Virginia orders Lyft, Uber to cease ops. Protecting consumers or shielding businesses from competition?

The Commonwealth of Virginia has issued cease and desist notices to 2 companies engaged in the relatively new business of arranging for individual consumer’s transportation in a “peer-to-peer” model. Now, that’s a statement that requires explanation on a variety of levels, so let’s examine the players, first.

Lyft and Uber are, at their core, smartphone apps that allow a user to call for a ride to wherever they’re going. The drivers are users of the system who are offering to drive people who need the ride. Users register on the system and, if they’re offering their driving services, fill out a profile that details what kind of car they have, where they’re willing to operate, and the like. I’m not a user of the system so I can’t really speak from experience but that’s the general idea. The term being used to describe this activity is “ride-sharing.” When a user needs a ride, they signal that on the app and are paired with a nearby driver that meets their requirements. (The system won’t pair a driver of a 2-seat roadster with a user that has a party of 4, for example.) On Lyft, according to their web site, the calling user can then get the information about the driver including pictures of the driver and their car and can see the location and progress of the driver as they come to the calling user. Payment is also handled via the app so no cash changes hands.

The drivers aren’t necessarily professional drivers. They are simply users who are offering to give people rides during their free hours of the day so they can be college students, stay-at-home moms, men who are looking to augment their regular jobs with offering rides during some of their off hours, etc. The decentralized, peer-to-peer nature of this system makes the barrier of entry very low, gives users the ability to know the names, backgrounds, and reputations of the drivers before actually getting into their cars, and fits in very nicely with the modern, app-driven lifestyle of many of today’s young student and professional set. For short-range, short duration trips, it’s also fairly cheap.

As you might imagine, established cab companies hate the idea. So do the politicians and bureaucrats who derive funding from the taxes and license fees cab companies pay. Which might explain at least a part of why the VA DMV issued their shutdown orders to both companies. The DMV letter advises both companies that they are operating in violation of state law. Both are refuting that assessment and Lyft has openly said that they will not comply with the order. The DMV is saying their shutdown orders are driven by concern for the safety of the public.

I can certainly understand public safety being a concern of the DMV and no one is suggesting that it shouldn’t be. I do question, however, both their position to make the assessment that these peer-to-peer drivers are somehow safe or not and the driving factor behind their decision to issue the order coming not from public complaints but from complaints filed by cab companies with a vested interest in shutting down competition. The only questions the DMV should be concerned with regarding the safety of a given driver is whether or not their license is valid and whether their vehicle has complied with any safety inspection regimen currently in use. Aside from that, it should not be considered within the purview of a government agency to make a subjective judgment as to whether a given business model is “safe” or not. The DMV should most certainly not be jumping to the commands of a given set of businesses whose concern could be very easily construed to be not so much for the safety of the traveling public but more for the safety of their own revenue stream.

The idea of ride-sharing has matters of concern, yes. As a rider, am I covered by the driver’s insurance if that driver has an accident while I’m in the car? (Lyft has a $1M-per-incident insurance policy in place, for example, that presumably covers riders. That’s a great business decision on their part.) Is the driver I’m using known to be a safe operator? (Again, the app generates reputation scores so, in fact, both Lyft and Uber have a significant competitive advantage over regular cabbies in this regard.) I would think that drivers would also be concerned. While the system allows riders to view drivers’ profiles and reputation scores, drivers don’t get that information regarding riders, I don’t think. I would think the idea of not really knowing the nature of the people getting into one’s car would be something that might be worrisome. I’m hoping that insurance policy will also offer some protection to the drivers, as well.

Either way, I think the DMV’s actions are heavy-handed and ultimately harmful to the traveling public. I also think that if cab companies don’t want their business taken away, then they should learn to innovate and provide the services consumers are looking for today. Perhaps if they were to stand up a similar app, complete with a driver-scoring feature? Who knows? One might wonder whether an alliance with Lyft would offer these cab companies the chance to lure back the consumers who find the alternatives more attractive?