The fast-growing upstart taxi service launches in Hamilton today at 2:00 PM, despite a Council warning that it will charge Uber with violating the City's taxi regulations.
By Ryan McGreal
Published July 23, 2015
Uber is hitting the Hammer. The brassy upstart taxi platform is launching in Hamilton today at 2:00 PM with its core vehicle hiring service, UberX, which allows customers to hire drivers via the Uber application.
Uber is also launching today in London, Waterloo Region and Guelph.
Companies like Uber represent part of a broader shift, especially in urban centres, toward an economy and culture of resource sharing. Combined with walkability, cycling infrastructure, bike sharing and improved transit, car-sharing and ride-sharing services contribute to a mix of transportation options that can match or even beat car ownership on affordability and convenience.
Nevertheless, Uber is in for a fight to be allowed to operate in Hamilton. City Council recently determined that if Uber launches here, the City will treat it the same as traditional taxi service and will file charges for violating the taxi licencing bylaw.
It is not at all clear whether those charges will stick. The Ontario Superior Court recently ruled against the City of Toronto on its attempt to define the ride-sharing service as an unlicenced taxi and shut it down.
In his ruling, Justice Sean Denphy wrote:
Have the city’s regulations, crafted in a different era, with different technology in mind, created a flexible regulatory firewall around the taxi industry sufficient to resist the Uber challenge, or have they instead created the equivalent of a regulatory Maginot Line behind which it has retreated, neither confronting nor embracing the challenges of the new world of Internet-enabled mobile communications?
It will be very interesting to see how the Uber launch plays out in Hamilton.
Uber was founded by Silicon Valley technology entrepreneurs to disrupt the traditional taxi industry by creating a more seamless, data-driven technology platform to connect passengers and drivers.
To use the service as a passenger, install the Uber app on your mobile device, then use the app to request a driver to take you to your destination.
The Uber platform locates the nearest driver and dispatches them to pick you up, while also letting you know who the driver will be. When you arrive, the fare and any tip is paid automatically from your credit card and you have the opportunity to rate the driver.
If you are a driver, in turn, you are dispatched automatically based on your proximity to the passenger, you don't have to deal with money, and you have the opportunity to rate your passengers.
The company argues that the traditional taxi business model concentrates most of the power in the hands of the few people who own taxi licences. The value of those licences is driven up by artificial scarcity, since there are strict regulations on how many licences can be issued.
With Uber, fares are often significantly cheaper for passengers and drivers get to keep most of the revenue. The company takes 20 percent and the driver keeps the rest.
As the service grows and matures in a market, Uber is able to roll out additional products, including luxury vehicles, accessible vehicles for disabled passengers (currently available in Toronto) and a discount pooled ride service that automatically matches two people who request rides along similar routes.
Uber launched in 2009 (as UberCab) with with $200,000 in seed funding. Since then, it has grown explosively and now operates in over 320 cities. The company is privately held but was recently valued at $50 billion in an investment round. Its list of investors includes Google Ventures and Goldman Sachs.
As Uber has rapidly grown, controversy has grown with it. The company is going head-to-head with an entrenched taxi industry which has long been accustomed to having a monopoly or near-monopoly in most cities.
A recent Globe and Mail article unpacked the "dirty dealings behind Toronto's cab business" and the role Uber is playing in breaking the monopoly power of the taxi licence holders.
In turn, the company touts stringent oversight processes, including running background checks on its drivers - in Canada, Uber runs National Criminal Record Checks as well as local police database searches, including lifetime sexual offence, DUI and traffic offence convictions - and requiring annual 26-point vehicle inspections.
Uber also provides $5 million in contingent auto insurance coverage for injury and property damage, so passengers and third parties are protected even if the driver's insurance does not cover a collision that takes place while the automobile is being used commercially.
However, last year a San Francisco Uber driver was discovered to have had a felony conviction in 2009 and a felony charge from 2012 for allegedly selling cocaine, and was also on probation for an assault. Yet the driver did not fail Uber's background check.
Controversially, the company also takes the stance that it is not liable for the actions of its drivers, who are independent contractors rather than employees.
In another San Francisco case, a driver failed to yield at a crosswalk and collided with a woman and her two children crossing the street. The six-year-old daughter was killed. The driver was in between rides but had the Uber app running on his phone.
The family filed a wrongful death lawsuit against both the driver and the company, but Uber's lawyers claimed the driver was not dispatched on a ride at the time of the collision.
Uber has a reputation for being highly aggressive in its business practices, taking the approach that it is better to ask for forgiveness than permission when dealing with the hidebound taxi industry and the legacy of heavy-handed municipal regulations.
The company's position is that its innovative service is different enough from traditional taxi service that it should not be regulated the same way.
When Uber decides to expand into a new city, it just goes ahead and launches, trusting that once the public has had the chance to use the service, its enthusiastic customers will pressure the government to let it keep operating.
While the company encourages direct citizen engagement on the ground, it also has an aggressive team of lobbyists working to change legislation at higher levels of government to allow the app-based taxi service to operate under different rules than traditionally licenced taxis.
Uber CEO Travis Kalanick has a bombastic online presence. He generated controversy last year in a GQ profile where he cracked a joke about using the company to get women on demand: "We call that Boob-er."
Kalanick often goes head-to-head with politicians on social media - most recently in a twitter war with New York City mayor Bill De Blasio, who proposed limiting the number of Uber licences granted while the city studies their impacts on traffic.
Many New Yorkers rallied to the company's defence, crediting Uber with providing a cheaper, more reliable alternative to the city's Yellow Taxi monopoly. In New York and other American cities, the company has been lauded for reducing the discrimination that goes along with "hailing while black".
Uber vice-president Emil Michael stirred controversy in 2014 when he suggested that Uber should hire a team of investigators to look for dirt on journalists who write negative articles about the company.
Uber's business practices also extend to directly undermining its competitors by having Uber employees order and then cancel rides with Lyft, a competing service, in order to reduce its capacity.
Uber did the same thing with Gett, another competitor, and tried to recruit the drivers to switch to Uber.
One of the most interesting and controversial aspects of Uber's business model is its practice of what the company calls "Real Time Dynamic Pricing", also known as surge pricing.
The Uber platform is essentially a market for taxi rides, with customers and drivers independently and voluntarily choosing to enter an exchange. Whenever demand for Uber drivers increases significantly, the pricing algorithm raises the cost of a ride in order to induce more drivers to sign on and provide additional capacity to meet the higher demand.
For example, on Monday, June 8, 2015, a communications failure at Toronto's TTC shut down the entire subway system at the start of morning rush hour. In response to the spike in taxi hailing requests, Uber implemented surge pricing at three times the normal rate.
In terms of pure economics, surge pricing makes perfect sense: when demand for a service increases, the price increases to incentivize more supply. As Uber explains: "When demand outstrips supply, surge pricing kicks in to help bring more cars on the road."
Uber also notes that passengers are notified when they hail a ride that surge pricing is in effect, so they have a choice of whether to pay the higher rate or wait until the surge is over.
And it seems to work: Uber adopted the model after a pilot project in Boston found that dynamic pricing was able to increase the supply of drivers by 70-80 percent during the hour or two after bars closed on Friday and Saturday nights.
The problem is that most people don't think like economists. To someone who is scrambling to get somewhere - especially during a crisis - surge pricing can feel a lot like price gouging.
In December 2014, a hostage crisis in Sydney, Australia triggered a four-times price increase, which in turn triggered a wave of outrage. Uber quickly backpedalled, refunding passengers and offering free rides to people in the affected area.
Since then, the company has adopted a policy that it will cap surge pricing at three times the normal rate during a crisis.
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