November 20, 2014 1:23PM

Can Taxis Survive the Rise of Ridesharing?

If taxi drivers want to endear themselves to consumers, they had better find another way of protesting ridesharing companies than deliberately congesting traffic. On Monday night, taxi drivers with the San Francisco Taxi Workers Alliance caused traffic jams at San Francisco International Airport in the wake of last month's news that the airport would allow rideshare vehicles to pick up passengers as part of a pilot program. Unsurprisingly, airport visitors were not pleased. This kind of protest has a track record of failure, and in the coming years these protests may be remembered as being among the most frantic and ultimately unsuccessful attempts taxi drivers made to combat the rise of ridesharing companies such as Uber, Lyft, and Sidecar. 

Taxis have deliberately congested traffic in rideshare protests not only in American cities such as San Francisco and Washington, D.C., but also in London, where the protest earlier this year reportedly resulted in an explosion in British Uber sign-ups. In Washington, D.C., the city council passed a rideshare bill in a 12-1 vote despite the protest.

Taxi drivers are right to be worried about ridesharing. In San Francisco, there has been a dramatic drop in the number of taxi trips since the beginning of 2012, the year Uber's ridesharing service and Lyft both launched. In September 2014, the general manager of a Washington, D.C., cab company said "what we are seeing is, year over year, an approximately 30 percent decrease in business." A draft study from the Virginia Department of Motor Vehicles reportedly predicts that once rideshare regulations are permanently in place in the state, rideshare drivers will outnumber taxis.

Many consumers have demonstrated over the last few years that they prefer rideshare services to taxis. Market incumbents such as taxis have a number of options when competitors arrive on the scene, but it is hard to see if any will halt the growth of ridesharing. 

Taxi companies could try to innovate to keep up with the technology used by Uber, Lyft, and Sidecar. What many people like about ridesharing is the ease of use. All users have to do is press a button on their smartphone in order to get a ride that is paid for automatically without cash. Hailo, a company with an app similar to the apps offered by ridesharing companies, provides a way for passengers to hail a taxi via smartphones. However, Hailo recently announced that it would be leaving North America because of the competition from Uber and Lyft. Given that anyone who can download a taxi app also has the ability to download a ridesharing app, it is hard to see what a taxicab app would be able to offer that ridesharing companies don't already provide. Of course, it is not inconceivable that the taxi industry will develop a competitive app, but it will be difficult for that app to succeed considering that rideshare companies already enjoy name recognition as well as a loyal customer base.

U.S. taxi drivers have been claiming that they provide a service safer than the services offered by rideshare drivers. Rideshare companies have been criticized for their insurance policies despite the fact that both Uber and Lyft provide coverage once a ride is taking place and when drivers are logged into a rideshare app but have yet to accept a ride request. The coverage for when a rideshare driver does not have a passenger is designed to kick in if a driver's auto insurer declines a claim.

In California, which like Colorado has statewide rideshare insurance legislation on the books, insurance policies specifically designed for ridesharing can now be reviewed by the California Department of Insurance. As rideshare companies expand, we should expect more rideshare legislation to be passed at the state level and for the insurance industry to work toward developing products specifically designed for ridesharing. It won't be surprising if more statewide legislation includes insurance requirements similar to those outlined in California’s and Colorado’s legislation, which is very similar to the coverage already provided by Uber and Lyft. The major difference between Uber’s and Lyft’s policies and the insurance requirements in the California and Colorado legislation is that the laws in California and Colorado require that the coverage be primary for the time when a driver is logged into a rideshare app but has yet to accept a ride request. These insurance requirements will go into effect on January 15 in Colorado and on July 1 in California.

Political influence is the best tool the taxi industry has at its disposal, but it will become less efficient as ridesharing companies expand and the number of taxi rides declines. Local lawmakers and regulators with connections to the taxi industry can certainly cause headaches for ridesharing companies. However, as the popularity of ridesharing grows, the taxi industry’s influence will decline and lawmakers will come under increased pressure to allow Uber, Lyft, and Sidecar drivers to work in their jurisdictions.  

* I have a forthcoming paper on the safety concerns related to ridesharing in the works and will announce its publication on this blog.