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Originally published March 1, 2014 at 8:00 PM | Page modified March 2, 2014 at 11:25 AM

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Uber, smartphones drive hard at taxi traditions

There’s a battle for the future of transportation being waged as Uber and a growing collection of well-funded startups are trying to make getting a taxi as easy as booking a reservation on OpenTable with your smartphone.


Bloomberg BusinessWeek

App-driven ride services

Uber makes a mobile application that connects passengers with drivers of vehicles for hire and ride services.

Founded: March 2009.

CEO: Travis Kalanick, 37.

Headquarters: San Francisco.

Cities: Serves more than 70 cities worldwide. In February, Uber expanded to Dubai; Honolulu; Lyon, France; Manila; Milwaukee; Pittsburgh and Tucson, Ariz.

Revenue: As of November was on track in 2013 to book more than $1 billion in rides.

Website: www.uber.com

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Ray Markovich started driving a taxi in Chicago three years ago after closing his struggling wireless-phone store. Driving a cab wasn’t particularly gratifying or lucrative; he had to pay $400 a week just to lease his 2011 white Ford Escape. It was predictable if monotonous work.

Well, there’s nothing monotonous about it now. In June, Markovich, a thin, well-dressed man with short brown hair and spots of gray in his mustache and goatee, walked into the local office of Uber Technologies, the San Francisco-based taxi-technology startup.

Uber put him through an hour of orientation, gave him a free iPhone that carries its car-dispatch app and some gear to mount it on the windshield, and sent him on his way.

Since then, Markovich has had to dodge flak from traditional cabbies who complain they can no longer pick up riders in the city’s tonier neighborhoods, and he’s receiving a constant flood of emails from Uber itself, offering steep discounts on new cars and other perks to secure his loyalty.

At the same time, he has increased his earnings by about 20 percent and says he’s simply evolving with his customers.

“No one under the age of 40 with a smartphone is going out and getting a cab anymore,” says Markovich. “I say, if you can’t beat ’em, join ’em.”

There’s a battle for the future of transportation being waged outside our offices and homes. Uber and a growing collection of well-funded startups, such as the ride-sharing service Lyft, are trying to make getting a taxi as easy as booking a reservation on OpenTable or checking a price on Amazon.com — just another thing you do with your smartphone.

Flush with Silicon Valley venture capital, these companies have an even grander ambition: They want to make owning a car completely unnecessary. They’re battling each other, city regulators, entrenched taxi interests and critics who claim they’re succeeding by running roughshod over laws to protect public safety.

“Being out in front of the taxi industry, putting a bull’s-eye on our back, has not been easy,” says Uber CEO Travis Kalanick, 37. “The taxi industry has been ripe for disruption for decades. But only technology has allowed it to really kick in.”

Online booking

Almost four years ago, Uber introduced the idea of allowing passengers to book the nearest town car by smartphone, then track the vehicle on a map as it approaches their location.

After the ride, the service automatically compensates the driver from the customer’s preloaded credit card — no awkward tipping required. It’s a simple experience and a much more pleasant way to get a ride than stepping onto a busy street and waving at traffic.

Uber has raised $307 million from a group of backers that include Amazon CEO Jeff Bezos and Google Ventures, Google’s investment arm. It operates in 70 cities around the world and was on track to book more than $1 billion annually in rides in 2013, according to financial information that leaked to the gossip website Valleywag last November.

In February alone, Uber expanded to Dubai; Honolulu; Lyon, France; Manila; Milwaukee; Pittsburgh; Tucson, Ariz.; and Durban, South Africa.

In the process, Uber has become one of the most loved and hated startups of the smartphone age. Its customers rave about the reliability and speed of the service even as they complain about surge pricing, the higher rates Uber charges during peak demand.

Uber has also been blocked from operating in several markets, including Miami and Austin, Texas, by regulators out to protect consumers or entrenched incumbents, depending on whom you ask.

In Boston and Chicago, taxi operators have sued their cities for allowing unregulated companies to devalue million-dollar operating permits. Things grew especially heated recently in Paris, when incensed taxi drivers shut down highway exits to the main airports and gridlocked city traffic.

In Seattle, a City Council panel voted Thursday to allow an unlimited number of ride-service drivers, but they can’t all work at the same time. A final vote is scheduled for March 10.

Kalanick calls the cab industry a “protectionist scheme.” He says the protests are not about the drivers but cab companies “that would prefer not to compete at all and like things the way they are.”

Opponents pounce

His opponents are equally critical. They accuse Uber of risking passengers’ lives by putting untested drivers on the road, offering questionable insurance and lowering prices as part of a long-term conspiracy to kill the competition, among other alleged transgressions.

Fueling the anti-Uber cause is the case of a San Francisco girl who was struck and killed by an Uber driver.

“Would you feel comfortable if you had a 21-year-old daughter living alone in the city, using a smartphone app to get in a vehicle for hire, and that vehicle ends up being a 2001 Chevy Astro van with 300,000 miles on it?” says Trevor Johnson, one of the directors of the San Francisco Cab Drivers Association. “I’ve made it my personal mission to make it as difficult as possible for these guys to operate.”

Kalanick calls himself the perfect man for the job of liberating drivers and riders. His previous company, video-streaming startup Red Swoosh, was well ahead of its time, and Kalanick limped along for years taking no salary before selling it to Akamai Technologies in 2007 for a modest sum.

“Imagine hearing ‘no’ a hundred times a day for six years straight,” he says. “When you go through an experience like that, you are sort of a hardened veteran. You only persevere if you are really hard-core and fight for what you believe in.”

To remind him of the tough times, Kalanick owns patterned socks with the phrase “Blood, Sweat and Ramen” on them. He has a pompadour of thick hair and dark, squinting eyes, evoking Clint Eastwood during his Dirty Harry period.

Shervin Pishevar, a venture capitalist who invested early in Uber, calls Kalanick “an empire builder. He wants to change the world.”

Kalanick co-founded Uber with his friend Garrett Camp, who’d previously started the online recommendation tool StumbleUpon. Their idea was simple: Give customers convenience and the feeling of rolling in style.

“I pushed a freaking button, and a car showed up, and now I’m a pimp,” is how Kalanick described to colleagues the vibe he wanted.

San Francisco, like other urban centers including Seattle, has long capped the number of taxi medallions, even as the population increased by 300,000 in the last 10 years. Dispatchers at the major cab companies didn’t seem to care about prompt customer service since they make money primarily by leasing their cars to drivers.

David Autor, an economics professor at the Massachusetts Institute of Technology, says the industry is “characterized by high prices, low service and no accountability. It was ripe for entry” by startups “because everybody hates it.”

Uber had spread to about half a dozen cities by early 2012, when it picked up some competition, Sidecar and Lyft.

Inspired by Kalanick’s efforts to link cars and people through smartphones, these two companies go one step further and allow any driver with a spare seat to pick up passengers who’ve requested a ride with their smartphone.

Lyft, which requires drivers to display large pink mustaches on the grilles of their cars, facilitated a million rides in its first year and another million three months after that, according to John Zimmer, its president.

The pink mustaches now patrol 20 cities, including Seattle, and Lyft is in the process of raising more than $80 million in additional venture capital to accelerate its expansion, according to people familiar with the investment round.

Kalanick says the introduction of Lyft and Sidecar was a turning point. At the time they were launched, he was battling to prove that Uber’s town-car service was legal.

Recognizing that these upstarts had moved more aggressively to seize on regulatory ambiguity, he introduced a competing ride-sharing service, uberX, with drivers using their own midrange cars, such as Toyota Priuses.

Doubling fares

During rush hour and other times of peak ridership, Uber raises rates. On a recent day in New York, for example, the Uber app indicated that because of demand, fares would be doubled.

They can go a lot higher. The company doesn’t divulge exactly how it calculates these surges, other than to say that they are determined algorithmically when demand in a neighborhood exceeds supply.

To passengers, it can come across as gouging. Over the holidays, Jessica Seinfeld, wife of the comedian, posted to Instagram a screen shot of her $415 Uber bill to send her children to nighttime social events.

Kalanick sounds like a patient if slightly exasperated parent when explaining the pricing. Raising rates during peak times, he says, is simple economics: It persuades more drivers to get on the road and ensures cars will meet demand.

Out of a $10 Uber fare during nonpeak times, a driver gets about $8, excluding taxes. During a surge when prices are quadrupled — which can happen during holidays or bad weather — the total fare is $40 and the driver keeps $32.

Economists generally defend Kalanick’s analysis.

“Traditionally we had to have price regulation in cabs, because when you are hailing a cab or standing in a taxi stand, you had to take the first car and you didn’t know the price in advance. You could be exploited,” says Ian Savage, a professor of economics at Northwestern University.

Uber, he notes, requires that riders agree to the rate increase before they get in.

Surge pricing may be giving drivers sufficient financial incentive to stay on the road. Bloomberg Businessweek spoke to more than a dozen drivers for the new app-based car companies in four cities. A few worried that Uber may be alienating customers with the occasional sky-high fare. Yet almost all said they were more motivated to drive at peak times.

Fatal accident

Just before 8 p.m. New Year’s Eve, Huan Kuang and her two children were in a crosswalk in San Francisco’s Tenderloin neighborhood when an uberX driver hit them with his Honda SUV.

Kuang’s daughter, Sofia Liu, 6, was killed, and her son, Anthony, 5 was seriously injured. The driver, Syed Muzaffar, was charged with vehicular manslaughter.

The family sued Uber in January, arguing that the company was responsible in part because its dispatch app had distracted Muzaffar.

In a statement after the girl’s death, Uber claimed it was not responsible because Muzaffar didn’t have anyone in his car and therefore “was not providing services on the Uber system during the time of the accident.”

Every company with service vehicles on the road deploys some form of dashboard technology to do business. Delivery trucks can and do get into tragic accidents.

Discussing the risk of distracted driving, Kalanick says that “the technology Uber provides its partners is far safer than anything the taxi industry offers.”

Nonetheless, Uber’s critics are seizing on the girl’s death and asking regulators to revisit the status of the new app-based companies. They assert that traditional cab companies may not have hired Muzaffar, who had a citation for reckless driving in Florida 10 years ago.

Uber says its background checks are more thorough than its old-fashioned rivals. In a blog post Feb. 13, Uber said it was expanding its procedures to include federal and county records, though some drivers say privately they doubt the company was regularly checking backgrounds before the accident.

The same week, in response to a Chicago Tribune request to profile some of its local drivers, Uber provided the name of one who reporters later discovered had pleaded guilty to a felony burglary charge in 2010. Uber then severed ties with him and said he shouldn’t have been allowed to drive.

“Now people are finally waking up to the fact that there is no real insurance, and oh, that’s right, there are no real background checks being conducted,” says Matthew Daus, former chairman of the New York City Taxi and Limousine Commission and a fierce Uber critic. “I’m hoping that people will now pay attention to what this actually is, which is an attempt to deregulate the taxi industry.”

Many drivers say they now hide their Uber phones or Lyft mustaches when they get to the airport to elude angry cabbies.

“When you have a transition of infrastructure, the old guard is going to fight like hell to hang on to its place,” says Robert Young, an assistant professor at the University of Texas at Austin.

The ride-service companies must contend with this hostility if they want to pursue their dreams. Kalanick talks about building a dense network of Uber cars in every city, then using it to deliver such things as packages from online stores and takeout food. (Uber delivered flowers over Valentine’s Day.)

Uber could one day allow other companies — say, a laundry-pickup startup — to use its fleet. “Once you’re delivering cars in five minutes, there are a lot of other things you can deliver in five minutes,” Kalanick says.



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