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Could London Set Up A Nonprofit, Cooperative Alternative To Uber?

As the city prepares to evict the ride-hailing company from its streets, there are questions about what its drivers and riders will do next. The solution might be simple: Start your own company.

Could London Set Up A Nonprofit, Cooperative Alternative To Uber?
“What are we going to do with all these drivers and customers who are looking for the next option?” [Photo: Biel Morro/Unsplash]

London recently dealt another blow to Uber’s plans to take over the world. Saying the ride-hailing giant had failed to abide by public safety rules governing private cab companies, regulators in the U.K. capital said the company would lose its “license to operate” at the end of September.

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The decision hit hard for 40,000 fare-earning Uber drivers and its 3.5 million customers, many of whom undeniably like the service. Uber’s cars fill a void in London because its iconic black cabs are expensive (compared to New York’s yellow cabs, particularly) and are far from ubiquitous outside central areas. Already more than 800,000 people have signed a petition asking Transport for London (TfL), the regulator, to overturn the decision (we’re assuming these people are bona fide residents of Chiswick and Islington and not fictitious astroturfers).

But, instead of relying on Uber and other venture capital-backed startups, London has another option if it wants it. It could set up–or encourage–a nonprofit ride service like the one started by tech entrepreneurs in Austin. RideAustin, now 15 months old, has proved that Uber’s proposition isn’t unique and that cities needn’t be cowed into accepting the writ of outside corporations. The homegrown alternative offers something as good (according to many users), but in a way that’s more homely and, dare we say it, equitable.

“TfL had to protect its regulatory framework but, in fact, it put these precarious workers in an even more precarious state.” [Photo: albertobrian/iStock]

Call A Khan Car

The New Economics Foundation, a London-based think tank focused on more cooperative economic models, has been campaigning for “Khan’s Cars” in London–a mutually owned alternative to Uber. The name echoes “Boris Bikes” (the colloquial name for the city’s successful bike-share system championed by former mayor Boris Johnson) and is meant as a challenge to the current mayor Sadiq Khan, says Duncan McCann, a researcher at NEF.  The idea is to re-employ the drivers who now stand to lose some of their livelihoods, but on more favorable terms–for both drivers and the city–than what Uber is offering.

“TfL had to protect its regulatory framework, but, in fact, it put these precarious workers in an even more precarious state,” says McCann in an interview with Fast Company. “What are we going to do with all these drivers and customers who are looking for the next option? We want a potential way forward that’s different from having more privately owned driving companies, or just letting Uber back in.”

McCann proposes a cooperative that would be owned by its drivers, and possibly also by its members. It would most likely be set up as an independent, nonprofit company, with its shares distributed based on participation: The more drivers or users become involved, the more shares they would be able to accumulate. McCann is trying to build momentum for the idea by organizing drivers and raising capital to build an app. NEF has already worked with several self-organized groups, including Yamuv, a car service app from the north of England.

“That initial investment, though certainly something we need to factor in, is not a limiting factor anymore. There are so many existing applications out there as well, so we might be able to license a cheaper model,” McCann says. Yamuv’s app, though not as robust as Uber, was commissioned from Indian developers for about $55,000.

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“It’s about doing right by the drivers, ensuring they have a fair wage, and doing right by the community.” [Photo: Maciej Noskowski/iStock]

The RideAustin Model

The idea behind the Khan Car–that a city could create its own service independent of Silicon Valley giants–is less implausible than you may think: The successes and failures of RideAustin, an app built when Uber and Lyft chose to leave the city a few years ago, can serve as a model for how London and other cities could think about a post-Uber future that still gives people the convenience of app-based ride hailing.

Uber and Lyft exited the Austin market in May 2016 after losing a fight with city regulators who demanded that it fingerprint drivers and hand over operational data. The companies said the requirements hurt their business model and they spent $8 million funding Ordinance 1, a ballot measure that would have overturned the regulations. When residents overwhemlingly rejected the measure, the companies pulled out of the city two days later, opening the way for RideAustin. It launched its app just four weeks later (after many sleepless nights according to Bobbi Kommineni, RideAustin’s vice-president of strategic programs and operations). The cost to build was between $5 million and $10 million, she says, including in-kind contributions from the local tech community.

Unlike Uber and Lyft, which charge drivers commissions of 25%, RideAustin takes no commission. Drivers get 100% of fares, though riders do have to pay $2 booking fees to cover the company’s operating costs. Since last June, RideAustin has orchestrated 2.25 million rides, Kommineni says, though its numbers have fallen hard this summer as Uber and Lyft have come back into the picture, after the Texas legislature introduced legislation that superseded the city’s ordinances, allowing the companies to return over Memorial Day weekend.

Kommineni says Uber and Lyft have offered discounts of up to 50%, causing up to two-thirds of RideAustin’s former customer base to jump ship. But she reckons the nonprofit can bottom out at about 20% of the market in the long run. Enough Austinites want to keep Austin “weird”–that is, serviced by locally owned companies–she argues. RideAustin has been forced to cut its prices and reduce its staff since its commercial competitors returned to the market.

“There’s definitely a part of our customer base who are price-sensitive, particularly students, who will switch to the other services,” she says (as well as Uber and Lyft, Fasten is another major competitor). “But we also have a core base that wants to use us versus a big corporation. It’s about doing right by the drivers, ensuring they have a fair wage, and doing right by the community.”

RideAustin has donated $275,000 to local charities and provides free rides for doctor visits for customers in need. It also abides by the original city regulations (including fingerprinting) and makes all its operational data public (on data.world). Uber and Lyft, by contrast, have tended to keep their data close to their chests (though Uber has released some on Uber Movement, its site for urban planners).

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Kommineni argues that Uber and Lyft are artificially boosted by venture capital and that its discounts may not be sustainable. Indeed, there are plenty of analysts who reckon that ride hailing, despite its popularity among riders, may not in fact be a great long-term business (Uber has run up huge losses as it’s expanded around the globe). One analysis showed that passenger fares covered only 41% of Uber’s costs in the financial year to September 2015; the rest was subsidized by venture capital.

“I think we might see municipally owned systems with the rise of AVs.” [Photo: Bim/iStock]

The Platform Cooperative Of The Future

Arun Sundararajan, a professor at NYU and author of The Sharing Economy: The End of Employment and the Rise of Crowd-Based Capitalism, argues that “platform cooperatives” may be good options for cities. Though co-ops can have coordination and consistency problems, they tend to be fairer to their participants and retain value within their networks. There are plenty of examples of successful cooperatives in other industries: New York is home to Cooperative Home Care Associates, a 2,000-person, $60 million home health aid company run by its workers.

Sundararajan believes ride hailing ultimately will be a low-margin, high-volume business, with low barriers to entry. The cost of building an app is coming down all the time, he says, making defending a market position harder and harder for Uber and Lyft and giving more opportunities for workers who want to work for themselves. In fact, there are even open-source versions available today, and decentralized blockchain-based networks are possibilities for the future.

“There could be a political advantage for Sadiq Khan in having the first large-scale driver-owned-and-operated ride-hailing platform. I see that as a significant benefit,” Sundararajan says.

Brooks Rainwater, who oversees research at the National League of Cities, thinks it’s unlikely U.S. cities will embrace the cooperative model–for now. Though its surveys show that officials have significant public safety concerns about the sharing economy, he doubts they will want to compete with privately funded rivals.

“There are some cities that would like to take back some power from the ride-hailing companies. But in other places , where they don’t have strong taxi cab systems, they see Uber and Lyft providing services that constituents really want,” he says.

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As we move to an era of autonomous vehicles (AVs) that could change. “I think we might see municipally owned systems with the rise of AVs. Once you get to a point where the rolling stock is more expensive than conventional vehicles, that lends itself to fleet management. It opens the door to a more transit-like environment where you see public-private partnerships forming more strongly,” he says.

About the author

Ben Schiller is a New York staff writer for Fast Company. Previously, he edited a European management magazine and was a reporter in San Francisco, Prague, and Brussels.

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