’s guess. Many of these platforms threaten a host of entrenched interests, so backlash should be expected.

Given that the CPUC’s raison d’etre is to manage and regulate, its attitude toward these companies is no surprise. The SFMTA has the additional incentive of protecting its coffers. Taxi licensing is under the SFMTA’s purview and the monies brought in are considerable — ride-sharing networks could cut into an important revenue stream.

We should not forget that officials who claim to be ‘protecting’ them from ‘unregulated’ start-ups may have biases of their own.

Despite all that, government isn’t monolithically against the start-ups. San Francisco Mayor Ed Lee has actually been receptive to ride-sharing and the broader ‘sharing economy’; even if what that translates into politically is unclear.

Ultimately, the genie is well out of the bottle. Whether or not these particular companies survive may not matter in the long run since they’ve already given us a proof-of-concept.

After all, shutting down Napster didn’t stop file-sharing so there’s little reason think ride-sharing and other P2P markets wont find a way as well.

1. One minor difference between the three is that Tickengo users indicate a dollar amount they’re willing to ‘donate’ along with their intended destination as part of their ride request.

Lyft and SideCar use a formula to determine a suggested ‘donation’ amount based on criteria like the length of the ride and the average amount ‘donated’ for similar trips—users are still free to deviate from the suggestion.

2. While not a ride-sharing sevice, transportation start-up Uber was also fined $20,000 along with Lyft and SideCar

A guest article by Jeff Fong. He lives in the San Francisco Bay Area and writes about the intersection of politics, economics, and technology.

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