Why we should all care about the Uber and Lyft businesses

I was quite irritated by a very critical, negative article in the Sunday, August 9, 2015, issue of The New York Times by Natasha Singer relative to what she said about the “sharing economy.”  Her critique was that the term was misleading, because it did not focus on the profit motive of either the companies that orchestrate these services or the individuals who profit from them.

www.nytimes.com/2015/08/09/technology/twisting-words-to-make-sharing-apps-seem-selfless.html?_r=0

As an Uber and Lyft user, and as someone who has tried AirBnb, I think it is important to understand why these services are so popular.  Someone makes a profit, but what is happening is that profits are being redistributed from larger organizations with either monopoly shares or leadership positions to individuals and organizations that are providing a service that fills a need not being fulfilled by the established provider or that provides a superior service to what is being offered by the established provider.

They create an additional source of supply of services when the services would otherwise be unavailable or exorbitantly expensive.

Taxi and limousine services

My wife and I lived in New York City from 1981 to 1991.  One of our most frustrating experiences was trying to get a taxicab in two circumstances: the peak time between 7 and 8 pm when many people, some of whom were visiting New York City, needed a taxi to get to the theater district, since all the shows start at 8 pm; or any time there was any amount of inclement weather.

The taxicab population was barely adequate at other times, but ridiculously inadequate during these times.  The reason for the inadequacy of supply was the New York City government had frozen the number of taxicab licenses at 11,700 in the 1930’s, a decision that might or might not have made sense at the time, but was no longer a good outcome for the city’s population by the 1980’s.

The City needed then, and needs now, an expandable, flexible supply of livery services.  Uber and Lyft are vendors that have opened for business to provide that expandable supply and meet the needs of people, especially at the time of events that overload the regular taxi services.

AirBnb

I have had only one experience with AirBnB and it was unsatisfactory, but I accessed it because I needed a room in Philadelphia on the evening of June 30, 2015, and there were no rooms available at any price less than 3x the normal room rates because of a large convention.  Most of the hotels had no rooms available at any price.

As a frequent traveler, I experience this quite often.  Hotels either have no rooms, or they increase the charges by a factor of 2x in most situations and 5x to 6x the normal rate under extraordinary situations.  The South by Southwest Festival in Austin, Texas, draws such a large crowd that rooms that normally cost $200 a night rent for $1,000 to $1,200 a night in downtown Austin. It is unfair to individuals who are not traveling on corporate expense accounts to expect them to pay these ridiculous premiums because they happe to travel to a city when there is a major event in that city.

This is not just a U.S. phenomenon, and it is not a recent problem either.  In the early 1980’s, I attended my first trade fair in Hannover, Germany, and discovered the only rooms available were individual bedrooms in private homes.  The price of these rooms was a multiple of the regular rates for the few hotel rooms that were available in this city the 50 weeks of the year that the Hannover Fair was not operating.

Flexible capacity is critical for any economy, and AirBnB provides that flexible capacity.  It is a check-and-balance on the price gouging that would otherwise take place when a hotel knows that it can charge huge premiums for corporate visitors to a city.

They address issues with mainstream services.

Taxi and limousine services

One of the problems Uber addresses relative to the taxicab services is that it accepts credit cards and it provides a service in which the credit card is on file.  In many communities, even today, taxicabs do not accept credit cards.  Cambridge, Massachusetts, is one such city, as is Stamford, Connecticut.  In Washington, DC, credit card payment is relatively recent, and many drivers deliberately misrepresent that their credit card system is “not working” because they make more income when the customer pays cash.

Not only do these systems accept credit cards, but they enable riders not to have to fumble around and swipe a credit card at the end of each ride.  The rider exits the car when he or she reaches the destination, which saves valuable time.

One of the other benefits of these services is that the individual can order a range of service levels in terms of luxury, instead of having to accept whatever taxicab becomes available.  The individual can communicate in advance with the driver and know how long it will take before the driver arrives, as opposed to having to guess when a taxicab will be available.

They more easily allow pooling of multiple passengers at a much lower price and more flexible terms than a taxicab service.  This is particularly helpful when a group of passengers are all living or working in an area that does not yet have public transit services.

Finally, the rider can rate the driver and the experience and get results from a rating.  In most cities, the process of complaining about a taxicab experience is cumbersome and unpleasant for both the rider and the driver.  The bureaucracy that regulates taxicabs adds cost and complexity to a process that should improve far faster.

AirBnB

The beauty of this kind of service is that rooms are available in many more locations that typically do not offer hotel services.  AirBnB can operate in a residential neighborhood that is closer to where someone needs to go and that has amenities a person wants, but lack amenities someone does not need.  This kind of service can produce a better match between what someone needs and what can be constructed.

Although my one AirBnB experience was unsatisfactory because the immediate area outside the window was too noisy, what I appreciated was the ability to pick up a key and go straight to the room, rather than waiting in a check-in line at a hotel.  I have had the experience on many occasions of arriving late at night at a hotel and having to wait in line while someone ahead of me was taking too much time asking the check-in clerk many questions.

Delivery services

New package delivery services like Roadie are filling several market needs that the Postal Service, UPS and FedEx do not address:

Summary

The governments that try to regulate or constrain these services should understand why they are springing up, not trying to shut them down or cause them to be limited in a way that makes them less able to meet legitimate consumer demands.

If I were running these regulatory authorities, I would demand that the existing, regulated systems get a period of time to match what these upstart services offer, and then I would open up the market for them, and eliminate the monopolies completely.  We need innovation, not people who stifle it.