As innovation in technology expands, so does the impact on many traditional industries. Accompanying these advances comes a shift in which jobs are in higher demand, and which jobs are threatened. Uber has revolutionized the car service market. It provides its customers with low prices, convenience, and comfort. This has caused harm to taxi companies, especially in cities like New York with an embedded high demand for taxis. Uber and other similar services have caused devastating change for traditional taxi drivers. New York City has made attempts to regulate Uber and other for-hire services in order to create a more competitive field for taxi drivers. Despite these efforts, it is unclear how long the advances in technology can be controlled.
New York City taxis operate under a system that is controlled by medallions which are essentially licenses needed in order to operate a yellow cab. A driver who bought a medallion for a low six-figure sum could borrow against its rising value, and then use those proceeds to improve his quality of life. There are some family-run fleet operators who own hundreds of medallions. Unfortunately for established drivers, the cost of a medallion has plummeted since Uber has entered New York. (Berger) In 2013, the cost to purchase a medallion hit $1.3 million. However, by March of 2017 the price of a taxi medallion crashed to its lowest level in a decade when one was sold for $241,000. In January 2017, medallions accounted for 48% of total trips logged by yellow taxis, which is down from 68% in January 2016. Additionally, in 2016 lenders foreclosed on 39 medallions, which is more than triple the amount of 2015. (Agovino) Banks stopped lending to the majority of medallion buyers a few years ago because they were no longer solid investments. Mr. Daus heads a firm with several clients with large medallion portfolios. He believes that taken together the sales show that “the market has already bottomed out,” and indeed there are signs that the market for medallions may have stabilized. New York City closely controls the issuance of medallions, which number around 13,600 which prevents further devaluation. The problem is that given the market declines, many medallion owners owe more than the value of their medallions. (Berger) Once Uber entered the New York City market, too many drivers were chasing too few passengers and that pressure seems unlikely to change.
While it was originally assumed that Uber was only targeting neighborhoods with an already limited supply of taxis, this appears to not be the case.
This graph demonstrates that there is an increase in Uber drivers in the central business district, which is known to be a hotspot for taxi hailers. From June 2013 to June 2015, Uber’s pickups in the central business district rose from around 175,000 to 1.8 million, while taxi pickups have fallen by around 1.4 million. This means that in a neighborhood where Uber and taxis directly compete, only 13% of the growth in Uber rides resulted from a growth in demand. The remaining 87% have replaced trips that would have gone to taxis. Additionally, passengers tend to use Uber more for late night trips due to its convenience and comfort. Citywide, taxi rides between the hours of 11pm to 5am have fallen by 22% from June 2013 to June 2015, while taxi ridership has declined by 12% in the hours of 5am to 11pm. (“A Tale of Two Cities”) Given the meaningful market share of Uber, it is clear that many passengers seems to favor Uber’s services.
Uber’s original business approach was geared towards growing quickly so that others couldn’t replicate its model. CEO Travis Kalanick instilled a hyperactive management style that valued speed over integrity. He did this to preemptively wipe out competition by gaining market share and dollar gains in its early days. However, the finish line for this strategy is yet to be in sight. Despite the disruptive effects of Uber’s aggressive pursuit of market share, the overall demand for rides is still surging. Uber has recorded that the number of completed rides in the first quarter of 2017 has tripled compared to the first quarter of 2016. Currently, the momentum of the company coupled with its $7.2 billion cash hoard should ensure Uber’s survival. Looking forward, Uber’s best plan of action would be to engage in vertical integration in order to beat out its competition. This would consist of controlling the newest automobile technology. While Uber does not seem to be willing to lock down its employees using employment contracts, it could dominate the market by eventually owning a fleet of self-driving cars. These vehicles could be the realization of Uber attaining tech-giant status. (Mims)
Uber’s business model relies on the network effect. This means that the indirect values and goods of the company grow as more people use the service. Uber was able to out-compete traditional taxis with lower prices. However, it is impossible to determine how long Uber can maintain these low prices. Uber does offer its customers other advantages in addition to pricing. It provides ease of use through its simplified ordering process, ability to track the driver, simplified payment process, and easy ability to split fares. It instilled practical features such as its method of rating drivers, its consistent branding, its electronic receipts, and its choice of cars which range from standard to lux. The business model of Uber in itself is quite simple. It does not own any cars so all that is required is the use of technology to connect drivers with rides. The company, then, takes a portion of the transaction. In the early stages of the company, Uber spent almost no money on marketing relying on word of mouth. Uber’s initial challenges consisted primarily of: how easily and cheaply competitors could replicate the service. Competitors could improve on Uber’s model in certain cities and take market share. Additionally, the requirement that Uber launch in many cities around the world in order to preempt competition was difficult to manage. Clearly, Uber’s biggest obstacle is competition. (Koch)
In seeking growth, Uber hugely effected the lives of taxi drivers. Some drivers suffered extreme consequences. Nicanor Ochisor was an immigrant from Romania who worked as a NYC taxi driver. Ochisor had bought his medallion almost three decades ago. Initially that was an excellent investment, but after the introduction of Uber, the value plunged by 2018. Despite working 12 hour shifts, he was bringing home less money than before. In March of 2018, Nicanor Ochisor committed suicide. There has been a marked increase in deaths of drivers given the economic pressures facing many taxi and livery drivers. Between January of 2018 to May of 2018, 4 drivers took their own lives. (Fitzsimmons) The situation has become so drastic that it has become clear that regulations are needed to prevent Uber and other similar services from destroying the taxi industry.
To combat Uber’s growth, the New York City Council created a cap on the number of for-hire delivery and transportation vehicles in the city. Additionally, in August 2018 the council put a halt on issuing new for-hire vehicle licenses for 12 months giving the counsel time to study the rapidly growing industry. Companies like Uber and Lyft will be required to provide the council data on usage and charges or they will face a $10,000 fine for noncompliance. New York is Uber’s most profitable market, yet it is the first United States city to propose a temporary restriction on the total number of vehicles. Yellow taxis are a staple of New York and the council is fighting to keep them afloat. Uber is arguing that creating a cap will leave drivers without an income. It will also disproportionately harm low-income and minority residents in New York’s outer boroughs who lack easy access to many forms of public transportation as well as access to taxi services. (Wodinsky) Despite Uber’s protests, New York does plan on mandating benefits for Uber drivers with these new changes.
New York City regulators are planning on raising wages for Uber and similar services. Uber is known to be less expensive and more comfortable than taxis, but many of the drivers are struggling to earn a good living given the pay structure. Under the new regulation, if a driver’s profit fall below $17.22 per hour over the course of a week, the companies will be required to make up the difference. Currently, in New York City, about 40% of drivers have incomes so low that they qualify for Medicaid while about 18% qualify for food stamps. Some drivers bought vehicles believing the claim that they could make up to $5,000 during their first month of driving. They now feel trapped as their earnings fall short. (Fitzsimmons, Scheiber) Uber’s objection is that this will cause a rise in prices for consumers. This impact on pricing actually helps the regulators’s initiative. If Uber must pay their drivers higher wages, then the number of drivers hired will be limited and the cost of Uber will go up. Being unable to hire more drivers will enforce the cap on Uber and higher Uber prices will create more equal competition between Uber and taxi drivers.
Taxi drivers in European cities have also faced decline in business due to Uber. The responses there have been more aggressive. In London, drivers brought streets around Trafalgar Square to a stop while honking their horns and holding signs in protest of the new technologically savvy driving services. In Madrid, hundreds of drivers marched through the streets blowing whistles. One banner read, “For the security of passengers and the future of taxis: Uber is illegal.” Also in Madrid, protestors surrounded and pounded on two black sedans that were unlicensed taxis. The front and rear windows of the one of the cars were broken. In Italy, taxi drivers handed out leaflets denouncing Uber and hung a banner that read, “Illegality Reigns Sovereign!” In Naples, dozens of taxi drivers protested in the city’s center, blocking traffic for hours. In Paris, hundreds of cabbies led strikes causing traffic jams and altercations between taxi drivers and drivers for other services. Finally, protests spread as far as Rio de Janeiro. While the city prepared itself for the 2014 World Cup, dozens of taxis formed lines and moved slowly along the Copacabana. (Fleisher) Clearly, taxi drivers around the world are prepared to fight for their jobs.
Uber was created as an industry disrupter seeking to defeat many of its competitors. Uber’s goal was to revolutionize the for-hire car service industry. The strategy was to grow quickly and gain a large customer base. Uber accomplished its goal by starting up in cities all over the world and by providing low prices. Unfortunately, this strategy decimated traditional taxi companies and its drivers and owners. Taxis have experienced massive declines in ridership which is especially felt in New York City where Uber has one of its largest customer bases. While regulations have been put in place to help the taxi industry, it is unclear whether these trends will ever be reversed.
https://www.wsj.com/articles/with-kalanick-out-ubers-troubles-are-just-beginning-1498049054
https://www.entrepreneur.com/article/286683
https://www.cbsnews.com/news/how-much-is-a-nyc-taxi-medallion-worth-these-days/
https://www.nytimes.com/2018/07/02/nyregion/uber-drivers-pay-nyc.html
https://www.theverge.com/2018/8/8/17661374/uber-lyft-nyc-cap-vote-city-council-new-york-taxi
https://www.wsj.com/articles/londons-black-cab-drivers-protest-against-taxi-apps-1402499319
https://www.economist.com/united-states/2015/08/15/a-tale-of-two-cities
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