Uber: Silicon Valley App-Hailing Startup Takes On NYC Taxi Industry

San Francisco startup Uber's 'black-car' mobile app has been a big hit with riders and drivers. But the company is running into a snarl of traffic as it tries to extend its service to New York City taxi-cabs.

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Transportation is central to city life. The daily commute, getting around to meetings, heading out with friends. Urban-dwellers are always on the move — and often, the taxi, bus, or subway train can’t come fast enough. In 2012, several tech startups are trying to leverage the smartphone revolution to inject more efficiency and speed into the process of getting around big cities. In recent weeks, the tech-fueled transportation space has gained momentum, with competing services jockeying for position.

At the head of the pack is San Francisco-based startup Uber, which allows users to order so-called “black-cars” — high-end sedans, limousines and SUVs — from their smartphone. The mobile application, which is available on Apple’s iPhone and Google Android devices, displays the wait-time and shows the car’s progress on a GPS-enabled map. But as is often the case when insurgent market players attempt to disrupt entrenched industries, Uber has run into resistance, most recently in New York City, where the Taxi and Limousine Commission has put the kibosh on the company’s newest effort, to apply its service to traditional “yellow” taxi-cabs.

Uber is the best-known startup operating in this space. (Two weeks ago, we discussed one of Uber’s rivals Zimride’s Lyft ride-sharing service, which skirts San Francisco taxi regulations by connecting civilian drivers with riders on a voluntary-donation basis.) Uber’s black-car service is more expensive than Lyft, not only because its vehicles are considered “luxury cars,” but also because the company works with limousine companies that are certified by local authorities and have commercial insurance. (For its part, Lyft recently announced a $1 million supplemental insurance plan for drivers.)

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“We want to be everyone’s private driver,” says Ilya Abyzov, Uber’s San Francisco general manager. “You push a button and you get a ride. We’re reaching an inflection point where that’s feasible thanks to smartphones and GPS.” Abyzov says the average wait time in San Francisco — his domain — is three minutes, although there’s some “variability” at peak times of the day. Uber provides each driver a smartphone equipped with the company’s mobile application; that’s how the driver receives the pick-up request.

Abyzov says the company has a “science team” working on dispatch algorithms to produce a predictive heat-map that helps local car companies and their drivers better anticipate rider demand. “We’re helping our partners build successful small businesses,” said Abyzov, a 29-year-old Dartmouth computer science graduate who received an MBA from Stanford University’s Graduate School of Business this year.

Founded in 2009 by entrepreneurs Travis Kalanick and Garrett Camp, Uber, which has 100 employees, now operates its black-car service in several major cities, including San Francisco, New York, Los Angeles, Seattle, Chicago, Boston, Denver, Toronto, Paris, and London. Based in San Francisco, Uber has raised $49.5 million from some of the most prominent venture capitalists and investors in Silicon Valley, including First Round Capital, Benchmark Capital and Menlo Ventures.

Last December, Uber closed a “Series B” funding round that included none other than Amazon founder Jeff Bezos and Goldman Sachs. (It’s safe to say that when Jeff Bezos and Goldman Sachs get on board, you’re on to something.) One of Uber’s big admirers is Netscape co-founder and billionaire venture capitalist Marc Andreessen, who is not an investor in the company, but has described its service as “software eats taxis.”

Uber’s black-car service has been largely blessed by local regulators, but things have gotten much dicier now that the company is taking aim at the traditional taxi-cab market. Uber’s New York City yellow-cab service would extend its existing black-car model. Cab drivers are issued a smartphone with the company’s app, and users would order from their own device. Using GPS technology, the nearest taxi driver to the user is alerted, and then has a very brief time-window (15 seconds) to respond to the order, notifying the user that the cab is en route.

This could be a huge boon to consumers stranded in the outer boroughs of New York City, late at night, for example, with no cabs in sight. Instead of searching in vain on foot for a yellow-cab, the user could simply order a taxi using the Uber app on their smartphone, and the nearest driver would be in a position to quickly respond.

(MORE: Rental Nation)

Over the last few weeks, Uber has been mixing it up with New York City’s Taxi and Limousine Commission. In New York, as in many other markets, the car-for-hire industry is divided between black-car “livery” services, which address the pre-arranged transportation market but are prohibited from picking up on-the-street fares, and “yellow” taxi-cabs, which roam around the city picking up people on the street. (Earlier this year the T.L.C. passed new rules allowing livery cab street-pickups in some areas of the city. But last month, in a blow to the administration of New York City Mayor Michael Bloomberg, a state judge blocked that plan following a legal challenge by the yellow-cab industry.)

“Our black-car service is totally good with the T.L.C.,” Uber’s New York City general manager Josh Mohrer said in an interview. The company’s planned yellow-cab service? Not so much — at least not yet. In Uber’s vision, yellow-cabs, which possess those crucial and expensive T.L.C. “medallions,” would still maintain the exclusive right to pick up street-hails, but the company’s app would aid cab-drivers in finding fares, based on its demand-predicting software. In a recent interview with The New York Observer, Kalanick said that although the company’s New York City pricing scheme isn’t yet finalized, “what we would like to do is charge what’s on the meter plus gratuity and that’s it.”

Earlier this month, the T.L.C. issued a directive to New York City cab-drivers “reminding” them that the city “has NOT authorized any electronic hailing or payment applications (‘apps’) for use in New York City taxicabs.” According to the T.L.C., “current contractual agreements between the T.L.C. and payment processors restrict the use of apps.” The agency is referring to an exclusive contract the city has with in-taxi digital payment processor Verifone. (Uber’s payment model is credit card only, no cash.) However, the T.L.C. did say it plans “to quickly begin a rulemaking process that will permit broader use of apps when these contracts expire in February.”

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Undaunted, Kalanick and his company struck a deal with HBO, which is owned by TIME’s parent company, as part of the network’s promotion of the “Boardwalk Empire” season premiere, to offer free rides for two days last week in vintage autos from the 1920’s. (The tagline? “Uber is going Gangster in NYC!”) Sure, it was a publicity stunt, but in the face of the T.L.C. directive, such campaigns are designed to keep Uber in the public consciousness while the city gets its act together.

It’s hardly surprising that Uber has run into a snarl of traffic from New York’s Taxi and Limousine Commission, which, despite being fairly tech-savvy, is, after all, a big-city bureaucracy. The livery and taxi-cab industries exert powerful influence on the T.L.C., and needless to say, those entrenched market actors are not thrilled by the arrival on the scene of a San Francisco startup aiming to disrupt their businesses. Uber’s app-hailing service for a few hundred black-cars is one thing, but applying that model to New York’s City’s 13,000 taxi-cabs is something else altogether.

Earlier this month the Taxicab, Limousine & Paratransit Association, a global trade group, issued a strongly-worded statement declaring that Uber and similar app-hailing companies are “rogue services” that place passengers at risk “for personal safety, uninsured accident claims, fare gouging and other illegal activity.” Kalanick responded furiously in a statement to The Verge in which he branded the group’s statement as “propaganda generated by an entrenched incumbent adverse to technology, innovation and progress as it negatively affects the value of their business in favor of drivers and riders.”

If there’s one thing we’ve learned about technology, it’s that trying to stem the tide of innovation and progress is a Sisyphean task. In my opinion, app-hailing for yellow cabs is coming to New York City — it’s just a matter of time. Instead of issuing blustery statements, the taxi-cab industry should get ahead of this issue and figure out a way to work with Uber and similar services. And the T.L.C. should act promptly to establish a regulatory framework ensuring the safety of riders, and the protection of taxi-cab drivers. It’s time for the various parties to come together, using technology, to improve the urban automobile experience for the one constituency that ultimately matters most — consumers.