Transport Cars

Madison Is the Poster Child for Small Markets Adapting to the New Sharing Economy

Apr 15, 2014 10:35 am

Skift Take

Although locals welcome the new technology, traditional cab companies argue Lyft and Uber do not follow the rules making it difficult for them to compete on a level playing field. The struggle is playing itself out in communities across the country and each is likely to come to a slightly different conclusion.

— Samantha Shankman

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Rob Chandanais  / Flickr

Taxi cab drivers join the protesters against a controversial "non-fiscal" budget repair bill in a march around the Capitol square in Madison. Rob Chandanais / Flickr


Uber and Lyft are banned in St. Louis and Miami, while California officials have created new state regulations to accommodate the ride-sharing companies.

Taxi drivers sued the city of Chicago over what they called a weak proposal to regulate ride sharing, while authorities in Philadelphia cited drivers and impounded their cars in a sting operation last year.

Minneapolis officials have taken a hard line against the companies. Across the river in St. Paul, they’ve been embraced.

The controversy over ride-sharing companies, which use smartphone apps to match riders with drivers using their private cars, is relatively new to Madison. But in dozens of cities across the country, the questions raised by the likes of Uber and Lyft have spurred heated debates for months or years, posed questions about the role of government in regulating new technology and led to a variety of responses.

Lyft was the first to land in Madison, launching its service at the end of February. Uber soon followed.

Complaints from local taxi companies, which said the services are operating as cabs without any licenses, weren’t far behind.

Wrapped up in the controversy here are broader questions about the desires of Madison’s emerging class of young professionals and how the city can make sure everyone has access to the services.

Madison is one of Uber and Lyft’s smallest markets, but Nick Anderson, Uber’s general manager for Madison and Milwaukee, said customers who have used the apps in bigger cities such as Chicago plan on using them here as well.

“Young professionals all over the country have embraced it,” he said. “They’ve kind of come to expect it.”

But Mayor Paul Soglin says the issue is a test of Madison’s commitment to racial and social equality, writing in a blog post that he wants to ensure access to on-call transportation for “every individual in every neighborhood.”

If Uber and Lyft are allowed to defy or cherry-pick regulations, they’ll gain an unfair advantage over taxis that follow the rules, Soglin said, threatening the companies that do provide equal access.

“They will drive the existing regulated companies from the marketplace,” Soglin said.

Ald. Scott Resnick, 8th District, and others are working on changes to city ordinances that would give the companies a legal way to operate here, while also ensuring that they offer safe and accessible service. Resnick hopes to introduce a proposal, which he said could include regulating them under a new “peer-to-peer license” system, by the end of April.

“There is some excitement … that these companies are interested in Madison,” Resnick said. “But it’s going to take some flexibility on all parties if they’re going to operate here.”

Resnick and others will be able to build on the companies’ other regulatory fights, which often revolve around insurance coverage for drivers and what sort of licenses those drivers need. But Resnick said Madison’s size makes it a unique market for the companies.

“We’re trying to write an ordinance that works for Madison,” he said.

What makes a cab?

Here and elsewhere, taxis are heavily regulated, said Hart Posen, a UW-Madison associate professor who studies the economics of innovation and technology and has closely followed the battles to regulate ride-sharing apps. But because of the way their services work, Uber and Lyft claim they aren’t taxi services at all.

Customers use the apps to request a car to their location. The people ferrying them around town are drivers using their personal cars — not ones owned by the companies — and often work their own part-time schedules.

At their destination, customers pay “donations” to the drivers, calculated based on the time and distance of the trip, through credit cards synced to the app. Drivers keep the lion’s share of the donation, while companies keep a portion.

Uber contends that service makes it a logistical company, simply arranging rides between two parties, and not a taxi.

In an interview in Inc magazine, Uber CEO Travis Kalanick compared it to the difference between American Airlines and the travel website Orbitz.

Claiming that distinction “gets them around a lot of local regulation,” Posen said, and gives them an advantage over taxis.

Plenty of people — including city officials, cab companies and police — aren’t buying it, though.

“They’re picking people up, taking them from point A to point B and charging them for it,” Union Cab operations manager David Lee said, and that sounds like a taxi to him.

The City Attorney’s Office concurred with the cabs in a March memo finding that Lyft and Uber were acting as taxis. That prompted police to warn drivers they could be cited if they continue giving rides.

For the apps, being treated exactly like a taxi would be a disaster, Posen said. All of a sudden they’d be bound by the kinds of regulations they gained an advantage by rejecting, he said.

Conflict with codes

In Madison, city officials have identified at least eight pieces of the existing taxi code that ride-sharing apps would not be able to meet in their current iterations, Resnick said.

Among those issues, Resnick said, “there are certain values that will not be compromised.”

Some of the differences between taxi codes and the ride-sharing model could be relatively easy to fix — Uber and Lyft run their drivers through background checks, for instance, but the city wants to do that for itself.

Others would be impossible because of how the companies operate, such as the requirement that taxis have uniform color schemes and markings. Resnick said he is considering a smaller decal cars could display to show they are licensed.

Still others might prove difficult to enforce, such as the city’s requirements that cabs operate 24 hours per day and serve every part of Madison. These have emerged as major sticking points for critics of the services, such as the mayor.

You can open the apps whenever, but drivers, who set their own hours, might not be available at all times.

Although the services cover the city, drivers have the option to accept or reject ride requests, meaning a driver could decide not to take fares from one side of town or another.

Resnick said he’s looking for a solution but acknowledged that right of refusal could make the regulations hard to mandate.

Playing catch-up

These are the kinds of questions that pop up when the speed of technology outpaces the speed of government to regulate it.

It’s a “surprisingly common” problem in the technology field, Posen said, pointing to other issues such as government efforts to apply sales tax to Amazon and other online retailers.

He predicted one of the many jurisdictions wrestling with Lyft and Uber would eventually find a regulatory framework that would be replicated more broadly.

That model hasn’t yet emerged, and in many cities the fights over what to do about ride-sharing apps are not yet resolved. Still, Resnick said he is closely following efforts in another Midwestern college town trying to regulate the services.

Officials in Columbus, Ohio — a city with a population over 800,000 — have introduced legislation to regulate Uber and Lyft as “peer-to-peer transportation networks” in their codes for taxis and limousines, said Amanda Ford, a spokeswoman for the city’s Department of Public Safety.

Although the companies are controversial, Ford said, once they launched in Columbus it made sense to create the regulations — for everyone’s safety.

“The reality is, consumers here want the service,” she said. “It benefits us to get it regulated sooner rather than later.”

That proposal is still in the early stages of Columbus’ legislative process.

Similarly, any proposal from Resnick would need to work its way through city committees and hearings if it’s to be approved, meaning it could be months at least before the legal status of Lyft and Uber would change.

If their previous fights with taxis and regulators across the country are any indication, the companies probably won’t stop operating — legally or not — as their latest controversy plays out in Madison.

(c)2014 The Wisconsin State Journal (Madison, Wis.). Distributed by MCT Information Services.

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