UBER VS TAXI

Most of my young friends tell me regularly that, at my age, I should give up trying to understand their new world.

When Uber arrived two or three years ago, I thought that it was primarily a clever new way to flex price the cost of wheels in cities to accommodate changing demand, but I doubted it would be allowed in New York. NYC has long prided itself on regulating/fixing taxi fares to prevent gouging and to protect less fortunate riders from having to pay peak fares, and a company like Uber endangers those protections.

Looking back, it’s pretty clear that I was wrong!

The yellow taxis are still in business (though the cost of Medallions has fallen by a third since 2013) and Uber now has 20,000 cars on the streets of New York, plus many other cities.

Uber has a great model: their only significant investment—apart from their initial development costs—is in their technology and maintaining it. Their system uses iPhone GPS to identify all Uber drivers who are willing to take fares at any given time when they are logged on. When a driver is near a passenger (who has requested a ride on his/her phone), the driver gets a message and then connects with the passenger. Uber gets paid $100 for supplying the iPhone and $10/month until it is returned, and 30% of all the fares charged through the system the remaining 70% is paid to the driver weekly.

When the passenger gets out at the end of the trip he/she says thanks (hopefully), but does not tip. Instead, the passenger rates the trip on a scale of 1-5 and the driver rates the passenger as well. Passengers with consistently good ratings get preferential treatment in the future and drivers with regular bad ratings get offered fewer passengers, so it’s in everyone’s best interest to be effective, courteous, and professional. In addition, if a passenger has a complaint about the fare or anything, they can email Uber, which has been responsive and fair.

Drivers also like the system because they feel safe. When the driver is logged in, the computer keeps constant records of who was in the car no matter when or where it is, which obviously discourages folks from doing harm because they are known and likely to be caught.

In addition, the system allows drivers to work part-time, flex-time, or full-time; almost every day or practically never –a lot of them have other jobs and businesses. In addition, the drivers’ costs are only the car (which they often already own), and the gas and insurance.

Passengers like Uber because it is hassle free. No longer does a passenger need to dash dangerously in the rain and traffic to hail a yellow cab. (And this is the easiest scenario. Have you ever tried to hail a cab in a city like San Diego?) The cars are clean, comfortable, and mostly easy to get in or out of with decent leg room.

No cash is necessary and tip computations are gone. Passengers can “hail” Uber on a smartphone a few minutes before a departure and leave immediately when the driver arrives, effectively eliminating any waiting.

Obviously, Uber is a significant improvement on the standard yellow cab system. But that’s not where the real genius of Uber lies.

Uber is truly brilliant because it enables the so-called “sharing economy”, in which technology gives consumers access to substantial static capital that would otherwise be idle. No matter how dependent one is on a car, it’s actually parked most of the time, which is a huge waste of an expensive machine. What Uber does is limit that waste, giving people an opportunity to use their car, that would probably otherwise be parked in the driveway (with the driver parked in front of the TV), in their spare time.

The underlying genius of Uber (and similar new technologies, like Airbnb, the short-term accommodations-rental app) is identifying such a waste of large amounts of capital and connecting the people who have access to the wasted capital (whether a car or a couch) to the people who need such access for a fair percentage of the rent.

These new technologies are examples of what is now well known as “disruptive” technologies. Distinct from the tiny computers and the internet that make it possible, a disruptive technology allows new, better, and cheaper ways to go about daily life for many people.

Thus it disrupts the old, and what was often the only way, to do such things.

Cheers for the young disrupters breaking the way into a truly new world, and shame on me for being so slow to pick up on the significance and value of something so truly useful and valuable.

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