Disruptions: Ride-Sharing Upstarts Challenge Taxi Industry

Richard Perry/The New York Times Uber, like the other services, does not have its own fleet of cars. The company teams with existing luxury car services and acts as a digital dispatcher for people booking a car through its mobile app.

Last week, when I arrived at the Los Angeles airport on a flight from San Francisco, I made my way to the taxi stand and waited 10 minutes for a cab. Just as I was about to hop in, the driver and the dispatcher began fighting over whose job it was to put my suitcase in the trunk. After a few minutes, I dealt with the bag myself. We then drove off in a filthy taxi that smelled like cigarette smoke and had suspension so old that it felt as if it had square wheels.

This made me think once again: the taxi industry is ripe for disruption.

Several companies in Silicon Valley — like Uber, Lyft and Sidecar — are acting on that very thought.

Uber, like the other services, does not have its own fleet of cars. The company teams with existing luxury car services and acts as a digital dispatcher for people booking a car through its mobile app.

Although Uber determines price the same way taxis do, calculating fares by time and distance, the service can cost 50 percent more than a normal city cab. Another service offered by Uber, called UberX, offers passengers a lower-cost ride in hybrid cars and is comparably priced to traditional taxis.

But companies like Uber are continually confronting the obstacle of entrenched government bureaucracy, resistant unions of taxi drivers and dispatchers, and overlapping and sometimes conflicting systems of state and city regulation.

The latest roadblocks have come up in Los Angeles, where Uber began offering its service in March.

Travis Kalanick, the company’s co-founder and chief executive, said it received a cease-and-desist letter from the city of Los Angeles, “even though this is not under their jurisdiction.” He added, “The taxi industry feels it is getting disrupted and they are doing whatever they can with their lobbying relationships to try and stop us.”

The letter, issued by the Los Angeles Transportation Department, says that Uber is “operating an unlicensed commercial transportation service” in the city. Jonathan Hui, an agency spokesman, wrote in an e-mail that it was working with the mayor’s office “to determine ways to address ride-sharing companies,” but he declined to comment further.

William Rouse, general manager of Yellow Cab in Los Angeles, one of the largest taxi companies in the city, and president of the Taxicab, Limousine and Paratransit Association, a trade group, said that making sure taxis were officially licensed was a matter of public safety.

“Our roadways are a scarce resource,” he said. “When you have an oversupply of taxi cabs, you have more congestion, depressed driver incomes and poor service. It’s also an issue of public safety, where drivers aren’t insured and there are felons driving some of these ride-sharing apps’ cars.”

Uber and other ride-sharing apps say that all their cars are insured over the required taxi insurance limits and that drivers must undergo stringent background checks.

“This isn’t about safety,” said John Zimmer, co-founder of Lyft, which also received a cease-and-desist letter from Los Angeles regulators. Mr. Zimmer said he believed the real opposition from taxi companies was not about customer safety, but fear of competition.

Mr. Zimmer also pointed out that state regulators had approved his service.

The California Public Utilities Commission, he said, lets it operate “because we go above and beyond all of their guidelines.”

Uber has been dragged through regulatory hurdles in New York City since its introduction there in 2011. But last month Uber had a victory of sorts, winning a ruling allowing it to operate in Cambridge, Mass. This came after city officials, at the behest of local taxi companies, tried to ban Uber even though state regulators had already approved the operations of such ride-sharing services statewide.

The Federal Trade Commission has also recently issued a statement supporting the services; the agency said trying to snuff out ride-sharing apps would stifle competition and could hurt consumers.

The controversy in Los Angeles is par for the course for start-ups that have come up against regulators. They have been sued or received cease-and-desist letters from almost every city they operate in.

When it comes to protecting customers on pricing and overcharging, taxi regulation makes sense. But in some instances, regulatory bodies have done more harm than good. In 2009, for example, more than 30 people in Washington, including at least one city official, were indicted on bribery charges during talks of regulatory change.

Some lobbying groups, meanwhile, are using fear tactics. In March, Mr. Rouse’s taxi industry group issued a news release warning that companies like Uber and Lyft were “rogue transportation apps” and a “threat to public safety.” The release said that arguments involving payment “could turn violent,” but offered no examples.

Mr. Kalanick of Uber said cities should simply let the customer decide. “The taxi groups are so protected through these regulations that they do not have to offer a better service to customers.”

Mr. Rouse acknowledged that cab companies needed to do a better job, and said he was working with cabdrivers to increase quality of service. But he said taxi groups “will continue to advocate for law enforcement against these ride-sharing apps.”

Although the services do not share figures on how popular they are, the opposition suggests they are posing a real threat. As for me, I’m glad when I have a choice.

To get to the San Francisco airport, before my recent flight to Los Angeles, I called an Uber car. When the driver picked me up, he was nervous about taking me to the airport, he said, because its police were ticketing Uber drivers. The service is allowed in San Francisco, but the airport police follow different rules.

“I can take you,” the driver earnestly said. “But we will have to pretend to be related so I don’t get a ticket.”

When we pulled up to the airport, he got out of the car with great ceremony, handed me my bags and followed his script. “Have a safe flight!” he said, giving me a big hug while peering sideways for signs of the law. “I’ll see you soon.”

E-mail: bilton@nytimes.com

Bits Blog: Ride-Sharing App Gets $10 Million - and a Cease and Desist Order

How does an ambitious entrepreneur in the middle of raising money for his budding start-up inform potential investors that his company, which connects drivers with passengers looking for a ride, has been hit with a cease-and-desist order?

With a straight face and the utmost confidence. Unfortunately, that’s not always enough.

“There were definitely investors that said, ‘No we don’t want to deal with that risk,’ ” said Sunil Patel, the chief executive of Sidecar, a ride-sharing service.

Luckily Mr. Patel was still able to raise his funding. On Wednesday, the company is announcing that it has raised $10 million in a Series A round of venture capital from Lightspeed Venture Partners and Google Ventures.

Despite the new money, which will help the company expand beyond its home base in the Bay Area and double its staff from 20 to 40, the company still has to contend with state regulators in California who are trying to shut it down.

Mr. Patel said that the California Public Utilities Commission, which handles public transportation issues, was mischaracterizing the way the company operates. The commission maintainedin its order in August that Sidecar did not have the proper permits and authority to operate a car service. Mr. Patel says that because the company merely provides the communication tools to connect drivers and riders, it is legal. In addition, he said, payment is optional and donation-based.

“We’re simply letting the community organize its own transportation,” Mr. Patel said.

In a blog post, Sidecar said it was talking to the commission and would continue to operate as it did so.

Sidecar isn’t the only start-up wrestling with regulators over the legality of its services. Other ride-sharing companies, including Lyft and Tickengo, recently received cease-and-desist orders from the state of California. In addition, Uber, a start-up that lets people summon a car service or taxi through a mobile application, has been grappling with taxi lobbyists and officials pushing back against the company and its expansion across the country.

Mr. Patel says that his company, which got off the ground last June in San Francisco and has generated more than 50,000 rides since then, will prevail despite the murkiness around its legality. He said that the tension stemmed from the current taxi infrastructure, which is resisting being undermined by entrepreneurs who are working to bring new means of transportation in major cities. He said his company put measures in place to ensure that passengers would be safe when using its service, like performing background checks on drivers and tracking cars to make sure they delivered riders safely. The complaints, he maintains, are short-sighted and choking the development of innovation around public transportation.

He cited the battles between phone companies and Internet telephony, saying that Sidecar was “on the right side of history” and added: “This is something that we’re doing with public interest in mind.”

Ride-Sharing Services Grow Popular in Europe

PARIS — On a recent Friday evening, Vincent Accart maneuvered his 20-year-old Mercedes station wagon through the rush-hour traffic to a rendezvous at a busy fuel station on the edge of Paris. There he met three strangers who hopped into his car for a three-and-a-half-hour drive to Rennes, in Brittany. It had all been arranged beforehand, via the Web.

For more than a year, Mr. Accart has been making the weekly commute to Paris, where he found new employment last year after losing a job closer to his home in Rennes. To amortize the cost of fuel and tolls — about €150, or $195, for a round trip — he fills the other seats in his car, using a French Web site that arranges shared rides.

“When my car is full, it covers 75 percent of the cost,” he said, adding that moving to Paris was not an option because of the prohibitive cost of housing his six-member family. “I’m not doing it to make money, just to be able to keep my job.”

One of the side effects of the European economic crisis is a surge in carpooling, as people from many walks of life seek to cut their outlays on travel. Workers making daily treks to and from the office, students heading home for the weekend and even vacationers chasing the sun are turning private vehicles into the newest form of public transportation. Rising environmental awareness may have fueled the trend.

Paradoxically, the growth of ride-sharing services has given Europe a competitive advantage in one niche of the digital economy, where European ventures in other businesses have often struggled to keep pace with those of bigger American rivals or have simply copied U.S. ideas. Two European companies, BlaBlaCar, based in Paris, and Carpooling.com, based in Munich, are global leaders in ride-sharing. With recent capital infusions from outside investors, they are accelerating international expansion.

“It started out a bit like hitchhiking, but now it’s almost like booking a seat on a train,” said Nicolas Brusson, a co-founder of BlaBlaCar. “The potential market is huge.”

The volume of business is impressive. BlaBlaCar says it arranges 400,000 rides a month — the equivalent of more than 1,000 French high-speed trains, loaded to capacity. The number of drivers and passengers who have registered on the site has grown from 100,000 in 2009 to 2.3 million today.

Carpooling.com says it is even bigger, with more than a million rides booked monthly via its site and more than four million registered users.

The sites work in similar ways. On BlaBlaCar, registered drivers offer seats at prices of their choosing; the company caps these rates to prevent drivers from making profits on the trips. Passengers pay for tickets online and the company keeps a commission. Carpooling.com also shows fares from partner services like Deutsche Bahn, the German railroad.

Revenue from ride sharing remains modest. Mr. Brusson said it posted about €1 million in sales last year, about $1.3 million, but he added that this total was more than doubling each year.

Accel Partners, the Silicon Valley venture capital firm, recently pumped €7.4 million into BlaBlaCar. Daimler, the German car manufacturer, invested an undisclosed amount in Carpooling.com, whose other backers include a German venture capital firm, Earlybird.

“One thing I like about BlaBlaCar is that it is not a copycat, it is an original idea coming from Europe,” said Philippe Botteri at Accel Partners, who sits on the BlaBlaCar board.

With international expansion in mind, both companies recently adopted new names. In their domestic markets, BlaBlaCar and Carpooling.com still operate Web sites under clunkier, local-language names: covoiturage.fr in France, which uses the French word for carpooling, and mitfahrgelegenheit.de, employing the German for “ride-sharing opportunity.”)

While most of BlaBlaCar’s business is still in France, the company has opened sites in Britain, Italy, Portugal and Spain and is considering other markets. From its stronghold in the German-speaking countries, Carpooling.com has rolled out sites covering much of Europe.

In the next few months, Carpooling.com plans to start its service in the United States, where no ride-sharing site has established a nationwide presence on a comparable scale.