Transportation Planning Casebook/Transportation Network Companies

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Summary[edit]

With Internet technology growing, peer-to-peer market strategies are growing. Anyone can get involved in making money over the internet and applications by contributing their goods or services. One such service is transportation. Transportation network companies are taking advantage of the supply of smart phones and the demand of transportation. They take Taxicab transport into the 21st century. Riders can request a ride through an application and the nearest driver will transport them. Companies that have thrived at this service in the United States are Uber, Lyft, and Sidecar. Uber has been the most successful reaching 205 cities in 45 countries on 6 continents [1]. Uber alone made over $1 billion in 2013 alone [2].

This success does not go unnoticed. There are many parties that are against Uber services. The biggest being the taxi lobby. Taxi drivers are concerned with the loss of businesses and wages that their drivers are receiving. They also want the Uber drivers to undergo the same background checks that they have to get licenses. There are many worldwide court cases that have been filed against both Uber and local governments in an attempt to close the market to only taxi drivers. There have also been reports of citizens suing the company over harassment, injuries, and death. Uber drivers have sued the company over lost tips.

Although, there are many arguments to ban Uber services, there also benefits that Uber gives to the community. Uber offers easy entry and flexible hours for anyone to apply to have a job. Many drivers are using this job opportunity to earn extra wages, including off duty taxi drivers. The experience offers a personal experience and the application ensures that drivers get paid the fare they deserve. Uber also requires drivers to take any jobs that are requested of them. This means that areas that taxi drivers would be hesitant to go to are served by Uber drivers. This eliminates any locational disparities.

Through these pro-Uber and anti-Uber arguments new policies are being created and upheld. The opportunities for transportation network companies will continue to be debated as their services continue to expand throughout the world.

List of Actors[edit]

Investors in the New ‘Sharing Economy’

The idea is that as long as someone has ownership, then everyone has access. This is the beginnings of the ‘sharing economy’ as we know it today. The ‘sharing economy’ is a peer-to-peer market that utilizes the internet to connect people directly with others to receive a service or rent an item. People rent or sell underutilized resources to those who need them.[3] Beginning with the internet, the sharing economy, quickly made its way to birth ride sharing apps like Uber and Lyft. Through apps, social media, and websites, the sharing economy becomes a digital market place. Commonly known peer-to-peer business eBay allows anyone to become a retailer. Sites like Alibaba only take it a step further, connecting suppliers with innovators. [4] It benefits ride sharing services to not just see their business succeed, but all peer-to-peer services succeed. In due part, because all peer-to-peer firms face entrenched interests. The peer-to-peer services can also promote their social aspect. Riding in the front seat of an UberX car encourages conversation rather easily compared to the traditional cab service. Services like these play on the social nature of humans.[5]


Investors in Peer-to-Peer Services

Ride sharing services like FlightCar still require start-up capital. This comes from Investors, specifically Angel Investors or Venture Capitalist. An Angel Investor is one who is normally wealthy and willing to invest a relative small amount of his or her money into a start-up. An Angle Investor is different from a Venture Capitalist, because they must be willing to invest without taking a seat on the board, and without imposing complex terms.[6] Venture Capitalists have access to more capital than Angel Investors, but require more from start-ups. With addition to a place on the board of investors, they also traditional take a longer time to decide whether to invest in a start-up or not.[7]


Drivers

Drivers are very important to ride sharing services. Other than an interactive app, the driver is the only interaction the customer has with a ride sharing service. Many drivers are cabbies or professional drivers who participate in ride sharing for the extra money. Some drivers drive for multiple ride sharing services.[8]

Drivers that are employed by UberX are sent an iPhone 4. They use mapping apps, like Waze or Google Maps to look up addresses given to them by passengers.[9] The apps then give turn by turn direction until the destination is reached. The transactions are handled through the app, and can be linked to a PayPal account if preferred. Drivers' tips, 16% (UberX), are also added through the app, and if you wish to add more, you are free to pay cash. The receipt from a ride sharing app fare is digital, being sent straight to your phone. With UberX, a map of your route is also sent. Drivers are prevented from discriminating against clients because of their choice of destination.[10] Once a driver accepts a client, he or she must follow through with the fare. The ride share apps have no back out option. The incentive is for drivers to finish fares, than look for another fare as soon as possible. Because payment is guaranteed, drivers need not worry about fares skipping out on payment.


Customers

Most ride share app customers are those who do not own a car. They either cannot afford one, or have figured that using a ride share service is cheaper for them in the long run than owning a car. Many of these customers are younger urbanites, who may enjoy the social aspect of ride sharing.[11] Other customers use ride sharing apps because they live in low income neighborhoods where public transportation is scarce, and taxis do not prefer to go. Bandwagon, in New York, is popular because people can book by seat on the companies’ website. It is legal because it works with the existing car services that operate mostly at Laguardia and JFK Airports.[12]

To hail an UberX driver one must sign up through the app on their smart phone or computer. Customers are allowed to see the nearest drivers in their area, and request the one with the highest rating. Once the driver is requested, the app allows for the customer to view the car as it approaches. The car arrives and the customer enters the car and gives the driver the address. Once the customer arrives at their destination they can get out without the need to pay the driver on the spot. The transaction is handled through the app, and soon after the fare is done an email is sent listing your receipt and a map showing your route taken and the price. It also sends another email to rate the driver, and leave a comment. All this is done within short span of time after you finish your fare.

Timeline of Events[edit]

In the winter of 2008, Travis Kalanick, CEO of Uber, and Garrett Camp thought of an idea of using black car service for ride-sharing and using an iPod app in San Francisco. Uber was formally founded in March 2009 and in January 2010, Travis Kalanick, Garrett Camp and Oscar Salazar did their first test run in New York. Uber officially started service in San Francisco in June 2010. [13] [14]

Uber was actively working to develop their business. Kalanick thought of low-cost service, and Uber launched Uber Taxi in Chicago in April 2012. He also issued an “Uber Policy White Paper” regarding ride-sharing, and launched UberX in April 2013. [15] Uber is boosting business performance and their valuation reached $18.2 billion in June 2014. [16], and they are developing business in 205 cities and 45 countries in the world in August 2014. [17]

In contrast with the expanding business activities, there were some movement about tighter regulation towards Uber. In September 2013, California became a first state to regulate ride-sharing. The regulator asked driver to follow the regulations, such as criminal background checks, driver training, a zero-tolerance policy on drugs and alcohol and insurance policies with a minimum of $1 million in liability coverage. [18] After that, some states, such as Colorado and Chicago, also required commercial insurance coverage for ride-sharing companies. Some cities, such as Ann Arbor and Nebraska sent a cease and desist letters to Uber and Lyft. [19] Moreover, Europe’s taxi drivers held a strike toward Uber in several cities such as London, Paris, Madrid, Rome and Berlin in June 2014. They claimed that Uber driver should obey the same rules as taxi drivers about spending enormous money on a license and insurance. [20]

Uber’s business is becoming a problem. In January 2014, Uber was accused of malicious tactics to the competitor and admitted to the accusations. Uber’s employee ordered and then cancelled Gett’s service, which started a black car business in New York. Moreover, they tried to recruit Gett drivers. Uber admitted these action and made a statement. The content of statement was as follows;[21]

It was likely too aggressive a sales tactic and we regret the team’s approach to outreach of these drivers. But to be clear there was no time spent by the providers as the requests were canceled immediately and Uber did pay cancellation fees for these requests. We have messaged city teams to curtail activities that seek lead generation by requesting transportation services.[22]

Cases of trouble regarding Uber’s driver are also reported. In March 2014, Uber expanded the driver’s insurance coverage. It is said that the beginning of policy change was the lawsuit against Uber. The Uber driver had an accident in San Francisco on New Year’s Eve, 2013; however, Uber stated that it was not legally responsible for this accident because there was no passenger at that time. As a result, the lawyer of victim’s family filed a suit against Uber and argued that the company should be responsible for this accident. [23] [24] In July 2014, an Uber driver kidnapped the passenger and the passenger was involved in a high-speed chase at Washington D.C. [25]


File:Uber Heat Map.png
Spread of Uber Company in 2014

Uber Growth Timeline[26]

Date City Name
In June 2010 San Francisco
In May 2011 New York: First expansion outside of San Francisco
In December 2011 Paris: First global market outside of US
In March 2012 Los Angeles
In June 2012 London
In October 2012 Minneapolis
In November 2012 Sydney: First market in Australia
In January 2013 Milan
In February 2013 Berlin
In February 2013 Singapore: First market in Asia
In April 2013 Rome
In August 2013 Mexico city: First market in Central America
In August 2013 Johannesburg: First market in Africa
In September 2013 Bogotá: First market in South America
In September 2013 Dubai: First market in Middle East
In April 2014 the Uber network hit the 100 cities mark
In August 2014 the Uber network is now available in 205 cities across 45 countries and 6 continents worldwide

Policy Issues[edit]

Since Uber began in June 2010, Transportation Network Companies (TNC) have been operating on the fringe of current laws and outside of most regulations, in most locations operating before legislatures can put formal ordinances in place. This has left legislatures around the country in a position where they must react to current operations or circumstances which arise in their jurisdictions. In most cities that TNC operate in there are no formal regulations that allow or declare illegal their operations, so they must rely on the continued lack of action or interpretation from current officials. In return most legislatures have been left to create regulation in reaction to events, as in the case of Insurance in California.

Minneapolis Regulations[edit]

After months of negotiations between, service providers, city officials, and drivers; on July 18, 2014 Minneapolis became the 6th jurisdiction in the country to provide regulations for alternative taxi-like services, such as Lyft and UberX.[27] The Transportation Network Companies (TNC) Ordinance, provides the cities first regulation on such services, who had previously been operating their offerings unregulated and illegally.[28]

Under the TNC ordinance, licenses are offered to the larger company, such as UberX or Lyft, and only require individual drivers receive endorsement. In order to receive a driver endorsement, drivers must possess a valid Minnesota or Wisconsin driver’s license, be at least eighteen years old, be able to understand English, properly dressed, and pass both criminal and driving background checks. There is also a requirement that a driver own his/her own vehicle and that that vehicle undergoes proper inspection which ensures a vehicle be free of rust or damage as well as a multi-point inspection of vehicle component operation (very similar to required annual inspections). It is important to note that these are the same requirements tradition taxis and their drivers must undergo, however under the new ordinance the licensee (such as UberX or Lyft) is able to perform inspection of drivers and cars instead of city inspectors.[29]

The TNC ordinance also regulates the operations of such companies. Drivers are restricted from accepting fares unless they have already made the request for a pick up through the licensee’s network. Additionally, licensees are permitted to only augment driver insurance policy, however licensees are required to provide proof of financial ability to cover any financial costs that may be involved with any incidents. For hire cars under the TNC ordinance are not required to operate under the same price ceilings that taxis are. This ordinance, does not apply to any services only providing drop off in the city for passengers picked up outside of city limits.[30]

Insurance in California[edit]

On December 31, 2013 a Honda driven by an Uber driver named Muzaffar struck Sofia Liu and her mother and brother leading to the death of Sofia, a six year old girl. Although Muzaffar was logged in to Uber at the time he was not carrying any passengers in his vehicle, Uber denied any responsibility. According to Uber, due to the fact the Muzaffar was in-between fares he was not actively an Uber driver at the time of the incident, and therefore there was no obligation for Uber to compensate the Liu family. This spurred outrage from both the general public and Uber drivers, who felt it, was unfair for Uber to charge a percentage of all rates to drivers but not share a percentage of the responsibility for participating in the network.[31]

In response to this event and in an attempt to protect any future victims and drivers the California state assembly passed the Transportation network companies: insurance coverage bill to amend the Passenger Charter-party Carriers’ Act, which became law on September 4, 2014. Under the new bill TNC are now required to cover $370,000 for all drivers who are have a smartphone app turned on and a requirement for that coverage to exceed $1 million whenever a driver is matched with a passenger. This is more than 30x the required coverage for traditional taxis. Original proponents of the bill withdrew support of the bill when coverage for drivers logged in to an app without a match dropped from $750,000 due to objections from TNC.[32] One of those original supports was the Consumer Attorneys of California whose statement included the acquisition that TNC "have demanded, and to a degree received, special treatment." To some degree many attribute this “special treatment” to the reactionary position legislators have put themselves in, often legislating in the opposition of popular services.[33]

Carpooling in California[edit]

As in many states it is currently illegal in California for taxis to pick up more than one fair at a time, or charge individual fares. This service in California is reserved for companies licensed as passenger stage corporations (PSC) much like Super Shuttles or Go Airport Shuttle. On September 8, 2014 the California Public Utilities Commission (CPUC) informed Uber, Lyft, and Sidecar that there carpool services were in violation of section 5401 of the California public utilities Code which states “[N]o charter-party carrier of passengers shall … demand or receive compensation, for the transportation offered … on an individual-fare basis.” This is just the latest in the long line of opportunities for either political propulsion or stagnation for the initiatives of the taxi-alternative TNCs. The same governing bodies are also not predictable, the CPUC that chose to take the conservative approach of enforcing taxi regulations on TNCs for shared ride services, until legislative action can be made, chose last year to establish temporary rules and allow TNCs to operate before the California Legislature could act.[34]

Arguments Against Uber[edit]

Taxi and Limo Drivers[edit]

In an attempt to minimize lost taxi wages, Uber set minimum fares to ensure that customers that want a cheaper rate can still use taxis [35] . Taxi drivers still believe that even though there are price minimums for Transportation Network Companies, they are still losing wages and tips. More importantly, Taxi companies want the Uber drivers to undergo the same background checks as they have to complete [36] . Taxi Drivers have background checks that ensure that they will be safe drivers and not put their companies at risk. The taxi drivers believe it is unfair that they have different standards.

Uber also offers a service called 'Uber Black' for high end luxury car service. These are still priced with a minimum charge that is higher than taxis but are priced like limousines. Limo drivers are also filing lawsuits against Uber in an attempt to get rid of the company and increase their business [37] .

These standards are similar throughout the world. Many countries have taxi and limousine services that are filing lawsuits against Transportation Network Companies. Australia [38] , Brussels [39] , Canada [40] , Germany [41] , South Korea [42] , United Kingdom [43] , and India [44] .

Safety[edit]

Taxi drivers undergo background checks to ensure that drivers have safe driving records and no criminal pasts. Uber does not require as extensive of a background check. Although accidents are sometimes unpreventable, practicing safe driving habits will reduce the number of incidents. Requiring a background check, and having a driving test, will eliminate drivers that have unsafe driving records. This will reduce the number of injuries and fatalities caused by Uber drivers. Unfortunately, fatalities have already occurred. Six-year-old Sofia Liu was run over in a crosswalk by an Uber driver that was on duty. Sofias mother and brother were also severely injured. The Uber Company is denying insurance protection for the driver and the family [45]. This is only one of countless examples of Uber drivers practicing unsafe behaviors injuring civilians.

Investigative journalists around the world have begun conducting investigations on the background checks of these Uber drivers. There are numerous incidents of Uber drivers that have criminal records [46]. These drivers would not have qualified for taxi driver licenses.

Background checks and driving tests are not able to check for behavior issues. Numerous Uber patrons have reported unwanted sexual advances and homophobic, racial, and gender slurs. One of the reported incidents that made it to court involved a Chicago woman that claimed that an Uber driver hit on her, groped her, and refused to let her out of his car [47]. She sued the company and the driver. Uber responded to the incident by saying that they would increase the number of background checks.

Accountability[edit]

Ubers relationship with its drivers is hard to define: employer/employee, business partners, etc. This creates confusion and unclear legal representation. The Uber application has 'no risk and no accountability' [48]. Although Uber has a million dollar coverage for driver liability, drivers often have to use their own insurance to cover damages[49].

Uber does offer a price minimum. They do not, however, hold a uniform price. Passengers do not have the ability to compare all the prices. This can lead to price manipulation on the behalf of Uber. These prices already include a tip. Drivers are not able to accept tips from their passengers. Uber drivers are suing the company for these lost tips [50]. The tip that is added onto the fare is a high percentage of 20% of the total bill. This means that regardless of the quality of service, the driver is guaranteed this steep tip. This gives the driver little incentive to provide the passenger with exceptional service. The drivers are not held accountable. The prices of Uber are already quite low, taking away from taxi business, so these drivers are not making what they could with extra tips.

Germany outlawed the use of Uber car recently. One of the reasons that they are banning the practice is that the drivers are not offered adequate pensions, medical leaves, and paid holidays [51]. German government officials claim that Uber is creating a more 'Western' environment where full-time jobs with benefits are being replaced by 'insecure and unreliable opportunities to earn money'. Uber casts their business upon other countries that have laws already established against these types of businesses. Uber does not consider these laws when considering where to allow Uber to expand.

Arguments in Favor of Uber[edit]

Personal Experiences[edit]

Requests for rides are submitted via a smartphone (or computer to minimize the digital divide). Once the driver arrives at the destination, the passenger sits in the front seat. This increases that personal connection with the driver. Many passengers know their drivers by name, which differs from the unfamiliar nature of taxi encounters. Passengers are also charged a fee automatically, so drivers do not have to worry about passengers avoiding paying their fare.

Driver Opportunities[edit]

The driver application process is really simple. All that is needed is internet access and a driver's license. Applicants submit forms and are either guaranteed or denied the request to become a driver. Since hours are very flexible, some people use this job as a part-time job to earn more money. Taxi drivers often use this to supplement their daily duties. In an interest to make opportunities equal, Uber gives iPhone 4 devices to drivers that do not have access to the app. This eliminates hiring bias to people that do not have access to smartphone technology.

Access to Locations[edit]

Taxi drivers look for patrons by driving through the neighborhoods that will serve them the best and give them the greatest number of clients. They can refuse service to anyone based on where they are going, as well as other factors. Uber cars do not operate in the same fashion. Once a request for an uber driver gets sent to a driver, the driver has to pick up that client. Areas of the city that would usually go underserved now have more equal access to transportation.

Immediacy and Sufficiency[edit]

Compared to traditional taxis service, Uber cars are usually sufficient, and the waiting time for people who have booked a Uber car is also lower. According to a research at University of California Transportation Center, during the evening peak, 92% of Uber cars could get to the location where customers had booked within 10 minutes, while only 16% taxis could arrive within the same length of time. Also, it took 37% taxis more than 20 minutes to get to customer's location, while less than 1% Uber cars would waste so long.[52]In addition, during peak hours or pretty bad weathers, people will usually find it hard to catch a cab. In contrast, due the surge pricing solution of Uber, people are easy to find enough Uber cars during those occasions, though they might pay more-it is the sufficient financial incentive that keeps Uber drivers stay on the road, even under some extremely serious weathers.

Safety and Comfort[edit]

For many there are many aspects of current transportation offerings that create environments that are less than inviting, whether it is the fear of bodily harm or less than cleanly conditions. TNC allow for innovation to create networks that individually address a combination or all of these and other concerns of individuals with a desire to drop single occupancy vehicles (SOV). One such example of these initiatives is SheTaxi, a service that started on September 16, 2014 in New York, New York. SheTaxi was started by Stella Mateo, a mother of two, who recognized both the apprehension of other females in accessing taxis, limousines, TNC, and other services with a male driver and an extreme shortage of female drivers (Only 5% of professional drivers in NYC).[53] SheTaxi will operate very similarly to traditional TNC services with an app that allows passengers to virtually flag a SheTaxi although it requires there be at least one female in every party. On SheTaxi’s first day there was an increase in the number of female drivers in NYC of 2%, although Ms. Mateo hopes the number keeps growing.[54]

Opportunities and Challenges[edit]

Despite the critics, Uber keeps on developing rapidly. By June 2014, the valuation of Uber has reached 18 billion dollars, one of the highest records among start-ups.[55]Even so, there is still an opinion that Uber's whopping valuation is underestimated. According to Uber's financial information that leaked to the gossip website Valleywag at Dec. 2013, total payment for the full cost of the rides from Uber is roughly $20 million per week during Oct. to Nov. 2013, which means $1.068 billion for the whole 2013.[56] Generally think of Uber's cut as 20 percent, as Travis Kalanick said in a Bloomberg interview,[57] that makes $213 million in revenue for 2013. Those figures show how profitable Uber was during the last year, and yet there is a larger picture as well as some challenges in front of this young start-up.

Opportunity with Google[edit]

Back to Aug. 2013, during Uber's capital raising, Google Ventures invested $258 million into Uber, which was Google Ventures' largest deal ever.[58] Cooperating with this internet giant seems to be a great opportunity for Uber, not restricted to finance. It is possible that Uber's service might be combined with Google's ongoing research on driverless or autonomous cars, and this technology will enable people to order self-driven Uber cars from their smartphones. The potential of this technology is much greater than is commonly realized. Another possibility is to use Uber as a delivery service for Google Shopping Express. Uber has tested its new UberRUSH courier service in New York City, and a combined Google-Uber effort could make themselves a significant force in the E-business area.[59] Meanwhile, Google’s expertise in dealing with the government could help Uber solve its legal and other disputes on car services in many of its most important markets.[60]

Market Growth and Policy Benifits[edit]

Market and policies are another two significant opportunities for Uber. As a company founded in 2009, Uber has its service in 100 cities by July 2014[61],and it has been continuing to actively expand its market and clear obstacles, both from domestic and abroad. On July 30, 2013, State of California approved a proposal that allowed Uber to operate legally.[62]Similarly, Minnesota State also gives nod to Lyft and Uber car services by legalizing ride-sharing services.[63]For the international market, on July 14, 2014, Uber CEO Travis Kalanick announced in Beijing that Uber would officially be entering the city. By adopting some localized strategies, such as partner with standardized car rental companies to avoid legal risks[64], Uber is seeking its own approach to win in China's market.

Carpooling Service[edit]

Uber as well as some other similar companies have put forward the carpooling service. Uber’s version, named UberPool, will will connect app users heading in the same direction and thus let riders who use the service pay half-fare. Uber says its normal service, where riders can summon an uber taxi within minutes using their smartphone, is 40% cheaper than the average taxi. UberPool would cut that bill by another 50%.[65]That would significantly lower the cost of those who use this service. On a social level, a research from Massachusetts Institute of Technology shows that carpooling is able to reduce the overall journey time of travelers by 30% at most, and abate air pollution as well. [66]

Challenges: Threat and Competition[edit]

At the same time, Uber is faced with various challenges. Just as every emerging entrepreneur, Uber has met with some robust change resistance from the traditional industry. On January 24, 2014, striking cab drivers in Paris carried out violate attacks towards cars booked through Uber, by shattering windows, smashing mirrors and slashing tires.[67]That was the first violent incident aiming at Uber, but long before that, Uber has already encountered political resistance from several regions. In Dec., 2013, French government issued a new bill that required any car booked via Uber or similar services to wait a minimum of 15 minutes after receiving the order before picking up the passenger, and that would undercut the key advantage of Uber: get a chauffeur-driven car to any address in central Paris within a few minutes.[68]In German, Uber was practically banned throughout the nation, and public opinion in German was also on the opposite side to Uber.[69]Seoul, the capital of South Korea, banned Uber and planned to develop its own app instead in July, 2014.[70] At United States, Miami, Austin and Las Vegas have imposed high minimum fares for chauffeur-driven cars, while Colorado has proposed rules that would bar them from picking up and discharging passengers within 200 feet of hotels, restaurants, and bars.[71] In Boston and Chicago, taxi operators sued their cities for allowing unregulated companies to devalue million-dollar operating permits.[72]

Another inevitable challenge is from Uber's competitors. Uber's two biggest competitors at United States, Sidecar and Lyft, arose in early 2012. These two companies not only followed Uber's mode, which was to connect cars and people through smartphones, but also went one step further that allowed any driver with a spare seat to pick up passengers who’ve requested a ride with their smartphone. Furthermore, Uber and its rivals are cloning each other's schemes, such as Lyft's Prime Time Tips vs Uber’s Surge Pricing[73], and they have grown to look more and more alike. This homogenization may undermine Uber's competitive advantages. Even in the China's market which Uber has just entered, some formidable rivals already exist-the well-known taxi-hailing apps Kuaidi and Didi, as well as a similar Chinese company Yongche. In addition, the entrenched taxis interest and prejudice towards app in new markets could also be an obstruction for Uber's future development.

Discussion Questions[edit]

Should Uber be outlawed in all communities?


What effects do you believe Uber has on communities (good or bad)?

References[edit]

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