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Licensed car-service apps challenge Uber’s dominance

Carmel Limousine is the first app-based car service to be legally licensed, having launched in St. Louis after being approved and regulated by the municipality. By working within the system, Carmel may be able to compete with Uber and Lyft as the company builds trust with consumers.

“The app-based car services need to meet the baseline existing requirements in the vehicle-for-hire industry,” said Mack McKelvey, CEO and managing partner at SalientMG, Maryland. “That being said, it’s in the government’s best interest to learn from and even work with these companies as well and be willing to embrace change given that the change, in this case, provides clear consumer benefit.

“Many of the current regulations focus on background checks for drivers, insurance, rates and tips disclosure, consumer protection, etc.,” she said. “These are all important matters, and while specific additional regulations may exist city to city or state to state, as long as the consumer is at the center of the regulation, it’s difficult to argue that any company should bypass these issues.

“As far as pricing restrictions, which has been called into question as of late, I believe pricing should be left to the individual company to determine.  The government mandating pricing in a free-market system is a slippery slope.”

With the law
The taxi industry is nothing new and as such, has many existing regulations. Drivers need to be licensed, and cars need to comply with regulations.

With an increase in taxi alternative startups that let consumers hail a cab via an app, these regulations are coming into question.

Controversy erupted when an Uber driver was sued after a 6-year-old girl was killed on New Year’s Eve in San Francisco. The company claimed it was not responsible since the driver was not providing Uber service at the time of the accident, but this issue called into question the legality of apps such as Uber.

A number of cities, including Chicago, Seattle and Nashville, have since been discussing how to regulate these ride-sharing apps. Colorado, California and Georgia have even pushed forward state laws.

However, as these cities and states push back, consumers are still showing a demand for the services. The price, reliability or convenience are enough of an incentive.

“Consumers continue to vote with their usage of the services,” Ms. McKelvey said. “Even with continued pushback from the various city or state organizations representing the various taxi companies, consumers have embraced the concept of on-demand car transportation and seamless payment.”

App regulation
St. Louis has taken a different approach with the St. Louis Taxicab Commission creating the first-ever app license, which companies can apply for to get approval of an on-demand transportation app.

Carmel Limousine is the first company to take advantage of this license, becoming the first regulated app-based car service.

“I think it’s cool and fun to be unregulated until somebody gets hurt,” said Avik Kabessa, CEO of Carmel Limousine, New York. “When we reach out to a city, we like to know that the passengers and the riding public is being serviced by drivers and vehicles that are licensed, so naturally we go to check the local laws of the local government and they vary from state to state, from city to city.

“I don’t believe in the ‘trust me’ concept,” he said. “I think that some kind of permit, license, accountability needs to exist. And I was very happy that in St. Louis they were just ahead of the curve with a lot of municipalities. A lot of others will follow.”

Mr. Kabessa is looking forward to other cities following in St. Louis’ path so that Carmel can continue working with city and state legislation and regulation.

“We hope that other municipalities will follow what St. Louis did,” he said. “If only just to make sure that there will be clear cut as to what’s the status of an app in a city because things are going to happen, accidents are going to happen, and then lawyers are going to jump in, and only then people will try to find who is who and what is what. Let’s save this time and try to find it in advance.”

As Carmel continues to work with the law, apps such as Uber are independently offering services to consumers. Complying with regulations does not seem to be a priority for these companies.

For one, complying with regulations may increase costs for these companies. However, this should not be a huge obstacle for Uber and Lyft-like companies.

“Normal run-of-the-mill regulations do usually increase costs, but these services command a premium anyway, so my bet is they can absorb such cost increases if they materialize,” said Brennan Hayden, executive vice president and chief operating officer of WDA and vice president of mobile at [x+1], East Lansing, MI.

More likely, these companies are new and exciting. They operate in an app world that goes beyond the taxi world that Carmel entered thirty years ago.

“Many of these app-based ridesharing services have had legal difficulties as they’ve grown and entered new markets,” said Sian Rowlands, analyst at Juniper Research, Hampshire, England. “They’re disrupting an industry which is highly regulated, and their success means that some of the market incumbents are questioning their business models and legal status.

“However, many of these app-based ride-sharing services do not class themselves as taxi companies, but instead as a technology company, which connect the app user to a nearby taxi,” he said. “This means that they are not required – at present – to purchase taxi medallions, or to serve all parts of a city, and can set their own fares.

“Many states, governments and law-markers are still figuring out what this means for their legislation. California was one of the first states to provide a regulatory framework, which classes these companies as ‘transportation network companies’.”

Uber, Lyft and Sidecar all claim that they comply with California rules.

While Carmel is working hard to comply with regulations, it still may not be enough to compete with the shiny new options.

“J. Paul Getty, who made billions supplying oil to the automotive industry when it first started, made this observation: ‘In times of rapid change, experience could be your worst enemy,’” WDA’s Mr. Hayden said. “It’s technology that will win this game, not prior experience or current market position.”

Carmel may have been around longer and may seem to be the more trustworthy option, but Uber seems to be able to overcome that claim to fame.

“Uber has done a tremendous job of building buzz and creating a brand for themselves, and I think they are definitely the front-runner to lead this market,” SalientMG’s Ms. McKelvey said.

“The mobile industry changes quickly though, so it is still too early to determine a winner,” she said. “And again, it’s not up to the industry — it’s up to the consumer.”

Final Take
Rebecca Borison is editorial assistant on Mobile Commerce Daily, New York