Uber: Capitalism hits the streets

It used to be said that the business of America is business. The rest of the world marveled how the private and public sectors in the United States cooperated to create an ideal environment for the entrepreneurial spirit to thrive. Our nation surpassed Great Britain to become the world’s top industrial power in 1890 and never looked back. The U.S. economy is still the largest in the world thanks to a uniquely American competitive ethic that rewards effort, innovation and risk-taking. Here, unlike anywhere else in the world, anyone could become anything they wanted with hard work and ingenuity. That’s the American Way. That way, however, is under attack as government supplants business as the motivating force in the U.S. economy.

The trend toward centralized bureaucratic control has become particularly overbearing in the ever-growing power of red tape, which can make or break individual companies as well as whole industries. “Certain regulations are necessary in an open economy. Yet others are a response to political pressure from self-interested constituencies,” explains Steve Forbes, one of the free market’s most effective evangelists, in his book, “How Capitalism Will Save Us.” “Politically motivated, overly meddlesome regulations and rules produce unintended consequences, hurting the very people they’re supposed to protect. They micromanage the economy and stifle innovation, favoring incumbents at the expense of innovative outsiders.”

It’s into this rat’s nest of interest peddling and political favoritism that new startups must maneuver for position. Good ideas, a smart marketing plan, consumer interest and a little luck aren’t always the requisites for success in the contemporary business climate as much as lobbying and political coercion.

Enter Uber, the flexible cosmopolitan sedan service that is making tired old taxis overheat. Founded in 2009, San Francisco-based Uber Technologies operates in 38 cities across the globe and has experienced crazy-fast growth, averaging annualized monthly revenue increases of 18 percent for the past year. A current push for new investment is promising to bring the company’s value to $3.5 billion – not bad for a mobile app that basically hooks up drivers with people looking for a ride.

The secret to their success is the ease and comfort they offer customers coupled with low corporate overhead. Expenses are kept in check by the fact that Uber is a dispatcher only, so it doesn’t have the cost of employing multitudes of drivers or owning and maintaining a fleet of vehicles. The company has attracted consumers by taking advantage of the e-revolution; booking is done with a few clicks on iPhones and Tablets that use GPS mapping to direct cars wherever fares are waiting. No need to slosh out to the street to hail a taxi in bad weather or compete with other riders on a busy curb in a city center. Your smart phone gets the job done, and Uber takes a cut of the deal.

The company is attracting an enthusiastic fan base. “As far as why I love Uber, it’s all about convenience. Being able to have a driver pick you up at the press of a button is usually worth paying a little extra for,” one 20-something professional explained to Rare. “The clean, comfortable cars and friendly drivers are just icing on the cake.” Uber also bends over backwards to engender customer loyalty, according to this frequent rider: “A few weeks ago, one driver had to cancel my ride because he had been assigned to pick me up on the opposite side of town from where he was. To make up for the cancellation, Uber gave me a $10 credit toward my next ride.” This detail is vital to Uber’s growing dominance: Many people are willing to pay more for superior service.

Uber’s road to riches hasn’t been without a few road bumps. Last week, San Francisco airport authorities said it arrested Uber drivers for picking up customers without a permit (charges Uber CEO Travis Kalanick denies). Across the world, ride-sharing services face opposition from licensing authorities, regulatory agencies, taxicab associations, unions and other interests who are afraid of change and new competition in the marketplace.

When asked about Uber this week, one cab driver ferrying a Rare editor to dinner became very agitated, repeating over and over again, “Uber is unsafe; you don’t know who the drivers are.” When told Uber drivers all pass background and driving-record checks, the cabbie switched arguments, claiming, “Their cars aren’t safe; no one approves their cars.” This criticism is also on a collision course with reality, as the average Uber driver picks up riders in a comparatively late-model Lincoln that tends to be newer, cleaner and more luxurious than the typical aging, often dirty sedans piloted by big-city taxi drivers.

Regulatory and licensing agencies are dubious of Uber because direct commerce between buyer and seller cuts them out of the equation, which undermines Big Brother’s demand for control and insistence that the government regulatory power should be the ultimate arbiter of consumer choice. In some ways, this is a showdown between different business models, with new higher-tech companies pitted against older, slower players. Uber just wants to be left alone to supply customers who demand their services, but consumer demand won’t necessarily decide who comes out on top. Interests that are pressuring state and local bureaucracies to let some air out of Uber’s tires are asking regulatory authorities to take action to manipulate the market on their behalf, and it’s no surprise that bureaucrats are eager to maintain their own relevance.

Who wins this ride-sharing war has wider implications for what kind of nation America will be in the future because this is more than a saga of one start-up trying to claw its way forward in a competitive market. This is a test about whether competition is still the main factor that determines who succeeds and what behavior defines success in the modern economy. Will innovation and consumer demand be trumped by anticompetitive forces afraid of change? Rare’s special report “Capitalism on wheels” takes a look at different aspects of Uber, its feisty business model and challenges the company faces to beat the competition.

Written by Editor-in-Chief Brett M. Decker on behalf of the Rare Editorial Board. Follow him on Twitter @BrettMDecker

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