BACON: Innovation Uber alles

Personal-driver service can revolutionize transportation services

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On Dec. 15, San Francisco startup Uber brought its “personal driver” service to Washington. The selling proposition: Any time you want a car ride, just pull out your smartphone and tap the Uber app, and a luxury car will respond within minutes. You can even watch your phone map as the car gets closer. The service isn’t for everyone. At almost twice the cost of a taxicab ride, Uber serves a rarefied market. But tips are included, the ride is luxurious, the convenience is unbeatable and there are no cash transactions.

The service was an instant hit, easily beating Uber’s ridership and revenue forecasts. Within three weeks, District taxicab drivers began beefing about losing business, and D.C. Taxicab Commission Chairman Ron M. Linton accused the company of operating illegally. “We plan to take steps against them,” he said during a public hearing.

Rachel Holt, Uber’s Washington general manager, insists that the company is operating within the law. There’s a big difference between Uber ride and a taxicab, she says. Taxi cabs take street hails. Uber doesn’t. It’s that simple. She is confident the company can survive any legal challenge.

We’ll see. Never underestimate the ability of a powerful vested interest such as the taxicab industry to wield the coercive power of government to block unwelcome competition. Taxis, whose business model has hardly changed since the invention of the tax meter in the 1940s, have a lot to worry about. A taxicab company’s technology and business model compare to Uber’s like a Model T does to a Chevy Volt.

“There’s a lot of stuff that goes on behind the scenes to make the magic happen,” says Travis Kalanick, the 35-year-old, venture-funded entrepreneur who co-founded the company in 2009 in San Francisco. The smartphone application is the least of it. The company created a brain trust comprising a nuclear physicist, a computational neurosurgeon and a machine-learning expert to predict the demand for drivers, match the supply with the demand, and then position the cars where the demand will be. “The whole point of the math department is to minimize pickup times and maximize utilization.”

That’s a tricky balance. You can put 1,000 cars on the road and you’ll have very short pickup times - and you’ll go bankrupt. But if there’s a demand for 100 cars and you have only 99, you’ll have long delays and unhappy customers. Getting the right balance under continually changing conditions is an incredible mathematical challenge. The company has developed systems to incorporate feedback from thousands of interactions - people downloading their Uber apps, opening their apps, calling cars - in order to refine their systems.

“It’s happening all the time, real time,” says Ms. Holt. “There’s literally information coming in every second of the day. We’re using that information to make better, smarter decisions.”

While Uber is content for now to dominate the high-end transportation service in six U.S. cities as well as Paris, France, there is nothing to stop it - or new entrants in the marketplace - from migrating the same data-driven, iterative-learning processes to a price point where it competes directly with taxicabs. Someday, startup companies even could be using Uber-like techniques to pack vans and jitneys full of riders. That should be beneficial to everyone except the vested interests who operate taxicabs, bus lines and other government-sheltered artifacts organized around the state-of-the-art transportation technology of a half-century ago.

Thanks to innovators such as Uber and Zipcar, which allows subscribers to rent conveniently located cars by the hour, it may be possible one day for millions of Americans to achieve the “green” dream of a car-free lifestyle. With the driverless cars said to be on the commercial horizon, there’s no telling what dynamic business models might emerge over the next 10 to 20 years.

By embracing radical new approaches, Americans can reignite the market for shared ridership vehicles. We can redesign our communities with fewer parking spaces and less asphalt, making them more compact and pedestrian-friendly. Over the long term, we can drive down the number of vehicle-miles driven, reduce traffic congestion and cut automobile emissions such as hydrocarbons and carbon dioxide.

We can achieve all those worthy goals without social engineering, subsidizing money-losing transit monopolies or forcing Americans into lifestyle choices they would not willingly make if left to their own devices. What an urban transportation system for the 21st century does require is more economic freedom and less government intervention. The D.C. Taxicab Commission needs to back off, and taxicab and limousine services need to learn how to compete by innovating, not by shutting down the competition.

James A. Bacon is the author of “Boomergeddon” (Oaklea Press, 2010) and publisher of the Bacon’s Rebellion blog at baconsrebellion.com.

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