PIMPING YOUR RIDE: Uber...Brilliant Model or Just Breaking the Law?
Uber is the ride share service, and alternative to taxis and limousines, that’s taken the world by storm. Now five years old and operating in over 250 markets in 50 countries, Uber has raised about $2.7 billion on projected revenues of $10 billion, placing its valuation at over $40 billion.Â
But the company, and in particular, it’s business model and expansion strategy, are generating  uber-controversy. Â
Like many parents, I first heard of Uber from my teen-aged daughters. By that time, they’d both been using it for months.  Having hailed more than my fair share of New York City cabs (and telephoned to arrange many in cities where they’re not as prolific), I’m well versed in the pros of those that are well maintained, driven by seasoned pros, and available when you need them, and the cons of those that are not.  And, to be truthful, I’ve actually wondered why the industry got stuck in time. Â
Naturally, my initial response to Uber was concern for my daughters’ safety. But, as teen-agers are known to do, they assured me that Uber rides are perfectly safe. Â
By leveraging wasteful idle resources and technological efficiencies, Uber coats itself in a deliciously trendy blend of kumbaya meets concierge, not unlike what AirBNB and VRBO are doing in the vacation rental space. Â
Moreover, Uber provides hard working Americans, burdened by stagnant wages, with a wonderful opportunity to earn extra cash as drivers, making it the virtual poster child for our current infatuation with businesses that “do the right thing.” Â
And, let’s face it, we’ve all grown immune to that certain level of risk we know good and well is inherent in our kids’ use of social media, not to mention our own use of online banking and other convenience technologies.   What choice do we have? Who wants to be the slow, stogy dinosaur?Â
Not me. Not to mention the fact that I’ve never been completely comfortable with my girls riding in taxi cabs anyway.
So I ignored my gut and went with popular opinion, admiring the many virtues of Uber.
It wasn’t until the subject came up again, over Thanksgiving dinner, that I even thought twice.Â
This time, my cousin, whose teen-aged daughter recently began user Uber at boarding school, was asking her kid the exact same questions and getting the exact same, eternally optimistic, teen-ager answers.  It occurred to me that maybe my parental concerns about Uber were more than the usual paranoia. And that I was probably not the only parent who was, perhaps wrongly, assuming someone else had vetted Uber before all our kids began hopping into strangers’ cars. Â
So I asked my own kids to take an Uber time-out while I investigated a few things.
Risky Business: As it turns out, there are safety issues with Uber, as there are with taxis and other public transportation.  And there is a problem with our collective willingness to blindlyignore instinct,endorsing trendy concepts of the Uber genre. But,truthfully, that’s not what surprised me. Â
Instead, I was amazed at Uber investors’ eagerness to support such a risky business and expansion model. The fact is, that Uber’s entire lightning speed, first-to-market-in-every-market growth is largely based on ignoring the law. If Uber really is the way of the future, boy, are we in trouble.
Having practiced business and real estate transactional law for almost three decades, I’ve built a lucrative career on investors’ concern for comprehensive M&A due diligence, a large portion of which revolves around risk-assessment, the largest portion of which oftentimes consists of carefully confirming a company’s regulatory and legal compliance. Businesses, products, and services that don’t comport with the law are, obviously, higher risk and investors, as one would logically presume, have historically shied away from such deals (or priced them at a significant premium).Â
And then there’s Uber, implementing a deliberate strategy for the sake of rapid expansion, of breaking local laws until stopped, rather than taking the time to first assure compliance. Essentially pimping rides, brazenly shirking responsibility for the consequences, and opening in cities, right and left, knowing good and well that they’re doing so inclear violation. Â
Think Shark Tank. What would Mark Cuban do if an entrepreneur contestant gladly admitted that his company was breaking the law in most of its markets?  And there’s no question that Mark would not be the only Shark to quickly say “I’m out.”
State and local governments regulate taxis, limos, and other transportation providers for good reason. While some laws can be attributed to politics, the need for government budget revenue, or private interests protecting their turf (for example, minimum number of hours rides and advance reservation times in places like Miami and Las Vegas) the lion’s share exist primarily to protect passengers and the general public, aka, us.
As such, cars and drivers alike are subject to a litany of state and local initial, as well as on-going, inspection and licensing requirements, typically beginning with driver background checks performed by well qualified, disinterested, not-profit-driven, government service providers. I do not believe that anyone without a personal agenda otherwise, in what has now become the great Uber debate, questions the merits of regulating transportation providers in this manner as a long-time, proven method for assuring safety.
Uber’s position, that it is a technology company,merely connecting drivers with passengers and, as such, not subject to laws applying to transportation companies, conveniently ignores both reality and our safety.  By taking this position, Uber is simply being capitalist at all cost. No big surprise there. But it’s investors are choosing to ignore significant inherent risks and that speaks volumes about today’s investment culture.
Uber investors, including Goldman Sachs, Baidu, New Enterprise Associates, Menlo Ventures, and Qatar Investment Authority , reflect Wall Street’s (or Palo Alto’s)  willingness to bet on law breakers, against local policy makers and law enforcement, and against the better interest of the general public who just so happen to also be Uber customers.
That’s a significant potential double whammy, first betting that laws will not be enforced and then that we, the general public and Uber’s customers, will not catch on to or care about what’s hiding behind the proverbial uber- curtain. To be more specific, Uber’s strategy of deliberately challenging and then fighting state and local government in market after market is more akin to a sleazy political campaign than a prudent business startegy, leveraging well-known lobbyists and misinformed public sentiment.
All Politics Are Local: Take, for example,  Uber’s current battle in Broward County, Florida, where I recently found myself on the receiving end of series of a pro-Uber advocacy campaign emails, not unlike those presumably being launched in countless markets as we speak:
“Hey Shari, The Broward County Commission recently sent Uber a cease and desist letter. We wanted to let you know that Uber will operate as usual, and we plan to continue to provide Uber users like you with access to safe, affordable and reliable rides…”
“…Broward County should stand for innovation, consumer choice and job growth. If you want continued access to the safest and most affordable rides on the road, email and call the Commission and tell them that #BrowardNeedsUber.”
“Hey Shari, We wanted to provide you with a quick update on Uber in Broward County. We’re continuing to educate the County Commissioners on the need for safe, affordable rides for Uber users like you, and last week’s workshop with the Commissioners was a step in the right direction. However, on Tuesday, the County Commission will be taking a vote that could prevent you from accessing the Uber you know and love. That’s why Broward County Commissioners need to see and hear from you! Here are two ways you can help: Join us at Tuesday’s hearing. You’ll have an opportunity to share how you rely on Uber to move around affordably and conveniently, and to ask the Commissioners to ensure you can continue accessing safe, reliable rides. Email and call your Board of Commissioners today! Tell them why removing access to safe rides in Broward County would be detrimental to you.”
God knows, I’m all for advocacy.  And I actually  believe that the fundamental Uber concept is brilliant and a long time coming.   The traditional taxi model’s become absurd. Who in their right mind would continue simply driving around, hoping to cross paths with a pedestrian needing a ride, when there’s an infinitely better, accessible technological solution?Â
The problem I have with Uber is two-fold:
First, even after receiving a cease and desist letter, the company publically announces that it will ignore law enforcement and continue “operating as usual.” Translation:  Your local government, whose job it is to protect you, is concerned about your safety with the manner in which we’re operating our business, but we are going to ignore the law and their concern so that we can capture this market and generate a profit. Moreover, the entire process of our contesting your local law is going to be paid for at your expense, with your local tax dollars and resources, which presumably are needed and could, but for Uber, be well invested elsewhere.
Second, I’m a tad offended by the repeat claims to be, not only “safe” and “affordable,” but the safest and most affordable. Uber safety is the very issue now being hotly contested in virtually every market in which Uber operates around the world and is, in fact, at the very heart of our state and local governments’ concerns. In fact, the company’s own seemingly disparate position begs the question: If Uber truly aims to be the safest, why has the company consistently refused to comply with state and local laws designed to assure safety?Â
To the contrary, Uber repeatedly backs legislation, most recently in Colorado, Illinois, and California, aimed at loosening requirements.  Moreover, in light of the number of serious criminal allegations by Uber’s passengers against its drivers, any claim to be the safest is, at best, questionable and misleading. In fact, Uber has actually been accused of giving customers a false sense of security following allegations of falsely advertising background checks performed in connection with a $1 “Safe Rider Fee” and referring to its background checks as “industry-leading.” Â
Uber’s pricing,which is arguably not as transparent as a taxi’s meter or a limo’s hourly rate, has, likewise, not been without issues.  Uber reportedly uses a blend of time and distance, pumping up the price during peak demand hours. The company has been accused of illegally charging fraudulent “airport fees” and calculating rates in violation of state law. Moreover, a part-time Uber driver may not have the road and area knowledge that a full time taxi or limo driver would. Meaning that passengers may be taken on longer routes or stuck in avoidable traffic, likewise translating to higher fees.
As an aside, I find Uber’s reference to “consumer choice,” amusing given that its rapid growth is intended to minimize competitor access to marketplaces, essentially eliminating consumer choice. This is not unlike strategies we see from Google, Apple, Microsoft and a host of other companies, and a concept we’ve of course come to tolerate as consumers and, as shareholders, admire.
The bottom line is that Uber is very effectively taking advantage of a few of the cracks in the shell of contemporary human nature. Namely, we’re willing to overlook risk for the sake of convenience and assume that someone else is watching out for us because we simply lack the time to investigate even the most nagging concerns for ourselves.
The Facts: When it comes to Uber’s actual safety and affordability, here are a few of the more salient facts,you may not otherwise be aware of, from someone who has now taken the time to vet them:
When you sign up for the Uber app you sign an agreement in which you acknowledge that Uber is a technology company, not a transportation company, and waiveliability that Uber might otherwise have.
The company takes several measures to protect passengers. For example:
Uber conducts a three step criminal background check on drivers, seven year history in every county in which a driver reports having resided, seven years (or as far back as the law will allow) at the Federal and multi-state level, a national sex offender registry check, a lifetime social security trace, a motor vehicle records history and then on-going reviews of DMV records.Â
Company policy prohibits drivers with a DUI, drug violation or severe infraction or with any history of a hit and run, fatal accident, Â reckless driving, violent crime, sexual offense, gun-related offense, resisting or evading arrest, driving without insurance, or a suspended license within the past three years.Â
Of course the company has insurance requirements and requires relatively new cars (the average age of an Uber car is five years and cars older than tenyears are not allowed).
And drivers need to maintain a minimum Uber passenger rating, a somewhat mercurial, but potentially improvable process which should certainly not be relied on in entirety.
Notwithstanding Uber’s presumably sincere efforts, noteworthy problems persist. For example, unlike the due diligence state and local regulations, Uber’s background checks are performed by private, for profit companies who, along with Uber itself, have an undeniable financial incentive to keepthe time and costs to a minimum. In fact, Uber background checks have been reported to require an average of days (Uber uses a private company called Hirease with an average turn-around time of 36 hours), while allegedly more thorough government checks, which include finger prints and private government databases such as FBI records, take weeks. Â
Moreover, Uber background checks are based on information self-reported by the driver’s themselves and publicly available information. And because Uber follows its’ own policies, not state and local law, the company can unilaterally change those policies at any time, without notifying anyone.Â
Perhaps the most salient fact is that there have been multiple rape and assault accusations againstUber drivers, including in Washington DC, San Francisco and New Delhi. There’s no doubt that bad things happen in taxis too. But, in at least some of those instances, the Uber drivers had prior convictions, in violation of Uber’s own policies, which would have been detected by government background checks. Â
As a result, Uber was banned in New Delhi and faces similar challenges in Germany, Spain, France, Thailand, and the Netherlands as well as in several U.S. cities, counties and states including San Francisco, Los Angeles, Portland, Palm Beach and Nevada.
Unlike taxi drivers, Uber drivers have your first and last name and cell phone number. In scenarios reminiscent of scary stalker movies, complaints have been raised against Uber drivers forinappropriately contacting passengers after their rides.
Not insignificant is that fact that, if you have a problem with a taxi driver, the company telephone number is posted right in plain day light. But with Uber, everything’s done online with no real person to talk to right away should the need arise.  How can that possibly be the safest way to operate from a passenger perspective?
And then there are safety issues for third parties including other drivers and pedestrians. For example an Uber driver hit and killed a six year old earlier this year. Again, there’s no question that taxi and limo drivers presumably confront similar tragedies.
Uber is facing a secondary set of safety issues as approved drivers pass on jobs to drivers who aren’t even registered with Uber. And drivers circumvent Uber altogether, simply posting an Uber sign in their car window as passengers, naturally assuming they have been Uber approved, flag them down for rides.Â
Needless to say, I’ve had a comprehensive Uber-safety talk with both of my daughters, as I suggest all parents do. And I’ve reported some Uber safety tips here http://youtu.be/Ifu8iSot35s
Whether you choose to call Uber and its competitors, including Lyft and Sidecar, technology or a transportation companies, simply assuming that they are safe is a mistake.  As for Uber investors, fasten your seatbelts. You’re in for a bumpy ride.Â