Mary Altaffer/AP Photo
Ride-hailing cars and a cyclist make their way across 42nd Street as passengers load into a yellow cab outside Grand Central Terminal in New York.
Once upon a time in New York, the ubiquitous yellow taxi was king, until Uber, Lyft, and its app-enabled siblings stormed in. Long frustrated by the imperial cab drivers and taxi companies that carved out no-go neighborhoods and refused to pick up people whom they deemed undesirable, New Yorkers swooned over guaranteed pickups and drop-offs at mostly reasonable rates—at least in the beginning.
Taxi companies and their drivers rebelled against the newly branded “transportation network companies” (TNCs), a designation specially created for the likes of Uber. When city officials inched toward protecting the powerful taxi monopoly by capping the number of Uber, Lyft, and other rideshare cars on the road, the company responded by bad-mouthing people like Bill de Blasio, the former mayor, on their app. It was one of the many ways that Uber used its customers as leverage to block regulators from reining it in.
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Cab drivers also faced caps, of course. Medallions, the licenses the city requires to drive a cab, had always been limited in number. Those limits proved to be the industry’s undoing. With revenues dropping, medallion prices exploded: In 2013, 200 medallions sold for $200 million. As ride-hailing convulsed the industry, the medallions, often bought by new immigrants with lifetime savings or mortgaged with hefty loan payments, sank like stones flung into the Hudson. Bankruptcies felled companies. Driver suicides and hunger strikes followed.
But today it’s a new era for the company that sought to bully the taxi industry out of existence. Working with two tech companies that cater to cabs, Curb and Creative Mobile Technologies, Uber plans to display New York taxi companies on its app beginning this summer; it also wants to launch a similar service in San Francisco. Uber had already rolled out like-minded overseas deals in Colombia, Hong Kong, South Korea, Germany, Austria, Spain, and Turkey. Lyft has yet to announce its plans. But the sector is far from settled and more industry shake-ups loom.
“The laws that were designed to keep these two planets separate from one another are now colliding,” says Matthew Daus, the president of the International Association of Transportation Regulators, an educational and advocacy organization of government transportation officials. “I’m not hearing from my membership, ‘Hey, this is horrible.’ They’re more like, ‘This is interesting.’”
The interesting part of it is Uber having to come to terms with the fact that its business model of earning a fortune off the backs of struggling gig workers only makes sense when times are tough at the low end of the wage scale. Tight labor markets make it impossible for Uber to capitalize on people needing a gig. And high gas prices erode whatever workers get out of the deal anyway.
Uber had already switched the dial to higher prices, attempting to turn a profit in a business that lost billions for years. But it finally discovered that its dream to overturn the taxi model has one problem: Nobody wants to drive for Uber anymore.
Uber has long been described as an urban transportation disruptor. But five years after Uber appeared in New York, Clayton Christensen, the father of the theory of “disruptive innovation,” noted in the Harvard Business Review that “disrupters start by appealing to low-end or unserved consumers and then migrate to the mainstream market. Uber has gone in exactly the opposite direction: building a position in the mainstream market first and subsequently appealing to historically overlooked segments.”
So much for disruption.
Several other factors presaged the upheavals in the rideshare/taxi ecosystem. Investors found Uber’s 2019 initial public offering less than auspicious. The New York Times reported that while bankers valued Uber at nearly $120 billion, its performance went down in stock market history as the worst first-day decline in dollar value for any U.S. IPO. It finally posted its first-ever profit in the fourth quarter of 2021, thanks in part to rebounding food and freight delivery services. But shareholders aren’t all that interested in a company with such a fragile business model, predicated so tightly on likely violations of labor laws in the U.S.
Uber and Lyft moved hard and fast against proposals to classify gig workers as independent contractors, rather than employees fairly compensated with living wages, health care, and other benefits. The companies bankrolled Proposition 22, the California ballot initiative that passed with nearly 60 percent of the vote, which created a separate class of employee for app drivers. Washington state and Massachusetts are also considering similar measures. However, an Alameda County Superior Court ruled Prop 22 unconstitutional, and the issue is likely to continue to occupy the courts.
For Uber, the deal signals an end to the fantasy that it could underprice an entire industry, get customers hooked on its product, and then jack up rates as a private monopoly.
The gig worker/employee debate in the U.S. and Canada never got traction in countries with robust protections for workers and greater respect for drivers. Uber never convinced Europeans that it was not a taxi service: Last December, the European Union ruled that gig workers are employees entitled to labor protections and minimum wages. (Only New York and Seattle guarantee a minimum wage in the U.S.)
In the early months of the pandemic, Ubers and taxis both pretty much disappeared from the streets. People navigating the lockdown waited longer for rides and paid higher fares. The subsequent revolution in attitudes about work forced Uber to accept the realities of being an app-enabled taxi company, just as the Europeans contended. With so many job openings, workers naturally were disinterested in precarious ride-hailing gigs with no benefits, especially as they had to deal with the rising cost of gasoline. Uber had a labor shortage on its hands.
Uber’s partnership with taxi companies did spark surprise, but they had already developed ties in other areas, such as coordinating non-emergency medical trip transportation to hospitals. Another heads-up about Uber’s intentions was the news that Autocab, a leading taxi and private-hire booking and dispatch software provider based in Britain, was looking for an entrée into the U.S. market and had been talking to American cab companies. In August 2020, Uber acquired Autocab.
Under the new system, riders can select an Uber or a cab and cab drivers can choose to pick up a ride displayed on the Uber app or not. The fare for the ride is also displayed on the app, but a myriad of algorithmic permutations determine pricing.
“This partnership [means] people do not have to price shop,” says Liam Blank of the Tri-State Transportation Campaign, a transportation and land-use reform and advocacy group. “It was much harder for people to price shop with yellow cabs because if you didn’t know that yellow cab app existed, which a lot of people don’t, the only way you would know how much it would cost is if you hailed a cab on the street.”
The alliance does not put more taxis on the street; congestion pricing remains on target for a 2023 debut. Nor does it address the bitter complaints of Uber drivers, who say that their recent wage increase has been eaten up by high gas prices. Bhairavi Desai, executive director of the New York Taxi Workers Alliance, said in a statement posted on the group’s website that the fare structure is “not enough” for Uber drivers or cab drivers who have higher medallion and higher car costs in a metered rate system that has not increased in ten years.
“The limo industry has operated with employee-chauffeurs for years, and that’s probably what the price of transportation really is to make a decent living,” says Daus. “A fare of $150 to $200 for an airport trip in New York … that is, for the company to make a decent profit and for the driver to be paid really well.”
Some new entrants to the ride-hailing sector are chipping away at a model that insists that workers subsist on meager wages and no health care. Revel, a ride-hailing company originally known for its e-bikes and moped offerings, now operates a small vehicle fleet of electric Teslas in New York. The company owns the cars, pays drivers’ salaries, and offers health, vision, and dental insurance. (The company also has its own network of charging stations, including one that the public can use.)
The Uber/taxi pact pacifies New York officials weary of the rideshare battles and assuages concerns about increased congestion and other regulatory pressure. It also ensures, for the moment, the survival of the taxi sector in a city teeming with people willing to go out on the street and exercise their cab-hailing muscles.
For Uber, the deal signals an end to the fantasy that it could underprice an entire industry, get customers hooked on its product, and then jack up rates as a private monopoly. The economics never worked before, and with worker rebellions and skyrocketing gas prices, it certainly doesn’t work now. This disruptive force that the U.S. business media had celebrated as the future of work turned out to be a mirage.
This article is part of our ongoing series on sustainable mobility, transportation, and climate.
