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Fare fight: Uber delivers a wake-up call to local cab companies

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Not too long ago Nic Alexander was pulling in $12 an hour at his job at a Madison grocery. That was before he discovered Uber.

“I just sat down one night and I did the math, and I said, 'Jesus Christ, a guy could drive 13 hours and make the same amount of money I would at 30 hours,'” said the 27-year-old aspiring screenwriter and actor.

Alexander is no longer locked into a daily grind. He hops in his car and logs onto the Uber app whenever he wants, leaving him time to work on his long-term career plans. He tends to pick times that offer the potential for the greatest financial reward, including Uber’s controversial “surge pricing,” when the company ratchets up fares during periods of high demand.

“This job allows me to have that freedom if I’m writing a screenplay or I’m directing a film or something,” he said. “I can work around my own career I’m trying to start, whereas another job you have to abide by the hours they give you. For me and my life, it works well.”

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UBER DRIVER

Nic Alexander said the flexibility of being an Uber driver allows him to earn a living while working on his long-term career plans. 

With an eye toward Uber's focus on good customer reviews, Alexander offers his riders bottled water and keeps mints and candy on hand so his riders walk away with a positive impression.

He even decked out the inside of his Ford SUV with Christmas lights for the holidays.

The promise of quick money and greater personal freedom has lured scores of drivers like Alexander to Uber, which, with rival Lyft, burst onto the local scene in February 2014. Lyft has maintained a presence, but it’s a minimal one. Meanwhile Uber has gained a strong foothold, emerging as the dominant Madison transportation network company, or TNC, after lawmakers passed a law last June allowing them to operate under state regulation.

Not sharing in the new economy profits, however, are the city’s traditional taxi companies.

“It used to be, within the last year-and-a-half — even last winter — we’d have Friday and Saturday nights full of drivers,” said Mike Dentice, general manager of Badger Cab. “That’s just not the case anymore.”

In fact, three of the city’s four taxi companies saw ridership fall in 2014, while the city’s newest taxi company, Green Cab of Madison, grew by 26 percent. Green Cab management said that’s because the company adopted Uber-like technology — an app that allows customers to hail a taxi on their smartphones — years before Uber came to town. But when it comes to smartphone technology, the others — Badger, Madison Taxi and Union Cab — are just now getting up to speed.

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GREEN CAB

Uber-like technology has helped Green Cab of Madison, operating out of this south-side office, thrive despite the  Uber invasion that has hit rival companies' bottom lines.    

There are plenty of observers who say the taxi industry is suffering from self-inflicted wounds. Passengers simply are fed up with searching for taxi service phone numbers, long wait times and rude drivers.

“The reason (TNCs) exist is that taxi companies were not doing a great job,” said Eric Goldwyn, a Ph.D. candidate at Columbia University who is an emerging authority on transportation issues. “They took advantage of a moment of weakness.”

Susan Shaheen, co-director of the Transportation Sustainability Research Center at the University of California, Berkeley, said when technology emerged that could improve customer service and significantly reduce wait times, the vast majority of taxi operations ignored it.

“A lot of companies were looking at moving toward an app-based platform, but it didn’t happen,” she said.

A study by Shaheen’s center last year compared wait times for TNC vehicles with those for traditional taxis, and the results were stark. While traditional taxis showed up within 10 minutes 43 percent of the time, TNCs made the 10-minute mark 93 percent of the time.

And most of those rides occurred well under the 10-minute benchmark.

“The vast majority of trips in the major urban areas in the U.S. are being fulfilled in three minutes or less, Uber and Lyft are now reporting,” Shaheen said. “Aside from that consistency and reliability, there’s also the cost factor. In many cases these services are coming in cheaper than the expense of a taxi.”

She sees the advent of the app-based transit companies as a wake-up call.

“That’s the story of innovation, right?” she said. “This happens in industries that don’t keep up with technological advancement.”

Uber is not only keeping up. It's setting the pace.

Uber Technologies has just launched a $2.1 billion financing round that will bring its value to $62.5 billion as it looks to expand its global reach. The company is investing heavily in Asia, especially China, where it plans to invest $1 billion.

It's also branching out, exploring food and package delivery services and experimenting with new technologies like self-driving cars, all while maintaining its grip on U.S. markets as competitors struggle to keep up.

Meanwhile, taxi companies throughout the U.S. report declining ridership as their riders turn to the quicker, customer-focused TNCs.

In Madison, Uber has all but cornered the TNC market, at least for now. Lyft, which after being first in the Madison market in February 2014, appears to be struggling.

“I don’t think they have very many vehicles in Madison,” said frequent Uber and Green Cab patron Scott Resnick, a former City Council member and mayoral candidate who had been a central player in the local debate over TNC regulation.

Lyft spokeswoman Mary Caroline Pruitt disputed that assertion.

“While I don't have driver numbers specific to Madison, I can tell you that Lyft's presence there has grown rapidly since we launched in February 2014,” Pruitt wrote in an email.

But a smartphone snapshot told a different story. While Uber’s app showed over 20 vehicles available for service in the Madison area on a recent Wednesday afternoon, only a single Lyft vehicle appeared on the company’s app.

Just how big a bite Uber is taking out of the local taxi business isn’t clear, since overall ridership is increasing, and the surprisingly strong performance by Green Cab has muddied the waters. But taxi companies that would have capitalized on growth in ridership are now scaling back their expectations.

“We used to grow at about a 7 percent rate per year,” said Madison Taxi general manager Rick Nesvacil. “Then we went down to like 5 percent. We’re down probably to about 3.5 percent growth as of right now.”

He points his finger directly at Uber drivers, who tend to hit the road at peak times like football games, special events and busy bar nights.

“Have we been hit? Depending on what time of day it is, yeah,” he said.

Two of the city’s taxi companies have not only scaled back growth projections, they’ve seen their business turn south.

City data shows that Union Cab, which provided just over 614,000 rides in 2011, dropped to just below 514,000 rides in 2014, reflecting a hit from both Uber and Green Cab.

“They’ve certainly taken a piece of the pie out there,” said Union Cab operations manager David Lee of Uber. “We’ve lost somewhere about 15 percent of our business.”

And Badger Cab, which provided more than 600,000 rides in 2011 and 2012, saw its numbers dip below 458,000 in 2014.

Badger’s Dentice said the company’s fortunes began to change well before the state passed the law regulating TNCs. The falloff, said Dentice, was because the companies were operating before they were legally authorized to do so.

Green Cab general manager Phil Anderson said that his company has been immune to the Uber onslaught.

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GREEN CAB

Green Cab general manager Phil Anderson.

“We know that they’re out there, we know that they’re operating,” Anderson said. “But it doesn’t seem to have slowed our business down.”

But while he won’t attribute it to Uber, he conceded that Green Cab’s growth rate was “a little flatter” over the summer than in the past, which prompted the company to reduce its number of drivers.

“Mainly because we’ve already done a lot of the growing that we’re going to do,” he said.

Badger Cab is fighting back by becoming more Uber-like, recently releasing its own mobile app that mirrors the smartphone platform used by Uber, Lyft and other TNCs.

Badger also recently landed a contract with Madison Metro to provide rides for elderly and disabled passengers that has helped it stay afloat.

Madison Taxi and Union Cab also have launched apps, hoping that they can capitalize on the demand for smartphone ride-hailing platforms.

Cab companies aren't just competing for riders. They're competing for drivers as well. As local taxi companies look to fill their ranks by posting "Help Wanted" signs on their cabs, Uber drivers are trolling the streets, waiting for that smartphone alert that will connect them with a nearby customer.

At least one local taxi manager reported drivers leaving for the opportunity afforded by Uber to work more flexible hours.

"I have a couple of older drivers who were driving for me left and went to Uber because they have second jobs or whatever," said Nesvacil of Madison taxi. "They’re still friends of mine."

“It’s definitely better pay than your average job, said Bob, an Uber driver who didn't want his real name used  for fear Uber would “deactivate” him if he said anything that could be construed as offensive to the transportation giant. "It’s nice that you can work for yourself and go out and expect to make at least $15 per hour. But it can be much more than that.”

A van driver for a local hotel, as well as an artist, Bob said he turns on the Uber app and trolls for rides when the chances for profit are greatest.

Here’s how it works: Uber has set fares for getting to and from locations in the area. Drivers keep 80 percent and the other 20 percent goes to Uber.

On occasion, as demand for rides rises, so does the price. This “surge pricing” comes at peak ride times, like morning and afternoon rush hours, when the cost of rides is pushed up two to three times the normal fare, or football games, which might surge the fare by a multiple of five or six. This past Halloween fares surged more than eight times the base price.

“I kicked myself because on Halloween I didn’t drive, but I looked at some of the surges and it was incredible,” said Bob. “I mean, I’d be interested to know what some of the drivers pulled in, because it was surging up to 8.5 times the amount.”

Alexander said the night earned him $500 over 10 hours.

“On a normal $10 ride I was getting like $65,” he said.

So why would riders pay such exorbitant fees? Convenience.

"On Halloween people were waiting 40 minutes for a cab, versus five or eight minutes" for Uber, Alexander said.

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UBER DRIVER

An Uber app on driver Nic Alexander's phone.

And keeping that kind of response time is of paramount importance to the company, whose main advantage is getting passengers on the road more quickly than conventional taxis.

“Every day, multiple times a day, I’m getting text messages from Uber like, ‘Get out there,’ ‘Get out on the road,’ ‘We need drivers on the road,’ ‘We could really use your help today,’” Bob said. “It’s just constant. They’re constantly begging drivers to get on the road.”

The company also offers drivers guaranteed hourly wages, sometimes $25 an hour, if they meet minimum requirements for the number of rides they provide, typically three per hour.

In order to receive such offers, however, drivers have to meet certain standards. While some drivers decide whether to take assignments based on location — traveling long distances from downtown can mean a non-lucrative drive back — the company expects its drivers to take at least 80 percent of rides they’re offered. And drivers have to maintain a rating by passengers of at least 4.7 out of a possible five.

“They kind of watch you,” said Bob. “If you’re a driver who turns down a lot of rides, there are things they can do to make you less of a preferred driver. They might not offer you the guarantees. You might not get some of those benefits that other drivers are getting.”

But a lot of Uber drivers treat it as a full-time job. Those drivers, Bob said, spend less time chasing the “heat maps,” graphic representations of surge-pricing opportunities, and more time doing the mundane ferrying of customers from place to place.

“They work 60 hours a week and they’re probably pulling in a lot of money,” he said. “They’re the drivers that I think Uber probably really loves because they’ll say, ‘OK, I’m going to work at 6 a.m. and I’m going to work all day today.’”

Bob goes for the high-dollar shifts. So he’s always listening for the “ping” on his smartphone alerting him to a surge.

“I’ll just turn the app on and see if it’s surging,” he said. “Or I’ll turn on the app and wait 10 minutes. If I don’t get a ping, I’ll turn it off and go about my day.”

But if the pings are coming, a shift can become an adrenaline-fueled rush.

“When you’re on the app it’s kind of addicting — the video game aspect of it,” he said. “You’re on the app and you’re waiting for it to ‘ping,’ and when it pings it’s like money in the bank. You go out, you get the ride, you finish it, and you’re kind of hoping that it’ll ping during the surging times.

"You’re watching the heat map of the surges, you can see where those surges are, where in town you’ll get a 2.5 surge.”

So imagine 40 Uber drivers on a busy weekend night, all responding to surge “pings” and chasing the opportunity afforded on the heat map.

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“By the time you get over there every other driver in town is trying to get over there,” Bob said. “Now there’s a surplus of drivers in that area, and the heat map goes away almost instantly.”

Critics say Uber’s popularity with drivers is a huge balloon just waiting to be popped. With gas prices low, drivers can still make a good profit paying under $2 an hour for fuel. But when their vehicles break down, the drivers’ business model falls apart.

Nesvacil, of Madison Taxi, said with gas, maintenance, depreciation and insurance, it costs about $1.22 a mile to operate a taxi, and that doesn’t include wages.

And while Uber drivers can skirt the insurance costs — the company pays for insurance while drivers are logged onto the app — maintenance costs are destined to eat into their bottom line.

“I haven’t had any major repairs yet,” said Uber driver Alexander. “But I’m sure they’ll come.”

Goldwyn, the Columbia University grad student, said a major vehicle repair can be the turning point for an Uber driver.

“It’s one thing for me to get a new car and make, say, $1,000 a week,” he said. “But then my car breaks down and I get a $7,000 bill. Then I might be reticent to go back on the road.”

That’s not a problem for Uber, which has tapped into a seemingly inexhaustible labor supply.

“You can afford to lose 1,000 drivers every month, and then just put on another 1,000,” Goldwyn said. “You’re not going to exhaust your pool of drivers just yet. That’s where their real strength is. They can just burn through labor.”

But while Uber and companies like it might have no problem finding drivers, those drivers are becoming their biggest liability.

In October, Ramy Kabany, a former Uber driver, filed a $15,000 claim with the California Department of Industrial Relations to cover the cost of gas, maintenance and repairs. The decision will determine whether Kabany was an employee of the company or, like Uber maintains, an independent contractor.

While the case is non-binding, meaning that it pertains only to Kabany, the department has ruled in favor of another Uber driver, determining that Uber owed her $4,152 in expenses. And other cases are mounting.

Most significantly, a pending California class action suit could determine the employment status of more than 100,000 drivers, which could undercut the business model that has made Uber’s phenomenal growth possible.

Local taxi companies are watching the case closely, hoping it will level the playing field that they say allows Uber to offer lower rates during slow times by skirting payroll taxes, workers comp, reimbursement for vehicle upkeep and other costs.

“We have expenses like everybody else does,” said Nesvacil of Madison Taxi. “But when you don’t have the overhead to pay, you can be cheaper.”

Not to mention the fact that Madison Taxi and Union Cab pay employee wages. Green Cab and Badger charge daily fees to drivers to rent the cabs and pay for insurance.

“They don’t understand that these people are actually making a living here,” Nescavil said. “This is how they feed their families. Nobody thought about having an extra 100 cabs on the streets, how much it affects the drivers themselves in the cars. My guys are commissioned drivers. They’re employees. We give them sick days, we give them vacation days.”

Some taxi drivers make Uber-like money without the threat of a vehicle breakdown wiping out a month’s worth of earnings.

Fred Schepartz has worked for Union Cab for 27 years. His seniority comes with perks: While new drivers pull in 36 percent of the revenue they generate, Schepartz brings in 55 percent, making for yearly earnings of between $30,000 and $40,000.

And he’s resentful of a system of loosely regulated drivers, who he said threaten the existence of an integral part of the city’s transportation system.

“I have no problem whatsoever working in a regulated industry,” he said. “Because to me, it’s not so much a sense of working in a regulated industry as I view it as working in the public trust. To me the Madison city taxicab regulations is a moral document. It’s a statement saying that we as a community believe that taxicabs are part of the public transportation infrastructure.”

Nesvacil and the other taxi company officials and drivers were stung when the state passed legislation barring municipalities from imposing regulations on Uber and setting less stringent rules than Madison had adopted.

The city wanted to force Uber to provide 24-hour service, require vehicle inspections, provide service throughout the city, prohibit surge pricing and subject drivers to police background checks. The state Legislature passed a bill that included none of those requirements except the background checks, and the law left it to the companies to conduct those.

Resnick had proposed regulations modeled on an ordinance in Seattle, which provided more oversight than the state law, but less than the ordinance passed by the Madison City Council. He said the deal was acceptable to Uber and Lyft.

“There was always this looming conversation that if for whatever reason Madison sets forward with regulations that were just unworkable for their model they were going to go to the state,” said Resnick. “At no time were they bluffing.”

When Madison passed its regulations, Uber shelled out more than $34,000 in lobbying expenses to push for the state law, which passed with bipartisan support.

But now that Uber is operating above-board, Resnick has no problems utilizing it, although for local rides Green Cab is his first choice.

“One of the other cab companies, I missed an appointment because they didn’t show up,” he said. “So now I’m using Green Cab.”

Like millions of other travelers, however, Resnick will use Uber while traveling. Rather than download local taxi apps from multiple locales, Uber provides an app that works anywhere.

It’s an advantage that local companies aren’t likely to overcome.

“Obviously they do better with people traveling in from out of town because you can use the Uber app or the Lyft app all over the country, whereas our app is specific only to our operation here in Madison,” Green Cab’s Anderson said.

But Shaheen said taxi companies in general are starting to get the message, not only by improving their performance in providing prompt service, but other more subtle ways as well.

“They are trying to change their services,” she said. “I was in a taxi yesterday down in Burbank and the guy was offering me water. That’s the first time I ever had a taxi driver offer me a bottle of water.”

Uber driver Bob said Uber’s rating system is a continual motivation to make his riders’ experience a pleasant one.

The day-in, day-out pressure can be wearing, but the flexibility of the job makes it worth it — at least for now.

“One thing that’s interesting about Uber, and that’s kind of the glory of it, is you can think about it however you want,” Bob said. “You can call it a full-time job. You’re average would probably be pretty good. Some days you catch a surge, some days you don’t. But overall there’s generally rides to pick up somewhere. And it’ll probably work out in your favor.

"But for me, I’m trying to get the big bucks, and it doesn’t always work out that way.”

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Steven Elbow joined The Capital Times in 1999 and has covered law enforcement in addition to city, county and state government. He has also worked for the Portage Daily Register and has written for the Isthmus weekly newspaper in Madison.