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Despite challenges, ride-sharing operations flourish

Taking off

Cities where ride-share companies have tangled with regulators, legislators and established taxi companies include:

Ann Arbor, Mich.

Chicago

Las Vegas

Los Angeles

Madison, Wis.

Miami

Memphis

New York City

Pittsburgh

San Antonio

Seattle

Washington

Saturday, July 12, 2014, 9:40 p.m.
 

Ride-share companies Uber and Lyft are outgrowing their upstart image.

Viewed by many as hip, grassroots ventures, the companies are worth billions from the hundreds of millions of dollars invested by venture capitalists and other investors. Those investors anticipate enormous potential for worldwide growth — not only in the $100 billion taxi and limo industry, but in other transportation and logistics markets and in the companies' huge user databases, observers say.

Web-based applications deliver everything from air conditioners to puppies in the way that Uber and Lyft deliver passengers. Uber has dabbled with boat rides in Boston and helicopter rides in New York.

“They seem up-and-coming, trendy and very grassroots, but make no mistake, they are more corporate than most people realize. They have a lot of financial backing, a lot of political clout and a great strategic plan,” said Audrey Guskey, associate professor of marketing at Duquesne University.

With so much at stake, a similar scene plays out in cities and states where ride-share companies start service, as San Francisco-based Lyft and Uber did this year in Pittsburgh.

There are battles with regulators, legislators and established taxi companies, in courts of law and public opinion. The companies continue operating even when slapped with cease-and-desist orders, citations and fines, as Lyft and Uber did in Pittsburgh when the state Public Utility Commission cited 22 drivers and levied a combined $225,000 in fines.

Boosters ranging from zealous drivers and riders to supportive politicians come to the companies' defense, arguing for economic opportunity, choice in the marketplace and innovation. They pan opponents as protectionists.

Taxi and limo company operators argue that the ride-shares should be subject to the same scrutiny, taxes and fees they bear.

“We support competition, just not the method that Uber and Lyft are using,” said Chuck Half, a manager at Pittsburgh's VETaxi, noting that parent company Star Transportation Group is assessed about $50,000 a year by the PUC to operate and pays other fees and taxes that ride-shares do not.

Enticing cities, consumers

Ride-share companies battle with each other. In some cities, they set up recruiting locations next to each other, trying to poach drivers when they sign with a competitor; enticements range from taco trucks to cash bonuses.

“Other progressive cities moving forward are doing this. We need to do this, too,” Allegheny County Executive Rich Fitzgerald said at a rally on Thursday outside the City-County Building, Downtown.

Fitzgerald was flanked by Pittsburgh Mayor Bill Peduto and state Sen. Wayne Fontana of Brookline, all Democrats; and state Reps. John Maher of Upper St. Clair and Mark Mustio of Moon, both Republicans.

“It's kind of an interesting pairing — progressive Democrats and free-market Republicans all coming together on the same issue about creating an opportunity,” Peduto said.

Mustio, an insurance broker for more than three decades, said he learned that his son drives for one of the companies — a discovery that “made the hair on the back of my neck raise” because of his questions about the companies' insurance coverage and whether personal insurance covers the nonprofessional drivers in the event of a crash.

He said he's pursuing regulations to address those concerns but otherwise supports the service.

Taylor Bennett, spokesman for Uber, said, “We've been working in good faith with regulators to modernize laws and to find a permanent home for Uber in cities around the world. We're confident in the end that consumer choice and competition will prevail. With options like Uber, riders win, drivers win and cities win.”

Lyft did not respond to messages from the Tribune-Review.

Enormous potential

There's no question the companies have big-money potential.

Uber CEO Travis Kalanick said last month that the company raised $1.2 billion from investors such as Fidelity Investments and Google Ventures. That upped its valuation to $18.2 billion.

Lyft, which got a $250 million infusion in April from investors including Chinese e-commerce giant Alibaba, is valued at more than $700 million, The Associated Press reported.

Aswath Damodaran, a New York University business professor who specializes in corporate finance and valuation, estimates Uber is on pace to collect about $1.5 billion in fares annually. Of that, the company would keep 20 percent, or about $300 million, and distribute the rest to drivers, he says.

Damodaran suspects Uber spends at least as much on marketing, deals to woo drivers and riders, and technology research and development.

That's not uncommon for tech start-ups, experts say. In the early going, popularity trumps profits.

“Early-stage companies are going to be continually losing money for a long period of time. That's why venture capitalists put money in. They hope their return will be on the upside in an acquisition down the road,” said Evan Facher, associate director of the University of Pittsburgh's Office of Enterprise Development.

“The name of the game is to get as many customers as humanly possible. If you have a massive amount of people stuck to the technology, there is intrinsic value to someone else in an acquisition. You're not only getting technology, you're also getting that user database,” Facher said.

Dave Mawhinney, co-director of the Carnegie Mellon University Center for Innovation and Entrepreneurship, added: “In the past, you had to build your own data and user center at significant cost. It took a lot of time. Cloud computing has changed that.”

Damodaran predicts Uber has potential to seize up to 10 percent of the $100 billion global taxi and limo market, which he anticipates will nearly double in size within a decade.

Drivers don't view things in global terms.

“This job has changed my life. It lets me be able to be a stay-at-home mom and make some money. I'm proud to wear the pink moustache, ” said Lyft driver Elizabeth Surmacz, 40, of Leetsdale, referring to the company's trademark.

When asked about the ongoing controversy, Surmacz said, “How do you stop an app?”

Tom Fontaine is a Trib Total Media staff writer. Reach him at 412-320-7847 or tfontaine@tribweb.com.

 

 

 
 


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