Policy Wonk Talk on Uber's Arrival to Ottawa

by Nick Charney

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Last week Kent shared some thoughts on Uber's arrival in Ottawa. If you haven't heard of Uber, they are a peer-to-peer ride for fee service that directly connects available drivers with people seeking rides for a fee, levering their respective GPS phone coordinates, processing fares electronically and providing online reputation systems to rate riders and drivers. If you want more information on how Uber works, I suggest watching either Mashable's advertorial video or the Uber driver training video - it will give you a better sense of what Uber is all about.

Given that this is an area I'm interested in and have written about in the past (See: The Sharing Economy, Disruptive Innovation, and Regulatory Oversight) I thought it would be good to come back to it and give it a once over.

If you haven't yet read Kent's reflections (See: Why the Sharing Economy is Inevitable and We Need to Think Differently), I suggest you have a read-through and then circle back here as I'll be revisiting some of his arguments as well as some of my own; the goal of which is to highlight some concerns that policy makers and regulators ought to think about when they are considering how to handle disruptive innovation in established (and regulated) markets.

Just a heads up that this is a long wonkish post. Skip to the bottom for a TL;DR of key considerations.

On the inevitability of Uber and its ilk 

While I agree with Kent's basic assertion that Uber and its ilk are inevitable (and that this inevitability ought to give us pause to rethink governance), I would further qualify that inevitability by saying that it is the larger phenomenon of disruptive innovation that is inevitable and not necessarily the peer-to-peer businesses of the sharing economy that are currently being built. While this nuance is likely to be overlooked, it is one of the most important things to keep in mind when examining the issue. Uber is simply à la mode right now. It is a part of the peer-to-peer trend that represents where businesses are right now, reflects where business have been already and hints at where businesses might go in the future. In other words, when considering Uber, it's important to remember that it is neither the first disruptive innovation the transportation industry has seen nor will it be the last.

Key lesson: If policy makers and regulators react to Uber instead of solving for the larger phenomenon of disruption they will find themselves in the same predicament they face today again five years from now.

On reducing information asymmetry and increasing supply

Kent rightly argued that peer-to-peer businesses correct market failures rooted in information asymmetry by more directly connecting supply and demand. People have historically paid a premium to use taxis because taxis minimize the asymmetry between sellers and buyers by signalling their availability: I'll wait in the taxi stand, you walk over and hop in. It is important to note that Uber doesn't just correct the information asymmetries in this particular market but it also boosts the overall supply of the good in the marketplace which in turn affects the overall dynamics at play in the market (including taxation, which must be dealt with).

Key lesson: Policy makers and regulators need to understand how the elimination of information asymmetries and the introduction of additional supply affect the market and whether or not those effects are a net positive or a net negative.

On the user experience 

With the exception of perhaps walking out of a popular hotel or an airport in a major urban centre, grabbing a cab is literally demand physically LOOKING for supply. A rider needs to either find a taxi stand, call a dispatcher, or wave down a cab. The experience is often one categorized by waiting (when will the cab show up?), uncertainty (will the cab show up?) and competition (what happens if someone takes my cab or my cab takes someone else?). While the experience is functional, it is also opaque and lacking.

On the other hand, Uber has been actively designed around the users from the ground up to be seamless. Open up the app in your smart phone (which you love), request a ride by providing from-to coordinates, get a text message confirming your driver's details within minutes, watch the ETA countdown clock in real time as your driver's GPS coordinates approach your own. You know precisely when your Uber will arrive, you're assured they will arrive and you know they are coming specifically for you. I'm not sure you could ask for a better user experience.

That of course doesn't mean that the user experience once inside either a Taxi or an Uber is any different, at least not while in transit. The good (i.e. transportation from point A to point B) is essentially the same though the experience likely varies as much within the taxi and Uber ecosystems as it does across them - there are all kinds of dynamics at play that could affect your trip. The main points of divergence here seem to be cost, how the transaction is completed and the feedback loop between drivers and riders. On the whole, I'd give Uber the edge on all three of these elements. It's cheaper. It's automated. It's got feedback built in.

The supply side of the equation is a bit harder for me to parse, not ever having been a taxi or Uber driver (though I've spoken to many of the former while I was a doorman at an up-scale hotel and am actively considering exploring the latter). My understanding of the taxi industry is such that there are considerable start-up costs and barriers to entry (i.e. regulation): licenses, insurance, training, trade unions, etc. Whereas Uber provides a fairly straightforward sign up and validation process (which I tested); it has fewer barriers to entry and seemingly (in the US at least) has even done its homework on the issue of insurance.

But what about the user experience of the drivers? Well again, (based on my experience) taxi drivers tend to either find a taxi stand and get in the queue, or wait for call. They move people from A to B often without knowing where the final destination is until that person enters the cab and at times become frustrated with riders taking short trips. They have to handle cash payments as well as debit and credit transactions and file financial records accordingly. They likely work a 12 hour shift and pass or rent their license to another driver who does the same for the remaining 12 hours of the day. Uber, on the other hand, allows you to work when you want, processes payments automatically and directly connects supply and demand when and where it makes sense to do so (for a 20% cut of the transaction, in case you were wondering).

Key lesson: Policy makers and regulators ought to expect disruptive innovation to occur wherever regulation distorts market forces and creates externalities and where technology can be deployed elegantly to more efficiently connect supply and demand and/or improve user experience.

Suggested reading:

• Tale of the taxi tape: Uber versus traditional cabs 
• Ottawa cabbies moonlighting for Uber

On regulating disruption 

Broadly speaking, regulation by its very nature distorts markets and in so doing creates favourable conditions for incumbents and creates barriers to new entry. While regulation can easily be adjusted to reflect sustaining innovations within their portfolio they struggle when asked to balance the potential benefits of disruptive innovation and the public interest. This likely happens for a number of reasons:

• Governments may fail to differentiate disruptive and sustaining innovations and if they do they decide to treat them in the interest of ‘fairness’ despite the regulation not making sense when applied. 
• Governments may have vested interests in maintaining enforcement systems that validate and support their existing regulatory regimes (i.e. regulatory capture). 
• Government interests may be better served by incumbents (at least in the short term) than by disruptive new entrants. Incumbents provide more steady employment, generate higher tax revenues and are already subject to regulation. Whereas disruptive firms often employee fewer people, generate fewer tax revenues (or create new economies that avoid taxation altogether) and view regulation as a barrier.
• Governments may have to contend with the concerted efforts of the incumbent lobby while new entrants who don’t have the resources to lobby are forced to try to amplify public support for their businesses. 

If you apply what I've outlined above and map it to Uber's arrival in Ottawa, any number of the above could be argued as truisms. In fairness, taxi regulation/deregulation is a complex issue and one that has plagued cities worldwide for some time. There are people on either side of the debate making claims and counter-claims, each with studies to prove that their approach is best. At risk of falling further down the rabbit hole, the issues within the debate tend to fall into three broad categories:

• prices to riders and costs to operators 
• licensing regimes / monopoly protections 
• public safety 

Of the three, the one that interests me the most (and the one we have yet to discuss) is the notion of public safety. It is a top level concern for any policy maker / regulator looking at a transportation array. It's also an element that tends to get sensationalized. People point to extreme cases to prove the exception rather than the rule: would you trust your life to an unregulated Uber driver just because they have a 5 star rating after a dozen trips?

Perhaps it's an unfair question. While I don't think a simplistic online reputation system can effectively replace regulatory oversight as an effective means of ensuring public safety, within this specific context I'm not sure it has to. What are the actual incident rates for car accidents in the city? Is there any reason to suspect that the introduction of Uber will raise the number of incidents? What evidence can be brought to bear to support it?

Even if something does go horribly wrong – and invariably it will – ought we judge every Uber driver based on the actions of a single driver? I'm not sure that taxi drivers would want the same type of judgement thrust upon them given what happened last year. Besides, whether or not you are getting into a taxi or an Uber you are still getting into a car with someone who ostensibly amounts to a stranger. If nothing else, the adoption rates of Uber seem to suggest that people either don't differentiate the risk, don't perceive the risk, or are simply willing to accept the risk associated with using the service. Moreover, at a more fundamental level, you entrust your safety to strangers in cars everyday whenever you share the road with them on your commute into work in the morning and back home at night.

Key lesson: Policy makers and regulators should focus on maximizing the public good and think about how to best achieve that from a citizen centric position, not a government centric one.

On the politics of Uber 

Bluntly, the arrival of Uber in Ottawa likely seems like a no-win situation for politicians having to wade through the policy options. Coming down hard on either side is likely to be met with negative political consequences, as is inaction and even compromise.

Key lesson: Policy makers and regulators ought to expect that politics will play heavily when negotiating government responses to disruptive innovation. Politics matter, to govern is to choose.
Recap: Lessons for Policy Makers and Regulators looking at Disruptive innovation

1. If policy makers and regulators react to Uber instead of solving for the larger phenomenon of disruption they will find themselves in the same predicament they face today again five years from now.
2. Policy makers and regulators need to understand how the elimination of information asymmetries and the introduction of additional and/or new supply affect the market and whether or not those effects are a net positive or a net negative.
3. Policy makers and regulators ought to expect disruptive innovation to occur wherever regulation distorts market forces and creates externalities and where technology can be deployed elegantly to more efficiently connect supply and demand and/or improve user experience.
4. Policy makers and regulators should focus on maximizing the public good and think about how to best achieve that from a citizen centric position, not a government centric one.
5. Policy makers and regulators ought to expect that politics will play heavily when negotiating government responses to disruptive innovation. Politics matter, to govern is to choose.

Column: When Social Location Sharing Meets Government Services

I had the opportunity to do some thinking about the future of social media and government a month ago in Vancouver with some very smart people. One of the things that came up (mostly due to our geeky familiarity with the social space were some "you just had to be there tweets" and a communal check-in on Foursquare.

For those of you unfamiliar with Foursquare, it is a social location-sharing service that allows you to check-in to a venue, leave tips for other patrons and unlock badges for your achievements. If you are interested in learning a little more about it, Mashable published a decent piece entitled, 5 Ways Foursquare is Changing the World. I started experimenting with Foursquare mostly because I wanted to see what was happening in the space and to try to understand some of the implications for government as this takes hold as one of the most popular social services on the web.

Where location sharing services like Foursquare and governments collide will most likely be in the area of service delivery. More specifically, Foursquare (or whatever location sharing service rivals it) will be a key social space for any government agency that delivers service via a service center. Some of the more obvious examples that come to mind are Service Canada (federal), the Ministry of Transportation (provincial), or City Hall (Municipal). More specifically, I think that government agencies can effectively use crowd-sourcing to improve their service delivery, and they can do it at little to no cost. In fact, as Eaves rightly pointed out, local governments are already doing this with their emergency response services (911).

Finding Government Services

Right now the search function for Foursquare isn't that great, but as they inevitably look to Google (or perhaps Microsoft) to improve their search function, Foursquare users will start to use it as a means to locate services relative to their location as determined by their mobile device's GPS system. Why would anyone search for an agency on the open web if all they wanted was information on the location of the service centre? Searching the open web means that people are likely to end up on the landing page of the agency, be forced to navigate the clutter of the site, and perhaps even run another text-based search. The benefit of searching within the location-sharing social service is that it separates out all of that extra data when all I want to know is the location of the service centre. Thus I think it will be is already important for agencies with service centres to populate location-sharing platforms with the correct location, hours of operation, URLs, and phone numbers. The last thing governments want or need is to confuse people about their locations, hours of operation or URLs. The way I see it is this as an opportunity to help people find government services.

Crowd-sourcing Crowd Control

One of the interesting things about Foursquare is that it allows you to leave a “tip” for a venue. A tip is essentially a small piece of advice that you can leave for other patrons. Clients can leave tips for other clients that could help with the flow of work within the centre, perhaps even ease wait times. Much like the Ottawa Public Health did with its twitter updates on the availability of location based H1N1 vaccinations, venue tips can let people know what kind of wait time they can expect as a service centre depending on when they are going to be there. I myself recently left a similar tip for the local transit office after being frustrated by a long line one day and not waiting at all the next. If that kind of information was made available, I would be more likely to plan my day around the shortest anticipated wait time at the service center.

Undoubtedly an argument can be made that organizations are already looking at service times and trying to address them. They could however do a better job at proactively communicating those wait times out to users. Communicating wait times at service centres in an official capacity takes resources, having users do it for you does not. Overall, crowd sourcing some of the crowd control could reduce wait times, reduce the stress on staff, and increase client satisfaction due to friendlier and timelier service.

Crowd sourcing Employee Performance

Again relying on the tip feature, people could provide meaningful feedback about the public servants who helped (or didn't help) them while in the service centre. This is where most people cringe, expecting to be hammered over the head with negative comments about the service they received. Negative comments should be expected and when appropriate should be considered as action items. If one of the people working in the centre receives complaints daily about their performance, than perhaps their performance should be dealt with, that is nothing new. What is new is that the barrier to providing that feedback may be decreasing. For example, leaving a tip on Foursquare is a lot easier than asking to speak with the manager. Again, receiving feedback is nothing new but in low-barrier systems, feedback becomes abundant and if we are paying attention to the long tail than we have far more to gain from this interaction than to fear from it. I am far more fearful of decreased relevancy due to lack of feedback than I am of the volume of feedback itself.

With respect to positive feedback, tips that applaud service are invaluable to managers. It motivates staff, and can breed healthy competition among employees. In a previous life I worked in service-based environments (hotels and an NHL hockey franchise) where we competed ferociously to see who would get the most positive feedback via our customer comment system while our clients benefited from our hyper-attentive service. I think this model could work much the same way within government agencies. It provides a nice carrot for performance where there are little external or systematic incentives for high-quality client service.

Furthermore meaningful feedback is more than just the complaints and/or praise directed at service providers. Opening up this channel for location specific feedback could mean a whole set of interesting recommendations about actual observable and measurable variables. Initiatives like My Starbucks Idea come to mind. What if an expert in interior design comes through and, given their background, realizes that a simple tweak to the seating arrangement could mean increased capacity or better traffic flow through the centre. Their expertise would cost nothing and could be easily captured if the expert was so inclined to share it.

Rewarding Citizen Engagement

One of the challenges I see is encouraging people to check-in to government service centers (no one wants to be the "Mayor" of the Employment Insurance Office) and soliciting meaningful feedback on an ongoing basis. I think this is where one of the other core components of Foursquare comes in - badges. Users earn badges based on their check-ins. These range from things like "I'm on a Boat" (for checking into a venue tagged Boat) to "Gym Rat" (for 10 check-ins over a 30-day period in venues tagged "gym"). I think that agencies could partner with Foursquare to create badges for those people who have checked-in to their service centers. This requires some creativity but I can see badges like, "Served" with a federal/provincial/municipal logo on it, and the subtitle "You were proudly served by X agency" being at least somewhat popular. And as Foursquare expands its service offering I think it will move into a space where it also provides badges for people leaving tips. I think that this will happen as people realize that the real social value of the platform is not just letting people know where they are but what they think about where they are.

In this type of environment, government agencies could work together and reward users with incremental badges based on the amount of tips left for government service centres. These "Digitally Engaged Citizen" badges would serve as a badge of honor to those who are attempting to help government deliver its services better and is very much in alignment with the whole government 2.0 movement.

The Tip of the Iceberg

I consider hypothesizing about things that may be coming down the pipe is incredibly interesting. I also think it is the first step in starting to achieve these things in a real sense. If you know of any government service delivery centres that are thinking about these types of initiatives please let me know. I would love to follow up with them.