Uber's taxi offensive here to stay

Hire car app Uber has picked a fight with Australia’s taxi industry, but the real war is with the nation’s business culture.

Four years ago, collaborative consumption was all the rage. Services like Uber, Air BnB and the Australian sharing service Rentoid were making the news as these services promised to disrupt existing industries and change the way we live.

One of the most passionate advocates for the sharing economy was, and remains, Australian Rachel Botsman, who told a 2010 TED talk: “I really believe it can disrupt outdated modes of business, help us leapfrog over wasteful forms of hyper-consumption and teach us when enough really is enough.”

While the era of hyper-consumption is still with us, outdated forms of business are feeling the effects of disruption as technology changes distribution and production methods.

The immediate effect of upstart businesses challenging the status quo is also being felt by regulators struggling to shoehorn the new enterprises into regulatory structures that were developed, at best, in the middle of last century.

Accommodation sharing service AirBnB has been the poster child of the collaborative consumption community as households around the world share their spare rooms and swap properties while on vacation. It was inevitable however that as services like AirBnB became more popular they would attract the ire of the industry incumbents and regulators.

AirBnB’s greatest problem is in New York where the state’s Attorney-General is trying to force the service to turn over details of landlords who are breaking the state’s housing laws on short-term rentals.

Even in San Francisco, AirBnB’s home city, local residents angry at finding themselves next door to unofficial hotels are agitating for propositions that will restrict the practice. One particularly harsh proposal suggests bounties to residents that report illegal rentals.

These problems are not unique to San Francisco and New York. Similar letting laws apply in Australia, most notably in Byron Bay where the local council is taking a draconian line on holiday rentals, while residents of Bondi Beach and Melbourne’s Docklands know too well the pain of living next door to unofficial hostels and hotels.

It was the taxi industry though that was always going to be the toughest challenge for the collaborative consumption movement, with the sector around the world renowned for corrupt practices and regulatory capture.

Hire car sharing service Uber triggered that disruption by using limousine services instead of licensed taxis, niftily skirting the rules on taking passenger fares. So far more than 15 US cities have taken action against the service and its copycats, while regulators from Paris to Melbourne have been watching very closely how the service is disrupting the cosy local industry.

The next step for Uber was to disrupt the hire car service industry as well by moving to a genuinely collaborative consumption model of allowing private car drivers to take fares. This was always going to be a risky move as the intention, if not the practice, of taxi industry regulations around the world is to protect both drivers and passengers.

Curiously, Uber chose Sydney as one of the first places to roll out the ride sharing service and to pick a fight against a government that’s been remarkably supportive of transport and taxi apps since being elected two years ago. Uber probably won’t win that fight -- the risks to private drivers and their passengers are real -- but it has exposed widespread dissatisfaction with the current industry.

The protests from the New South Wales transport minister and bureaucrats arguing that taxi regulations protect passengers brings a wry smile from Sydney taxi users who’ve long become accustomed to rides in clunky, ill-maintained vehicles, often driven by people with no knowledge of the city’s suburbs.

But poor service from cab companies isn’t a problem confined to Sydney. Australia’s taxi industry is deeply dysfunctional; its drivers treated like feudal serfs and passengers like cattle, while middle-men such as license plate holders and Cabcharge add little value while profiting from some of the world’s highest cab fares.

In defence of the taxi industry it should be noted that Uber isn’t exactly enlightened in its treatment of drivers and passengers either. Insurance is the drivers’ problem and the standard Silicon Valley disregard for customer service pervades most of these disruptive start-ups.

The taxi industry is not alone in finding its cosy arrangements being disrupted, with the pattern being repeated across various sectors as technology reduces the barriers of entry for newcomers.

Australia made the decision to move to a service economy in the 1980s, having decided that being a country that makes things was a little bit too hard. The assumption was that service industries had built-in protection from more efficient global competitors.

This allowed inefficient domestic incumbents to prosper, Cabcharge being a very good example of a cosy lurk that profited a small group of well connected business people while pushing costs onto the wider economy.

With the arrival of the internet that changed, and now outsourcing services like Elance, oDesk and Freelancer are taking many of the jobs our 1980s leaders thought were untouchable (Move over Freelancer, Elance-oDesk has landed, May 1).

Now AirBnB and Uber are showing that domestic incumbents are no longer able to hide behind a barrier of local protectionism as the internet brings the forces of globalisation into every lounge room.

All of which makes yesterday’s Commission of Audit report so bizarre: at the very time Australian workers and industry are most exposed to global competition, the old white men so trusted by the nation’s political leaders propose cutting education and training while quarantining pensions until the baby boomers are all safely retired.

Reading that report, it’s hard not to come to the conclusion that the vision of the report’s authors is that Australia will be a massive, foreign-owned quarry with a few retirement homes clinging to the nice bits of the East Coast.

That’s unlikely to happen though as the 1980s business and revenue models underpinning the Commission of Audit won’t exist by the end of the next decade; the comfortable assumptions of today’s leaders are being disrupted by a younger generation of business people.

It isn’t just the old men’s assumptions though that are being challenged; in her TED talk, Botsman proposed that the new age of collaborative consumption would see the end of the middleman, too.

“What's happening is the Internet is removing the middleman, so that anyone from a T-shirt designer to a knitter can make a living selling peer-to-peer.”

That dream turned out not to be so, as new middleman have emerged; instead of Myer we now have Amazon and very soon Cabcharge could be replaced by Uber. Rather than well connected locals clipping the tickets of hapless consumers, the middlemen are now technologists sitting in San Francisco and Seattle.

For Australia, being the lucky country in the 21st Century will lie in adding value in a global economy where simply relying on a captive domestic market just won’t work. That’s Uber’s real warning.