Disruptive models for transportation or accommodations are perfect illustrations for the gap between friction-free, agile new models and the cohort of status quo defenders. For their part, regulators, lost as they are in digital translation, are worse than powerless. (Part of an series on Disruptors)
Last week, a member of the French Parliament released a long-awaited report addressing the fight between taxi-cabs and digital-era car services such as Uber. In the meantime, the new socialist mayor of Paris, Anne Hidalgo, is training her guns on Airbnb, the acclaimed lodging system that is making a killing in the capital.
Not all the disruptors are Ugly Americans, though. Local startups take advantage of an unfortunate side of French culture – bad service at high prices – to put a dent in established markets. To name but a few: Drivy, a car rental system between individual, offers a inexpensive service available 24/7 (most French car rental agencies in Paris downtown are closed on Sundays) and, thanks to the backing of the German insurer Allianz, the company has the resources to grow; similarly, TripnDrive offers free airport parking if you make your car available for rental (of course you get paid if the car is actually rented), again with the backing of a major insurer.
What’s going on in Europe is interesting. Let’s focus on Uber (a serious knee injury made me an assiduous customer of Uber and drivers gave me lots of details about their economics). The office of the Prime Minister commissioned a report after last January’s violent protests by registered cabs who blocked airports accesses and attacked some Uber cars. In France, every government from right to left, has a solid track record of yielding to street protests, which explains why the country is so immune to structural reforms such as the ones implemented in Canada or Sweden. To the PM’s credit, hearings where thorough and the report (PDF here in French) provides a detailed view of the situation. To make it short, city cabs are artificially limited to 17,636 cars for the Greater Paris, thanks to a license system that cost around €200,000 in Paris (€300,000 in Nice or Cannes; in New York a medallion can fetch $1 million). Such malthusian, lobby-driven policies lead to poor supply: Only 3 cabs for 1000 inhabitants in Paris, vs. 13,5 in NYC, 11 in London, 8 in San Francisco, 7 in Seoul, etc.
Practically, a Paris cab driver willing to work as an independent (as many do) must cough up close to €300,000 ($415,000) — that will include the mandatory license, the car, equipment, affiliation to a dispatching system, insurance — before earning a single euro. Should h/she should choose to lease a taxi, the cost will be €4500 per month for the whole setup. No wonder why taxi drivers are jealously defending their expensive turf.
On the service side, it’s not a pretty sight: filthy cars, credit cards not accepted, beware if you don’t tip, rough manners (like in a bistro, clients are always a pain), endless tales of foreigners overcharged, no cars in sight when it rains, if you book it, expect an “approach fee” of €10-15 (plus €7 minimum fee, plus $35 per hour of waiting time or traffic jam), you’re expected have change on you, etc. I feel bad conveying such a picture, but that is exactly the situation.
Needless to say, this left a wide open field to Uber-like systems that offer all the agility of modern digital services. Based on multiple interviews I made during my daily trips:
– Drivers are much younger than regular taxi drivers; the oldest ones are former cab drivers who hastily sold their beloved license before it depreciates.
– Above all, they enjoy the freedom of working whenever they want (especially when the demand is high) and the simplicity of the whole process.
– Most want to develop a business around it (some share a sedan with an associate and develop their own clientèle).
– The entry price is much lower. No license needed to operate, and if the driver cannot or will not invest, rental is much cheaper: €2,000/month max, versus €4,500 for a registered cab.
– A swift and friction-free system for booking and paying (no-money exchange with the driver).
– Greater security for the driver who doesn’t carry cash and whose customers are duly identified in the system.
The French government’s response? Restriction and demagoguery. After the cabs’ violent outburst, the administration decided to freeze car service registrations. Today, the report’s authors are willing to constrain Uber’s development.
For instance, it recommends to forbid what it calls “digital hailing”, i.e, the ability to visualize on the app the nearest cab and hiring it, like here:
This possibility of visual geolocation would be left exclusively to registered cabs (although none of them use any app). Uber and its likes would be restricted to advanced reservation — which turns to be a fine line: Uber’s geolocation system is powered by FourSquare’s database of various places. Practically it means booking a Uber car from the Café de Flore by name is fine, but I can’t use the street address of the place. The parliamentary report is filled with such nonsense and betrays a deliberate disregard for the user perspective (a notion not even mentioned in the opus.)
Legislators and lobbies are missing a key point here. What users enjoy the most with services like Uber or Airbnb are two things:
(a) The lightness and the reliability of the intermediation : an app acts as a trusted third party that, in addition, will smartly address the supply and demand issue. As an example, next month, Uber is going to dispatch more than 100 of its best limo drivers for the Cannes Film Festival to address the surge in demand (apparently, there is so much work on the Croisette that local cabs are willing to tolerate the newcomers.)
(b) The frictionless and robust transaction system: The cell phone is the sole payment vector in the case of Uber, and Airbnb is acting as an escrow agent that guarantees the transaction for both parties.
By and large, the European resistance to the digital modernization of commercial services is driven by two concurrent ideological postures: defense of well-established, well-identified leagues — and strong anti-americanism.
In Brussels, on April 15th, a court order issued a straightforward ban of application-powered car services such as Uber, triggering the anger of the European commissioner for digital policies Neelie Kroes (see also her adamant blog post):
As for the socialist French MP, while his report leans only softly in favor of the old-fashion cab system that no French government wants to upset, its own website clearly expresses his personal bias again what he calls “Uber’s Cow-boy behavior” (always the long-standing cliché) and the fact that Google is behind the service.
Disruptive models are growing like weeds. Everywhere.
Next week, we’ll explore four critical issues:
1. The long term macroeconomic impact of disruptors, once they’ll have percolated in almost every sectors; how to deal with heavily funded players (Uber and Airbnb are valued at $3.5bn and $10bn respectively, and the fact they are not willing to pay taxes in their local markets).
2. The social impact for the new breed of workers who enthusiastically — sometimes naively — embrace such newcomers.
3. The cascading effects of disruptors that will call for a modernization of many connected sectors (e.g. all sorts insurances, funding systems) and the underlying factors that pave the way for earthquake-like disruptions.
4. The upcoming transformation of industry lobbies and its political impact.
This is just the beginning of the story.