On May 29, Texas governor Greg Abbott signed a law creating a statewide regulatory framework governing ridesharing services. The impetus for the law was clear—overriding the city of Austin’s onerous ordinances that prompted the sector’s leaders, Uber and Lyft, to stop operating in the state capital last year.
In the few weeks since Uber and Lyft returned to Austin, the results speak for themselves. RideAustin, one of the more popular local ridesharing services that popped up when the big guns left, saw its ridership plummet 62 percent. “One element that we routinely hear, of course, is that we are more expensive than Uber/Lyft and this is the No. 1 criteria for many riders,” RideAustin noted in a Facebook post. “As a result, we are now going to match Uber/Lyft mile/minute pricing.” Another service, Fare, announced it was abandoning Austin altogether rather than try to compete.
Austin’s attempt to ban and replace Uber and Lyft over the last year has been a comedy of errors testing the limits of democracy, cronyism, and the regulatory state. It should serve as a warning to other cities that think they can reengineer a market by replacing existing technologically advanced services with new companies driven by political and regulatory imperatives rather than costs.
Citing safety concerns, in December 2015, Austin’s city council passed a law containing a number of restrictions on ridesharing services. The council began dictating where vehicles could pick up and drop off passengers, and required “trade dress” identifying vehicles as participating in rideshare services, as well as extensive monthly reporting of ride data. But the biggest issue was background checks for drivers.
Uber and Lyft already require their drivers to undergo extensive background checks far beyond comparable service jobs. Austin, however, also wanted to fingerprint drivers. Uber and Lyft argued that fingerprint-based background checks didn’t offer any additional assurances of safety. The city dug in and started a public-private partnership known as “Thumbs Up!” that aspired not just to validate rideshare drivers in Austin but become a universal background check across all apps in the sharing economy.
“The Thumbs Up! app scans your drivers license, has a device to take fingerprints and snaps a selfie. It takes less than 5 minutes. Then, it sends the information to the FBI,” notes Austin Inno, a publication covering Austin’s tech industry. Unsurprisingly, asking people to volunteer to have the FBI start a file on them did not prove a success.
So why the push to fingerprint drivers? An Austin American-Statesman editorial supportive of the regulations offers a clue: “Fingerprint-based background checks are required of Austin’s taxi, limousine and even pedicab drivers. . . . Aside from the public safety benefit, there needs to be a level playing field.” It’s no secret politically influential taxi cartels are having a hard time competing with Uber and Lyft. The taxi industry demands additional regulations to knock down the successful ridesharing services to the level at which it wants to compete.
Perhaps Austin’s city council thought Uber and Lyft would relent, but Uber in particular does not have a history of allowing itself to be held hostage by politicians. The company has fought public battles over regulations and licensing in New York, San Francisco, and Washington, D.C., among other cities. It has won nearly all of those battles; you do not want to go up against Uber when access to a new market is on the line.
In 2014, Uber started operating in Portland, Oregon—after the city declared it would be illegal. Earlier this year, the New York Times reported that Uber managed to avoid being shut down there by deploying a sophisticated program that identified transportation code enforcers and refused them rides. The enforcers’ apps deceived them by showing nonexistent cars nearby that never came to pick them up. Uber has allegedly used this program to “grayball” enforcement officers in cities around the world.
In the case of Austin, Uber didn’t go so far as to continue operating illegally but it did go down fighting. The company collected 65,000 signatures to get an initiative on the ballot to overturn the ridesharing regulations. The measure, voted on last May in the city of 900,000, failed 48,673 to 38,539. Lots of people blame the loss in part on exceptionally confusing ballot language—the Statesman dedicated an entire column to explaining the measure to “readers who are befuddled by the wording.”
It was hardly vindication for the city. Austin is arguably America’s biggest tech center outside of Silicon Valley. Not having two of America’s biggest startups operating there was something of an embarrassment.
Austin tried to rectify the problem by attracting other ridesharing services, as well as encouraging new services specific to the city. By July of last year, there were at least seven ridesharing services operating in compliance with Austin’s regulations. This did little to fill the void left by Uber and Lyft. The new services were significantly more expensive. And almost immediately, there were problems. Black-market ridesharing exploded. People started coordinating rides directly on Facebook, with the help of Arcade City, a company developing a peer-to-peer ridesharing app. Uber and Lyft were deemed threats to the public safety because their background checks didn’t involve fingerprints, but according to the city, encouraging total strangers to meet-up for rides was “legal as long as drivers do not charge beyond the federal reimbursement rate of $0.54 per mile.”
Another issue was the inferior technology of the city’s second-tier ridesharing services. Things were buggy from the beginning, but the failures became a national joke during the city’s annual South by Southwest conference this spring. SXSW, a combined music festival and technology conference, is a massive event—some 421,900 participated this year—and Austin’s ridesharing services melted down from the increased demand. Fasten, one of Austin’s larger ridesharing services, went down for several hours. Runaway surge-pricing meant the cost of short rides on other services routinely spiked to $80 or more. Some of America’s most influential tech voices spent the entire conference griping on social media about the failures.
Uber made headlines recently when its CEO stepped down, partly because of sexual harassment claims at the company. But the culture at Austin’s ridesharing companies may not have been something to be proud of, either. One of the unique features of RideAustin was that riders could choose to donate an amount over and above their fare to charity. The Weekly Standard obtained a copy of the resignation of RideAustin’s former spokesman, Joe Deshotel—the son of Texas Democratic state representative Joe Deshotel—alleging that RideAustin was strong-arming the charities it was working with.
“I am being asked to do something I firmly believe to be unethical,” Deshotel wrote to RideAustin founder and CEO Andy Tryba. “The roundup money our customers give over and above there [sic] fare and designate to a specific charity is being held in trust by RideAustin for the use and benefit of the charity. I believe that your demand that I inform these charities that, unless they promote RideAustin, provide RideAustin a monthly report on how they promote RideAustin, give RideAustin $500 for tee shirts and other requirements or they will not receive the money designated for them by riders is unethical.”
RideAustin did not respond to requests for comment. Deshotel seems to have softened a bit since writing the letter. In a statement, he told The Weekly Standard that RideAustin “helped raise over $250,000 for charities in the first year,” adding, “RideAustin has also had a positive impact on the ridesharing industry, and since its launch, Uber is making major culture changes, and Lyft has added a Round Up and Donate feature.”
In the meantime, the anti-Uber and Lyft forces in Austin are spinning the state law superseding the city’s ridesharing regulations as a blow to democracy. “We’re big believers that rules are best set by the local community as opposed to anyone above,” RideAustin’s Tryba told the Statesman. “It’s unfortunate that the state felt like they had to come in and override Austin voters.”
But the people in Austin are still voting—with their wallets. The results so far are a landslide in favor of cheaper rides and better service.
Mark Hemingway is a senior writer at The Weekly Standard.
