A German court ordered Uber to stop offering its taxi services (for now). The argument was as to be expected: Uber taxi drivers and cars are not fit for the job. This is definitely the right decision under the assumption that the German taxi approval rules make sense. Even if the court decision stands, this is not the end of Uber (nor Lyft nor AirBnB nor Wimdu as same or similar business model based companies).
I see two distinct innovations in Uber’s model:
- Higher service quality (mostly improved convenience) through the Uber app (and the system behind it)
- Lower costs of operations by utilizing drivers and cars who couldn’t or wouldn’t become taxi drivers
I think #1 is a justified and sustainable advantage: It just is easier to use an app rather than the phone and the more efficient and feedback-based system behind it. If Uber was a regular taxi service accessible through this app, it would already kill the market.
Whether advantage #2 is proper or not I don’t know. If current taxi requirements are exactly right then Uber will have to meet them in order to compete so this advantage will go away. In all likelihood, however, many of the current taxi rules and regulations are stale and only protect those who have already been approved. Then these rules need to be changed to allow for more competition and innovation. So then Uber will have to get more safe and the cost advantage will go down in equal measure; German taxi companies will have to accept lower-cost competition with relaxed regulation. Whether this will happen I don’t know. Rules and regulations don’t change easily and entrenchend incumbents will fight tooth and nail to keep it that way.
Whether it is a win for consumers is not clear either. Right now, by current rules and regulations, it is not safe to use Uber, but lets assume it manages to shake up the market. Then, in terms of safety, the state, the taxi companies, and Uber will have to meet in the middle, still providing safe passage. With these changes will come other changes, most notably Uber’s surge pricing. You may remember Coca Cola’s experiments with price surges on hot summer days? Where they raised the price of Coke bottles in their vending machines with increasing temperature? It left many destroyed vending in its wake. Uber drastically raising prices when there is high demand for taxis is another example of this strategy.
Thus, buyer beware: Consumers may benefit from a relaxation of barriers to entry to entrenched markets, but at the same time rolling the dice anew may change other aspects of the business model that not everyone may appreciate.