The fighting going on between the Seattle taxi industry and the rest of the rideshare services — Uber, and those cars with the bright pink mustache on their grill — is part of the larger economic battle. Old school businesses try to deliver goods and services at the lowest price with little regard for the wants and needs of their customers. Newer businesses deliver the best goods and services at higher prices with the needs and concerns of their customers at the very top of their “to do” list.
The new school is taking the old school to school — and taking their lunch money.
Take coffee. Seattle invented the two dollar cup. The price is not about the coffee but the experience. In most retail places, a pleasant, helpful and friendly employee is unusual; at Starbucks, it is very unusual when you encounter a taciturn staffer. That isn’t an accident. It’s the Starbucks business model.
The taxi business is not the coffee business. It isn’t like an airline or a bus or any other enterprise that moves people from point A to point B either. Nearly all taxi businesses are cooperatives: Yellow Cab, Farwest and most others are simply umbrella organizations that help owners of individual cabs operate a dispatch service from a central lot and buy things like insurance. The actual cabs are owned by individuals.
Some owners have one or two cabs. Others have six, seven or eight. A few have a dozen or more. The owners run their cabs pretty much as they like. There are few rules and fewer standards. The umbrella company controls the fleet in the same way one controls a swarm of locusts.
When I started driving a cab in 1978, the taxi owners would buy their cars from auction, used. Actually, abused is a better word. Typically, cars would have over 100,000 miles on them — hard miles, at that — and we would proceed to run them into the ground. The vehicles survived on average less than a year — a year of ongoing maintenance. Oil changes every 5,000 miles. Brakes were a constant headache. I could tell you about a tire “retread” that would curl your hair.
The only cab owners who made money were the ones who could do the maintenance work themselves. So, the taxi industry was run and operated by mechanics — who, by and large, could care less about customers.
Then there are the drivers. The key to understanding the taxi industry (and its failings) is to understand that drivers are not employees. They are not paid by the taxi company. They do not earn an hourly wage, or a percentage, or get benefits like health insurance or 401k plans. They are independent contractors, who “rent” their cabs for the day or night for a fixed amount.
Drivers pay that rent and for the gas they use, then keep the proceeds. An average shift might cost a driver around $60. On a regular night you hoped to make $100. About once a year, the taxi gods will smile on you and you will go home with a couple hundred bucks. About once a year, the taxi gods will frown, you won’t even cover your overhead and you will end up paying for the privilege of driving.
In a weird reversal of roles, the taxi cab owners needed the drivers more than the drivers needed them. Since driving is a job that has almost no chance for advancement (there is almost no management in the taxi business), there is little the owners could offer in the way of enticement to the drivers. Early on, it occurred to the owners that they could dangle one very valuable thing to the drivers: they could leave them alone.
In the years I drove, the supervisor never checked up on me. I was never visited out on the streets to see if I was doing the job correctly. If I screwed up, like not picking up a passenger on time, they might yell at me but that was it. Complaints were rarely acknowledged (the city would later mandate a complaint form, but there is no muscle behind it). In fact, unless it was the police calling, the company ignored all complaints.
Then there are the business quirks in the taxi industry which could make you question your sanity. For example, accidents are a really big profit center. There are bad accidents and good accidents and really good accidents.
Bad accidents are the ones where the driver is at fault. That’s what insurance is for. It’s the highest single cost for a cab owner, at least $5,000 per year. (Remember: the cab owner isn’t paying any salaries or benefits, no Social Security taxes, no payroll costs at all.)
Good accidents are the ones where the other guy is at fault, because the owner stands to make a lot more for the cab than it is really worth. The insurance company might pay out $1,500 for a totaled cab that you bought at auction for next to nothing and couldn’t give away. Better yet, the insurance industry insisted on sending out an agent to certify that the vehicle is actually totaled. It might be a month before an agent finally comes out to see the wreck. Meanwhile, the insurance people are paying the owner for each and every missed shift. The cab owner could make more than $3,000 in “lost revenue.”
Then there are the really good accidents. Not often, but more often than you can imagine, your cab will be hit by someone who really, really does not want to talk to the cops. Maybe they have a warrant out for their arrest. Maybe they’re here illegally. Whatever the reason, these drivers will want you to call the owner so they could “settle up” right there and then. Many a dinged door has brought the cab’s owner a few thousand dollars.
Never mind the stories about owners involved in drug dealing or money laundering or any number of Runyonesque scams, from the merely naughty to the outright felonious.
Point is you have an industry owned and operated by mechanics, who are beholden to their drivers for their livelihood. The only benefit they can offer those driver is freedom. The needs and desires of the customer don’t even enter the picture.
So here come the ride share companies. They all have a slightly different business model but it all comes down to personal service. The key difference between the taxi industry and the new ride sharing companies is this: ride sharing businesses do not own the vehicles. They just provide the service. If the service experience is not good, they are out of business.
The ride share drivers are different from the taxis drivers of old: the price is set by the dispatch, not the meter. There is no gain for the driver to go the long way, get caught in a gauntlet of traffic lights or stuck in a jam. Most importantly, the ride sharing business and its drivers know that passengers have an alternative And the companies have plenty of drivers willing to do the work, largely because they pay better than the cab business.
Rideshare companies also monitor their drivers and their customers closely. Because of smart phone apps, they get frequent and nearly instantaneous feedback from customers. Where the cab companies were concerned almost entirely with their vehicles (after all, their income depended, not on customers, but on the ability to rent out their cabs to drivers), the ride share companies care about keeping customers happy (and not at all about the vehicles, because they don’t own them).
Taxis may have a case about how they are forced to conform to certain rules and regulations and rideshare drivers are not. They definitely have a legitimate complaint about having to be licensed, while ride share vehicles do not. But what taxis really are complaining about is competition. Too many vehicles chasing a limited number of customers inevitably causes prices to drop.
Just as the ride share business could use some regulation, the cab industry could use some competition. It’s time to learn that it is more important to take care of your customer than the engine in your Crown Vic. The pool of customers is expanding. (It would be interesting to see how many ride share accounts are paid for by Amazon and other local tech companies that value their customers and their employees’ time.)
But in the struggle between old economies and new models of business, the new kids on the block usually come out on top.
Taxi meter photo courtesy of arvindgrover/Flickr.