Navigant Research Blog

Popularity Soaring, Uber Faces a Backlash

Lisa Jerram — January 8, 2014

Web-based car service company Uber is facing another backlash – not the first in the startup’s life.  For a company that offers what seems like a fairly uncontroversial service – convenient on-demand urban transport ‑ it has attracted a lot of controversy.

At the most basic level, Uber is simply a way to maximize existing transportation resources.  The company realized that current car services and taxi drivers had significant downtime when they were actually willing to work.  And city dwellers can attest that there are many times they want a taxicab but can’t find a free one.  This means resources are sitting idle at the same time there is unmet demand.  Very inefficient.  Uber solves this problem elegantly, with a smartphone app and algorithms to match up drivers with riders as quickly as possible.

Not So Fast

However, Uber’s path to growth is not proving to be so simple.  It has faced significant pushback from a number of quarters.  Initially, and not surprisingly, opposition came from conventional taxi services and the cities that heavily regulate them.  To avoid certain taxi regulations, Uber has to wriggle itself into a very oddly shaped box.  It strives to appear as a livery service, which are less regulated than taxis.  But a service that sends a car to pick up a customer in just a few minutes and then charges by the hour and mileage sounds a lot like a taxi company.  The company initially specialized in offering the black “executive sedans” associated with livery companies.  Yet, Uber doesn’t own any of these town cars – or even employ the drivers.  It contracts with local car services and drivers, supplying them with the app that matches drivers with customers.  This has allowed Uber to claim it is not a transportation service and thus avoid certain regulations and insurance requirements.

The response from many cities has not been to work with Uber, but to treat it as a scofflaw.  As Tesla found with auto dealers, a powerful interest group closely entrenched in local politics makes a challenging competitor.  Uber has plowed ahead with its expansion plans, continuing to fight on many fronts.  The company won its battle to offer its service in Washington, D.C., but is still facing multiple other challenges.  For example, it is appealing a California Public Utilities Commission ruling that it is indeed a transportation company.  In cities where Uber has won, it has rallied users to provide public support for the service.

Unfortunately, many of those customers are now irate.  The latest backlash comes from some Uber users who have complained about the premium that the company charges during periods of high demand, like weekend nights in Manhattan.  Some customers have gone public after paying several hundred dollars for a short ride.  While this probably won’t turn most customers away, it does make Uber look a lot more like a service for the wealthy.  That will make it harder for Uber to gain broad public support in its struggles with government agencies and it may embolden politicians and regulators to go after a high-end car service for a select few.

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