Can an SF start-up help hail a cab in NY?

Uber, a mobile limousine-booking service, has become a favorite among in-the-know techies in San Francisco. Launching its service in New York, where taxis are heavily regulated and easy to find already, may prove more complicated.

Caroline McCarthy Former Staff writer, CNET News
Caroline McCarthy, a CNET News staff writer, is a downtown Manhattanite happily addicted to social-media tools and restaurant blogs. Her pre-CNET resume includes interning at an IT security firm and brewing cappuccinos.
Caroline McCarthy
6 min read
Can Uber, a limousine-booking start-up that's encountered both opposition and accolades in San Francisco, make similar waves in the taxi-centric New York? CC: Flickr user shedboy

Arriving on New York's streets with a backpack and a dream has long been a narrative emulated by the young, ambitious, and eager to "make it." But for one San Francisco company looking to bring its change-the-world voracity to Gotham, it may be even more of an uphill battle than the average striver's tale implies.

The central question: can a tiny start-up go up against New York's army of taxicabs?

Young and tech-savvy San Franciscans are likely familiar with Uber, a limousine-booking start-up that launched last year to rave reviews, interest from high-profile angel investors, and the adoration of the tech industry elite. Using a text message or an iPhone or Android app, users request car service from any location in San Francisco; a limousine driver registered with Uber arrives promptly.

In San Francisco, where taxis are few and far between, operated by a handful of loosely affiliated cab companies, and where taxi-booking mobile apps are notoriously unreliable, it was a welcome and instant hit. And then the city government seemed to feel threatened: almost immediately Uber, then called UberCab, was served with a cease-and-desist notice for operating without a permit.

Things have worked out all right. UberCab shortened its name to Uber so as not to appear to be an actual taxi company (which would require a permit and regulatory compliance) and has been humming along in San Francisco ever since, fueled by all the industry's finest of epithets: a game-changer, a disruptor, a hacker of the system. Its next big move, leaked via job postings on its Web site, is to launch Uber service in New York.

"We have an aggressive goal to be in New York City, but that said, there's a lot to be done," said Ryan Graves, the general manager of Uber, who was hired as CEO but recently handed over the reins to co-founder Travis Kalanick. He declined to comment further about its strategy.

On one hand, it's a no-brainer. New York is not only the national hub of advertising, marketing, and finance, not to mention the best place in the country to start any kind of commotion or sensation, but it's also home to the world's most iconic taxicabs. The yellow "medallion taxis," unlike cabs in San Francisco, are readily available just about anywhere at any time in the borough of Manhattan (well, except nightlife-heavy evenings like Halloween and New Year's Eve and the odd few minutes in mid-afternoon when cab drivers are changing shifts) as well as major intersections in the city's other four boroughs. Medallion taxis, along with about 40,000 limousines and commuter vans, are regulated by the city's Taxi & Limousine Commission (T&LC), a powerful city agency that does everything from background-checking cab drivers to prohibiting nonmedallion cars from picking up passengers via street hail or mimicking that famous yellow hue.

Since New York's compact layout permits many a commute on foot, and it has a 24-hour subway system in addition to this network of cabs and limousines, fewer than half the city's households own a car. For Uber, empowered by its support from the Bay Area's tech community and its success in nimbly avoiding the thread of San Francisco transportation regulators, success in the Big Apple's culture of perpetual cab-hailers must seem like quite the savory treat.

All hail status quo
Except then there's the flip side of New York's appeal to Uber. Taxi transport there is so ingrained in day-to-day life, for so many of the city's residents, that Uber may be surprised to find significantly lower demand than it expects. In Manhattan, a yellow cab is typically available via a street hail within a few minutes. In the outer boroughs, locals have grown accustomed to car services that have taken root in particular neighborhoods and can offer reliable transport to other points within the city.

"Between yellow cabs and already-entrenched car services in the outer boroughs, I'm not sure how Uber can differentiate itself in the New York market," commented Benjamin Kabak, an avowed New York transportation geek and blogger at Second Avenue Sagas. "They'll just be another car service, albeit one that responds to text messages instead of phone calls. Based on the fare scheme on their Web site, it's also insanely expensive. My off-the-cuff calculation has the average fare around thee to four times higher than a yellow cab. That won't fly if they want deep market penetration."

On a brighter note, Kabak doesn't think the T&LC will get in Uber's way. It already deals with plenty of private car services, including some like LimoRes that handle bookings primarily through Web and mobile interfaces. "I can't imagine the T&LC will throw up any roadblocks for them," he said. "They'd probably view this as a luxury car company attempting to compete against other luxury car companies and would license them accordingly."

Uber's Ryan Graves declined to say anything further about Uber's New York strategy, in part because it isn't finalized and saying too much too soon could give crucial details to competitors. But it's safe to say the start-up has weighed the options with regard to where in New York competition could be futile (anything going against the medallion cabs) and where there's some room for improvement--maybe with the private car companies, particularly in wealthy outer-borough neighborhoods where cabs are in short supply but residents are perfectly willing to shell out the minimum $15 for an Uber ride. Right now, most of those cars can be booked only by phone. And if you're new to a neighborhood, learning which service is the most reliable either involves helpful tips from neighbors or a lot of trial and error.

This is a potentially ripe niche for Uber. But the company may have some surprising new competition from a very powerful entrepreneur: Michael Bloomberg, New York's billionaire mayor, who seems to see similar opportunities in private transport. On Wednesday, in his annual State of the City speech, Bloomberg announced a proposal to further legitimize private car services--requiring fare meters, GPS, and a color-coded license seal in exchange for permitting the cars to pick up passengers on the street.

"Ninety-seven percent of our yellow cab pick-ups happen in Manhattan or the airports, even though 80 percent of our residents live outside of Manhattan," Bloomberg said in his address. "Whether you're standing on 42nd Street in Manhattan, or 42nd Street in Sunset Park, Brooklyn, or 42nd Street in Sunnyside, Queens, you ought to be able to hail a cab."

It's proven controversial among both medallion taxi drivers, who think it may cannibalize their service, and livery cab drivers, who are skeptical about what the stricter regulation may bring. But for an upstart cab-booking service like Uber, should Bloomberg's proposal go through it could cut into the small company's already-niche market in New York. Uber could enter New York's hawklike media eye as a weakened product, hardly the face that the company would want to put forward for its first big launch outside San Francisco.

There's "definitely a possibility," according to Graves, that while Uber works on its New York strategy, it'll launch in another metropolitan area. Maybe that's a good thing, since there are plenty of other cities in the country where Uber could have the hack-the-system effect that it wants. In Boston, the metro stops running at midnight; in D.C., the perpetual flow of geographically challenged visitors could spell good news for a simple car-booking service; in Los Angeles, the city is so car-centric that Uber could make a great case for itself as a way to ensure that no one has to drive home after too many drinks. Then, Uber could arrive in New York as a stable business rather than a risky, high-profile gamble of a start-up. If it encounters low demand or opposition from city officials, it'd look like far less of a setback.

But should Uber forge its way into New York with full force and prove to have a few tricks up its sleeve, the successful handling of that risk would instantly prove its mettle as the significant "disruptor" that the Valley's hype machine has already made it out to be. Graves wouldn't say whether Uber is even in any kind of dialogue with the T&LC or other city agencies, but the company may find some friends if it's lucky. Bloomberg's administration has already proven willing to make transit-related partnerships with entrepreneurially minded companies: late last year, car-sharing service Zipcar announced that the Bloomberg administration would be testing out a new way to cut down on city vehicles by providing Department of Transportation employees with Zipcar accounts.

"Entrepreneurship is going to come in and solve problems, and technology is bound to drive much of that," Graves said. "We're kind of clinging onto the hope that a regulatory agency would be pro-new solutions and technology-enabled solutions."

And you know what they say: If you can make it there...