Uber the outlaw: a rogue startup fights the taxi power

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It was a drizzly Wednesday afternoon, and the central holding lot at LaGuardia Airport was packed with six dense lines of yellow cabs feeding into the airport taxi line, stopping and starting according to some inscrutable algorithm. Nicole Benman, a thin brunette in a light blue T-shirt emblazoned with a serifed ‘U’, was brisk-walking alongside one of the cabs as it inched forward. "Have you heard about Uber?" she asked the driver through his slightly-lowered passenger window. "You get a free iPhone!" The driver nodded as he drifted forward, holding up one of the promotional postcards already given to him by one of the other ten Uber employees canvassing the airport that day, which read: "Uber: Now accepting NYC Taxi Drivers."

Uber, a three-year-old San Francisco-based startup, is attempting to radically change the way people get around. The taxi initiative is the latest salvo in the company’s aggressive expansion into a heavily-regulated industry that abhors newcomers. This week, the company flouted last-minute concerns from the New York Taxi & Limousine Commission and launched Uber Taxi, which allows customers to use its smartphone app to hail street cabs. One day later, the TLC announced that cab drivers using Uber Taxi could be fined or lose their licenses.

New York has an intricate set of rules governing for-hire cars, ranging from how they can be booked to how customers can pay, and the TLC has found that Uber violates a number of them. Taking payments through the app means the fares aren’t entered into T-PEP, the city system that calculates fares and records trips. Passengers may only be charged the amount on the meter, which nixes Uber’s mandatory 20 percent tip. Last, cab drivers are not allowed to use "any electronic communication device" while operating a cab. The TLC has declined to authorize Uber and apps like it until February, when the rules will be revisited.

Uber is empowered by its passionate fans and a sense of moral authority

By now, Uber is used to ignoring rules. The company has scuffled with regulatory agencies in California, Boston, and Washington, D.C., empowered by its passionate fans and a sense of moral authority. Uber’s bombastic, 35-year-old founder Travis Kalanick believes that smartphone apps can serve customers better than the barbaric practice of hailing a cab or the primitive method of calling for a car. This sentiment has filtered down through the company. "They’re on the wrong side of history with this one," New York general manager Josh Mohrer told The Verge, referring to Uber’s detractors.

The rhetoric from Uber’s opponents is just as sanctimonious. The Taxi, Limousine & Paratransit Association, a global trade group, released an opinion paper this week about "rogue" transportation apps that focused almost exclusively on Uber. "If they're going to come in and operate totally outside of what's allowed, then we don't negotiate," said Alfred LaGasse, the CEO. "Someone is robbing your house, you don’t negotiate with them, right? You call the police. As soon as they start to act like a better corporate citizen then we can have a reasonable dialogue."

UBER'S CRUSADE

Uber is in the middle of a bold and often combative global push, powered by $44.5 million from investors who are banking on the startup’s sprinting ability. The first legal challenge came less than a year after launch, but the company has raced ahead with great fanfare, and without asking permission. "Their strategy has been 'try and stop us, and if you try and stop us, then we'll cross that bridge when we come to it,'" said Matt Kochman, who served as Uber’s founding general manager in New York before he left last year.

Kochman left Uber to do consulting for transportation brands and startups, fed up with Uber’s irreverent attitude toward regulators. "Discounting the rules and regulations as a whole, just because you want to launch a product and you have a certain vision for things, that's just irresponsible," Kochman said. Community manager James Aviaz left at the same time, leaving just one Uber employee in New York.

Kalanick attributed the minor shakeup to the pressures of dealing with a "complex regulatory scheme" and the fact that the company "came at New York pretty hard and fast." In fact, Uber comes at everything fast and hard — or fast and loose. Cabs in New York are legally segregated: black livery cars must only pick up passengers who call ahead, and yellow cabs must only pick up passengers on the street. Uber went after the black cars in New York first, securing a livery license from the city after arguing that the service constituted an advance reservation. But once Uber started going after taxis, it argued the opposite: that an Uber booking is the equivalent of a "virtual hail."

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Uber's Nicole Benman talking to taxi drivers at LaGuardia Airport.

Uber was planning to launch Uber Taxi on Wednesday; on Tuesday, the TLC told the company that its credit card payments might be in violation of existing city agreements with payment processors. Uber promised drivers that it would "take care of it" if the TLC hassled them, and launched anyway using a dubious loophole. Uber Taxi launched with free rides for first-time riders, under the theory that a $0 ride does not require a credit card transaction in the back of the cab. Still, the rides are only free up to $25. When asked about The Verge's $48.96 ride to LaGuardia that resulted in a $23.96 credit card charge, Mohrer shrugged it off as an "edge case."

STARTUP MENTALITY

Uber considers itself a technology company, and dealing with rules made for transportation companies is one of Kalanick’s frustrations. "I’m in the technology industry," he told the Boston Globe, comparing Uber’s opponents to an atrophied Yahoo being challenged by a lithe young Google. The tech industry has always prided itself on being a meritocracy where bureaucracy is anathema and good always wins. Uber figures it has built a better mousetrap, and so the rest will sort itself out.

The tech industry has always prided itself on being a meritocracy where bureaucracy is anathema and good always wins

Until this week’s battle with the TLC, Uber’s strong-arming strategy seemed to be working. When Uber got a cease and desist order in Boston over using "unapproved devices" — its modified iPhones — the company appealed to the public on the grounds that the rule was just silly. "Uber is a first to market, cutting edge transportation technology and the simple fact is that the Commonwealth’s regulations were not written with these innovations in mind," Uber wrote on its blog (echoing verbatim the response it gave in 2010 when a cease-and-desist order in California forced a name change from Ubercab to Uber).

The post concluded that "Uber will continue full speed ahead" in Boston. Uber’s fans expressed their support via phone calls, letters, and tweets. In just 24 hours, the state granted Uber an exception.

Even though transportation regulations can be maddeningly onerous and vastly different from district to district, the rules are in place to protect consumers from discrimination, fare-gouging, and other nasty practices. "It's very much not a battle of good and evil," Kochman said. "[Uber is] dealing with regulators and treating them as evil, when in fact they're not evil. They're good people that want to execute on good things. It's just way more complicated than tech startups want to believe."

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The customized iPhones Uber gives to car and taxi drivers.

All this seems like a big to-do over a very basic urban convenience. Open up an app, enter your pickup location, and a taxi will come to you. The app automatically charges your credit card the fare and a 20 percent tip when you arrive, so you can dash to whatever appointment you’re late for. Passengers can find a cab without waving, yelling, stalking corners, or chasing down a taxi only to realize it’s off-duty. Customers love the convenience, and drivers can find guaranteed fares to fill downtime. The service works similarly for livery drivers.

All this seems like a big to-do over a very basic urban convenience

Ferdouse Hasan, who has been driving a cab in New York for four and a half years, found the service delightful despite the fee Uber plans to skim off the fare. (The exact amount of the fee is now in flux, but Uber told drivers it would be around eight percent.) "I love the total idea of this business," Hasan told The Verge. "If I pick you up, I’m making the money, he’s not making the money," he said, pointing to an imaginary empty cab. He’d picked up three Uber passengers by 11 a.m. on the first day the taxi service launched, enough to earn a $50 bonus from Uber.

Even city agencies are in favor of better technology. In April, the TLC solicited proposals for apps that would let passengers pay with their phones, with extra points awarded for other innovations. Uber, Hailo, GetTaxi, and Taxi Magic are competing for the contract, which will be awarded in November.

FEELING THE HEAT

Hailo, a London-based company founded by former cab drivers, is a standout among Uber’s competitors. The company has not launched in New York yet, but its taxi-hailing app is used by 6,200 drivers in London and 2,200 in Dublin. On the day Uber’s canvassers arrived at LaGuardia, there were six Hailo employees already working the lot. Among them was former cab driver Melissa Plaut, author of the blog NewYorkHack, in a bright yellow Hailo shirt. "The taxi industry can be so dysfunctional and has been the same for so long," she told The Verge. The other Hailo canvassers were also cab drivers, she said.

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Hailo employees ask a cab driver at LaGuardia Airport to pre-register for the app, which will be available to New York drivers in the next month.

"I think Uber did take a big risk," said Hailo CEO Jay Bregman, noting that he hadn’t been able to find an Uber taxi all day, due to the fact that the service only had just over 100 cabbies signed up when it launched. By contrast, Hailo is pre-registering drivers for its app to avoid the cold start problem Uber faced in many of its rapidfire launches.

Competition from other startups is part of the reason Uber is moving forward so recklessly

The Hailo app includes features that let cabbies tip each other off to traffic changes and track their fares throughout the day, giving them an idea of how to maximize their time. Hailo will launch for drivers in New York and Boston in the next month, and for customers by the end of the year — depending on what happens to Uber. "We want to make sure that when we launch, we launch right," Bregman said.

Competition from Hailo and other startupps nipping at Uber’s heels is part of the reason the company is moving forward so recklessly. In addition to missteps with regulators, Uber has been spending gobs of money in its conquest. New Uber customers are given a $10 credit if they were referred by a friend. In July, Uber had ice cream trucks deliver ice cream in seven cities. Uber has also enlisted the services of New York power fixer and lobbyist Bradley Tusk, who ran Mayor Michael Bloomberg’s 2009 campaign. And of course, the company leases every driver an iPhone.

NO BRAKES

City after city has capitulated to Uber’s crusade, although the arrangements have been tenuous. Uber skated through in Washington, D.C., where proposed price controls would have made its service illegal. After six months of lobbying, the city council passed a legislative amendment that allows Uber to operate without regulation — but only until the end of the year.

Uber Taxi is still operating for free in New York while the company formulates its next plan of attack. The company will continue negotiating with the TLC and may tweak the app in order to work around the payment issue, Kalanick told The Verge.

Uber could delay taxi service in New York until February, when the TLC plans to revise its rules in the startup's favor. But that's not Kalanick's style. "It's great that they do see the future," he said. "I just think the future should start today, versus in six months."

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