Streetside: Lyft likes the ride-share model, doesn’t like sharing the regulatory burden
On April 24, the ride-sharing company Lyft expanded into 24 new markets, including Kansas City. Millennials cheered. The establishment jeered. Petitions have been signed, lawsuits filed. Lots of drama.
But what is Lyft?
“Your friend with a car,” says the company’s marketing materials. If your friend were a San Francisco – based transportation service backed by millions and millions of dollars, reachable via app, and signified by fuzzy pink mustaches affixed to each car’s front grill.
To get a ride, you download the Lyft app to your smartphone, then create a Lyft account by logging in through Facebook and supplying your credit-card information. When you’re ready to roll, you open the app and hit “Request Lyft.” The app knows your location and sends you the nearest Lyft driver to shuttle you to your next destination. (Lyft drivers use their own vehicles. To be a Lyft driver, you apply through its website; no training necessary.) You’re charged through the app, eliminating the need for a cash or credit-card exchange.
That sounds pretty convenient. In fact, local governments say, it’s too convenient.
Lyft has not registered its drivers and drivers’ vehicles in most of the markets the company has entered. Because it is not in compliance with local ordinances, KC’s Lyft is operating illegally – a snafu the company is temporarily sidestepping by saying all of its rides are free through May 8.
That hasn’t kept Kansas City’s Regulated Industries Division from sending Lyft a letter outlining which city ordinances the company is violating. The city’s police force has been instructed to issue citations to Lyft drivers (whose pink mustaches make them easy to spot); six were handed out over the first weekend of operation. Even Mayor Sly James, who rarely misses an opportunity to stroke new business (particularly from the tech sector, which the app-driven Lyft certainly calls home), is talking tough.
“To my knowledge, Lyft made no attempt to contact the city in advance to check into our laws,” James wrote in an April 28 Twitter screed. “I think that is like someone walking into your house off the street and sitting down to eat dinner at your table without an invitation or at least an introduction. … Our ordinances are there for lots of reasons having to do with passenger safety, consistent service/fees, prior litigation etc. … If Lyft wants to comply with the law, they are welcome.” (James followed that up this week with a blog post expressing similar views.)
Lyft’s KC experience is similar to the company’s reception elsewhere around the country. In St. Louis, a judge has ordered Lyft to stop operating in the city and county. Officials in Madison, Wisconsin, and Pittsburgh have conducted undercover stings of Lyft drivers.
In all 24 of its new markets, Lyft is offering the same two-week grace period of free rides. Because no money is being exchanged, laws technically aren’t being broken. In Nebraska, for example, where Lyft has a presence in Omaha and Lincoln, the Nebraska Public Service Commission has warned Lyft (and its ride-share competitor, Uber) to cease advertising for drivers and has threatened to impound Lyft cars if they are found to have charged for rides. Meanwhile, members of the Omaha Chamber of Commerce are urging the state to find a solution that will allow companies like Lyft to operate in the city.
Lyft hasn’t had trouble everywhere, though.
Last year, California became the first state to legalize ride-share services, calling them “transportation network companies.” There, Lyft is required to have licensing from the California Public Utility Commission, a minimum $1 million – per-incident insurance policy, regular vehicle inspections, and criminal background checks for its operators.
That’s not far from what the company would have to do in order to run within Kansas City’s ordinances. Here, Lyft drivers would need to acquire commercial insurance and commercial driver’s licenses, and Lyft would have to pay permit fees (roughly $300 annually per vehicle).
Councilman Russ Johnson tells The Pitch that city staff members have already been working with other ride-sharing companies (presumably Uber, which has been advertising locally on social media), and that those companies’ “approach has been much more responsible in terms of the due diligence they are following as they enter the KC market.”
Johnson adds, “City staff reached out to Lyft before it even launched with an offer to help it get licensed, but the company never responded to several attempts to communicate with them.”
So why doesn’t Lyft just comply? One possible answer: arrogance.
After a reply acknowledging The Pitch‘s interview request, Lyft did not respond to follow-up e-mails asking this and other questions. A representative told the Kansas City Business Journal, when that paper presumably asked some intelligent questions, that “Lyft’s peer-to-peer ridesharing model does not fit existing regulations for taxis and limos.”
The tech culture in San Francisco and Silicon Valley – Lyft’s home culture – is notorious for its disdain for the inefficiencies of government. Companies like Lyft, which has $250 million in venture capital from hedge funds and Chinese e-commerce businesses, are run by young people who believe that they are changing the world. The genius of their ideas and the money backing them, they figure, are force enough to get government behind them, not the other way around. Sometimes they are right.
Another simple reason that Lyft has so far avoided pesky paperwork: the costs associated with compliance, which would eat into Lyft’s profits. Insurance is one of any livery company’s biggest expenses. Not having to take out full liability policies represents a huge competitive advantage for companies like Lyft as they go up against traditional taxis.
Local taxi companies are well aware of that advantage.
Bill George, president of the Kansas City Transportation Group – which owns Yellow Cab, the biggest cab company in town – says he doesn’t have a problem with new competition or even with Lyft’s business model. “The technology is amazing,” George says. “We offer the same product, actually. Ours is called zTrip. The difference is, it’s in total compliance with the city’s ordinances.”
But, he says, “What would happen if some popular corporate restaurant came to town and said, ‘I don’t need a business license, your laws are antiquated, they don’t apply to me’? Nobody would tolerate that. And yet that’s exactly what they’ve [Lyft has] done. So all we’re saying is, ‘Get your permits, get your licenses, get commercially insured.’ If a local livery company with a fleet of 10 vehicles can do it, why can’t a California startup with $250 million in backing do it, too?”
That is a pretty good point.
And so far, Lyft hasn’t done much to dispel the impression that behind the cute mustache is a faceless, big-money enterprise designed to pick up local revenue without obeying local laws. Would a friend act like that?
