The Rise of Ridesharing

In part two of our Intro to Ridesharing series, Zachary Pyers and Kenton Steele discuss the historical events and regulatory factors that have fueled the incredible rise in popularity of ridesharing services like Uber and Lyft.

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Transcript

ZBP

            Welcome to the Reminger Report Podcast on Emerging Technologies.  Reminger Co., L.P.A. is a full-service law firm with over 150 lawyers spread across 14 offices and serving states throughout the Midwest.  My name is Zach Pyers, and I’m a partner here in the Columbus, Ohio office of Reminger.  I’m also an adjunct faculty at Capital University Las School where I teach a number of litigation-focused courses.  The most recent addition to the curriculum that I teach is a course on Ridesharing Law and Litigation, and I also happen to be one of the co-authors of a book published by the American Bar Association called Ridesharing Law and Liability.

KHS

            And I’m Kenton Steele, an associate in Reminger’s Columbus, Ohio office.  In addition to my work in civil litigation on the defense side, I am also an adjunct faculty member at the Capital University School of Law, teaching a course in ridesharing litigation, and I am one of Zach’s co-authors on the ABA book on ridesharing that he mentioned.

ZBP

            This podcast on emerging technologies will examine how changes in technology and business models affect our daily lives and how the law is adapting to respond to these changes.  Exponential technological advances in the last two decades have transformed how we travel, how we do business and how we communicate.  Nearly every part of our daily lives are evolving and changing to incorporate the benefits offered by these new technologies, and while in many ways these new technologies offer convenience, they also create some uncertainty.  For instance, how does using an in-home smart speaker impact one’s privacy rights?  Are ridesharing services safe?  Who is responsible if I buy a defective product from an online vendor?  Are cryptocurrencies the wave of the future or a passing fad?  This podcast will explore these questions and others related to emerging technologies and will offer insight into how the law is responding to these new issues arising in our increasingly technologically advanced world.

KHS

            On today’s podcast, we’ll be continuing our discussion on ridesharing, and while most of us are familiar with ridesharing to some degree or another, in this podcast, we’ll be taking an in-depth look into some of the origins of ridesharing and how we got to where we are today where ridesharing is really ubiquitous.  It’s something that touches on almost everyone’s lives, so we’ll be discussing how we went from ridesharing companies being small tech startups in Silicon Valley to being something that really dominates transportation services here in the U.S. and throughout the world.  On that point, Zach, can you tell us a little bit about this rise in popularity that ridesharing has undergone?

ZBP

            Sure.  So, one of the things that we’re going to kind of look at today is, as we talk about ridesharing and the rise of popularity, we’re first going to start looking kind of from a historical perspective, not just as ridesharing companies as we know and speak about them today, right, when we talk about the Lyfts and the Ubers of the world.  And I will say, for some of our previous listeners, you’ve heard us also use the term “transportation network companies,” which is oftentimes the legal definition or term that is most frequently used for these companies, but we’re also going to look kind of from a historical perspective on modern ridesharing and how it really got started.  And so, that’s going to be kind of one of the deep dives, and then we’re going to kind of talk about the explosion, right, of ridesharing and with the revenue that’s been generated, not necessarily from a forecasting perspective moving forward but from a historical perspective when we look at the significance of it, and we’re also going to look at some of the impacts that are discussed.  For example, like lower vehicle ownership, the regulatory issues that face ridesharing companies vs. taxis.  We’re going to talk about the data that a lot of these ridesharing companies are leveraging because a lot of this data comes from the fact that these are tech startups and they are utilizing smartphone data, and like most companies these day and age, are collecting a lot of data, right.  And so we’re going to talk about the low barriers to entry and the popularity, and we’re going to talk about the impact the popularity of these ridesharing companies has had in the broader transportation issues, such as lower drunk driving rates, mortality, and congestion in larger cities.  I know that’s a lot to take in, but as we kind of dive in, I think it’s helpful for us start to talk about really kind of the ridesharing companies from a historical perspective - when did we start kind of exploring ridesharing?  Now, I grew up in a car family, and so it is no secret that, to me at least, that America has a love affair with the automobile. It’s not surprising to most of us that Americans love their cars, and so when we look back to when ridesharing actually kind of started, and I started doing historical research, it actually kind of surprised me that ridesharing started first and foremost with the Model T.  Now, I know this is going to sound strange for some people.  Some people listening to this podcast may say “I’m not even familiar with what Zach is talking about.”  The Model T was Henry Ford’s first really commercially successful vehicle, and frankly, a lot of people have attributed or argued that but for the Model T, we may or may not have modern automobiles as we know them today.  So a lot of people know Henry Ford, the Ford company, and they’ve talked about if the Model T was originally, kind of, was revolutionized the industry because it was made on the assembly line.  Now I’m not going to go through, you know, historical examination of the Industrial Revolution and the use of the assembly line, but what happened was, these automobiles, with the use of the assembly line, were made much cheaper, and they were able to be sold to kind of the average person.  And so what we saw in the early 1900s, the first Model T was offered, I believe, in 1908, is we saw these cars being able to be sold to the average family, whereas most of the automobiles that were offered pre-1908 were mostly so expensive that they could only be, they were more of a luxury or a toy than they were actually for serious mode of transportation.  And so from 1914 to 1918, we see this period where some Model Ts were actually being operated on trolley-track-type lines, and they were actually being operated kind of as a mode of transportation that the idea was that they would ride along in similar space, but the benefit to them was that they would actually be one-and-a-half to two times faster than a lot of the public transportation currently available, and so, people, and I’m sure this probably comes as no surprise to a lot of people, they didn’t have the same sort of safety regulations 100-plus years ago that we have today.  Model Ts don’t have seatbelts.  They do have running boards and they do have places in the back, and so it wasn’t uncommon in that day and age to actually have people jumping on and off the running boards of these vehicles as they were traveling from Point A to Point B, and so, while they were quicker and sometimes more convenient, they necessarily weren’t super-safe, and so we see this period from 1914 to 1918 where they really seem to be, and it was called the “Jitney Craze Period.”  And I don’t know the historical context of it, but that was what it was often kind of referred to as, and so we see this use of the ridesharing company, but as a lot of people know, with the entrance into World War I, we see it kind of die out.  

Now the next time we see kind of ridesharing come up is really around World War II, and what happened in World War II was not necessarily ridesharing as you and I think about it today where a certain ridesharing company is matching drivers and riders, but what we see as a push to actually share a ride, right, carpooling, which is essentially the original version of ridesharing.  And so a lot of advertisements along back then were a push for Americans to make a wartime effort to conserve gasoline.  They needed to conserve resources because those resources needed to be used to fight the war, and so what we saw is we saw a lot of advertisements where they would say that if you’re riding alone, you ride with Hitler, and these type of advertisements were put up and were broadcast across the American airwaves and in newspapers and on billboards where they were encouraging people to carpool to work, to the grocery store and to run errands to try to save and preserve the resources we have.  And so again, there was a big push to utilize this kind of ridesharing between neighbors and between coworkers, and again, we saw a lot of this die down post-World War II, especially with the boom in the economy that came post-war and kind of a lot of the boom in the middle class and in the suburbs.  

As people spread out, ridesharing and carpooling was just not as convenient.  Now again, we see another rise in the 1970s with the energy crisis.  As we saw gas prices skyrocket and oil embargos, we again see another great national interest in ridesharing, and people are trying to take advantage of that.  And so when I define ridesharing in this historical context, pre-2006, what I’m really talking about is ridesharing in the context of carpooling, and so we have seen that be utilized as a really kind of historical framework for what we kind of get to ridesharing today.  

Now when we talk about ridesharing today and we talk about some of the reasons why it’s exploding and it’s benefiting is, there’s really two big issues that people are looking at, right.  One of them is efficiency, and one of them is equity, and so one of the things that a lot of people talk about as to ridesharing is the efficiency of ridesharing.  The concept is that it’s more efficient both economically and from a time perspective to operate or to participate in the ridesharing platforms.  The other kind of driving concept is that it also is kind of a more equitable situation, meaning it, hopefully, and there’s not a lot of studies that have been done to this, but it hopes to lower the entrance, right, to some of the mobility issues that have prevented some people from being able to physically move or access other areas.  This could be something as simple as getting to work when you don’t have a car or taking your child to the doctor when you don’t have a car, where utilizing public transportation, which may not be stellar in your area, may otherwise be prohibitive.  And so those are two of the big areas that they have been pushing to kind of increase the use of ridesharing in certain areas.  Now we talk about the prevalence of modern-day ridesharing, so post-2006, when we started to really see the explosion of ridesharing companies.  The average number, and this is pre-COVID, right, so when we talk about this, I want to explain because we’ll talk about the impacts of COVID later, but we talk about the prevalence of ridesharing.  At one point in time pre-COVID, there were over 15,000,000 daily Uber trips a day.  The percentage of U.S. Android devices with Uber app installed were over 21.  Now, they talked about Uber’s penetration of the U.S. ridesharing market in 2017, and it was 85%.  Now, the other major portion of that was Lyft.  Now, and I’ve said this before, Kenton and I are both U.S.-based, and so most of our statistics and discussion will be on U.S. ridesharing companies and technologies, but we’ll, of course, examine and talk about them on a more global perspective, but Uber and Lyft are both operating globally, and that doesn’t mean they’re operating in every country, but they do have a significant market presence abroad, and so that really can’t be overlooked.  So when we look at Uber in 2017 from a historical pre-COVID perspective, they had over 4 billion rides, and that’s billion with a “b,” in 2017, so we see a very large presence in the use of this ridesharing company.

KHS

            In looking at what led to that incredible rise in how prevalent ridesharing companies became, you touched on a couple of different factors that maybe you can speak a little bit more about.  One of them was lower rates of vehicle ownership.   How does that impact the way that we’ve seen ridesharing become more popular and more prevalent?

ZBP

            Yeah, so I think one of the things that we’ve seen is with a demographic shift, and again, when I’m talking about a lot of this stuff, I’m talking largely pre-COVID.  And the reason why I’m saying that is because, and we’ll talk about the current impacts of COVID on ridesharing in one of our later episodes, but what we’ve seen when we look pre-COVID is, we’ve seen kind of a demographic shift away from some of the suburbs, not entirely, but more towards kind of the urban center core of a lot of major cities.  And so what’s happened is that a lot of people are starting to recognize that if there are two people in the household, two adults in the household, maybe both adults don’t need their own individual car, right.  And so in order to have some level of independence, they really only may need one car, right, for the family or for the couple or the pair, maybe they really now only need one.  And so what we’re starting to see, not only those individuals that live in major urban areas, but we’re just starting to see people to use Uber or Lyft or other ridesharing companies or apps as a major source of commuting.  And so instead of paying for parking, paying $10.00 for parking every day and driving your car into and out of the city, maybe you’re paying $10.00 to have a ridesharing company drop you off, and so instead of paying for that parking, now you’re just spending the money on the ridesharing.  And so we’ve started to see these kind of shifts in certain areas where there’s, it’s just driving down vehicle ownership.  The other thing that it’s doing, frankly, in a lot of times, is it’s driving down the rate of 16-year-olds who are getting their driver’s license, and so we’ve started to see that people are getting their driver’s license later in age because they have other forms of mobility despite the fact that 16-year-olds are traditionally supposed to be operating ridesharing companies when they’re unaccompanied by an adult.

KHS

            One of the other issues that you mentioned as something that made it easy for ridesharing to proliferate throughout the U.S. so quickly was that ridesharing companies didn’t face the same regulatory hurdles that taxis and traditional car services operated under.  Can you tell us more about how that difference in the way these companies were regulated impacted the popularity and the rise of ridesharing?

ZBP

            Absolutely.  So you’re totally right that most of them, the vast majority of the states, regulate these under a totally separate regulatory scheme, and so what we saw with a lot of these states, not all of them, but with a lot of them is that these ridesharing companies often beat the states into the marketplace, meaning before the states could actually regulate them.  And so in many of these areas, these ridesharing companies were actually operating before the states could start regulating them, and so what happened is, they said we’re not taxicab companies so we’re not going to apply under the taxicab standards, we’re just going to go ahead and operate.  And so what we saw is the states playing catchup to regulate them, and I’ve talked about this before, and we’ll talk about and we’ll discuss it again I’m sure, the regulations in much more specific detail, but what’s happened in a lot of situations is the ridesharing companies kind of negotiated, right, with the regulators to, not in all situations, but to find a workable solution so that they could continue operate in a manner that didn’t significantly alter their business model.  And so they have expanded quickly because, frankly, some of the taxicab company operations are, (1) they’re old, right, and they are very stringent in many, many jurisdictions, and frankly, to get a taxicab medallion or to become a taxicab driver is just not as easy as it is to apply for and driver for Uber or Lyft.

KHS

            And it certainly makes sense that pairing the last two points, the lower vehicle ownership and the difference in regulatory hurdles, it certainly seems that there would be a demand for ridesharing where once people were used to having it operate in their live, they’d be reluctant to have that taken away, which I’m sure impacted the way those regulations came into place after ridesharing companies were already in place.  One of the other things that you touched on, though, is that ridesharing companies as tech startups have made use of the, I’ll use the term people throw around a lot here, “big data,” to leverage their businesses and make them more effective.  How did that use of smartphone data impact the popularity of ridesharing?

ZBP

            Yeah, so I mean it’s no secret, right, that most companies today, whether you’re a “tech” company or whether you’re an insurance carrier you are utilizing data in ways that in the last decade or two were just inconceivable, and so what we’ve seen is that these ridesharing companies are utilizing data in a variety of ways.  So they’re using it to target customers; they’re using it to help place drivers in high-demand areas; they’re trying to find traffic routes; a lot of them use dynamic pricing.  And so they’re \really trying to utilize the data to most efficiently operate their services and to make their service as fast as possible, so instead of maybe calling a taxicab company and waiting, you might see how close your Uber driver is when you tap on a button, and so you can make that option - Do I call the Uber?  Do I call the Lyft?  Which one’s closer?  Which one’s gonna get me there faster?  Which one’s cheaper?  Which one’s more expensive?  It’s kind of, this use of the data is used to increase and it’s just to make the business better, and so we’ve seen a lot of this data be utilized in those aspects.

KHS

            And one of the other things you touched on was that there are lower barriers to injury that ridesharing has utilized to make it easy for people to pick up on this business.  Can you tell us more about what those barriers are and how those barriers being lowered impacted the use of ridesharing?

ZBP

            Right, so a lot of times we’ve been talking about this, we’ve been talking about ridesharing in the context of the consumer, and the consumer is obviously a very crucial part in this relationship because if there’s no consumers, guess what?  There’s no business.  But I think the reality is, is one of the things that we need to think and talk about is, obviously the drivers, right.  The drivers in the ridesharing companies’ business models are obviously a very integral part, and oftentimes they refer to them as their business partners, because without the drivers, guess what?  There’s no ridesharing companies because there’s no one to take you anywhere, and so the ability to become an Uber or a Lyft driver, the barrier is not as high.  Now in most states, there still is some barrier.  You have to pass a background check.  There’s a vehicle safety inspection.  You have to make sure that the vehicle has certain safety features that are going to provide a minimum level of safety.  Now this doesn’t mean that you have to be driving the most modern care with every single available safety feature offered, but it does mean that you need to be driving a vehicle that has some minimum level of safety, and again, when we talk about the background checks, in most situations, we’re not talking about a four-day psychological background test.  We’re talking about a criminal background check, a driving background check, we’re talking about kind of a standard background check before you begin driving.  Some states have fingerprinting requirements; others don’t.  But again a lot of these “barriers” to entry are set on a state-by-state basis based on the state regulations, but the reality is, is that it’s designed to be easier to entry so that people can undertake this as kind of a part-time basis.

KHS

            And with a better picture of how we got here, how ridesharing became so popular and what its role is in modern life where really everyone has access to using ridesharing services if they choose to, it may be helpful for us to understand what impact that rise in popularity has had on broader issues in transportation.

ZBP

            Yeah, so, you know, this is one of those things that I think that while people, and I’m really going to talk pre-COVID, too, because I think that the impacts post-COVID are obviously still unknown and COVID has impacted so many areas of our lives that it’s difficult to determine how many of those areas or how those areas are going to be impacted moving forward.  But what I will say is that what we have seen, is we’ve seen a lot of advantages to these ridesharing companies that have provided us on broad mobility-type issues.  So we’ve seen older senior citizens who are unable to drive who now have mobility because they’re able to use ridesharing.  Now we’ve seen situations in which people who were physically incapable of driving previously for whatever reason are now able to have increased mobility because of these ridesharing companies, and that increases economic activity, both because those people are now able to be employed but because they’re also able to spend more money.  And so that benefits not only those individuals, obviously, but it also benefits us as a society and as a whole, and so we see some great benefits, right.  There are some suggestions and some studies that have said that they have decreased drunk driving because there’s more cars available to take people home, and it’s just easier, and so there’re some studies as it relates to that, but there’s also been some studies that have suggested the promise of decreasing congestion in major cities, traffic congestion, has actually been wrong and that in some cities, what we’ve seen is actually a rise of congestion based upon the fact that there are more ridesharing drivers that are operating on the roads and they’re driving more people where years before, those people simply have been walking.  And so what we’ve seen is kind of this mixed bag as it relates to this, as it relates to congestion.  In some cities, they’ve suggested that it’s lower, but in some other major ones, they’ve actually indicated that the congestion has gone up, and so it’s kind of been a mixed bag as to what was predicted, but overall, I think that there’s obviously some very very positive takeaways of it.

KHS

            Well, I think that’ll conclude our discussion for today, and thank you for joining us on the Reminger Report Podcast on Emerging Technologies.  Please join us next time where we’ll be discussing what the future holds for ridesharing.