Lyft & Uber Win Small Victory In Internet's War With Taxi Industry [Updated]

[Update: On Thursday, Uber announced that it had reached an agreement with the California Public Utilities Commission "confirming that Uber is legal in California and suspending the prior complaints and fines levied against the company." Uber also said its agreement "states that ride-sharing — or rides provided by drivers not specifically licensed to drive a limousine or taxi — is legal too."] 

California regulators have shown that they are open to shaking up the taxicab industry. The state Public Utilities Commission has lifted a cease-and-desist order imposed on ride-sharing service Zimride and withdrew a $20,000 fine. The action was taken after the CPUC reached an agreement with the company that allows it to operate while the commission considers permanent rules for operating services that use mobile apps to match motorists with people needing a ride.

Over the last year, e-hailing services have battled regulators, politicians and the taxi industry in New York, Washington, D.C., Chicago and San Francisco. While regulators have said rider safety is the priority, skeptics have claimed resistance has more to do with protecting the taxicab industry.

The Deal

The CPUC-Zimride deal reached Wednesday shows that California is willing to work with the new ride-sharing services. It's also in line with the position of the International Association of Transportation Regulators, which has said all along that  rule makers were not in the pocket of taxi companies.

"The regulators are pushing change and they're pushing technology," Matthew Daus, president of the IATR, says. The IATR is a professional association of municipal, county, state and federal transportation regulators.

Zimride operates the Lyft service in San Francisco. Its drivers are recognizable through the large, wooly pink moustache attached to the front of their cars.

The CPUC agreed to let Zimride operate for the time being, as long as the company continued with the safety measures it already had in place. Those included $1 million in excess liability insurance covering each of its drivers, who also have to undergo a criminal background check and have a clear driving record with the Department of Motor Vehicles. In addition, Lyft conducts in-person screening and vehicle inspection.

Unaffected by the agreement are Zimride rivals SideCar and Uber. (Update, Uber has now reached its own agreement with the CPUC.) Each of them still faces a $20,000 fine and a cease-and-desist notice the CPUC imposed on all three companies last November for running unlicensed taxi services.

Taxi Industry Gripes

The Zimride agreement is only temporary and no one can predict the CPUC's final rules. However, they are likely to take under consideration the gripes of taxicab companies.

To the taxicab industry, whether a company owns a fleet of cars or not, if it dispatches vehicles to pick up passengers, then it’s a taxi service. As a result, the same rules and regulations that apply to a taxicab company should also apply to e-hailing services.

The IATR is sympathetic to that argument. "That's not American," Daus says of favoring one competitor over another. "Everybody should have a level playing field."

Who plays in that field will depend on how regulators eventually define a taxicab service, in light of companies like Zimride. E-hailing services do not want to be a part of that heavily regulated industry.

Don't Call Me A Taxi Service

Indeed, Zimride does everything it can to not appear like a taxi service. Instead of fares, the company collects voluntary "donations" from passengers to give to drivers after Zimride takes its cut. The company also likes to talk about the "community" of people helping it provide transportation alternatives.

Don't let all this happy talk fool you. Zimride is a business that has raised $7.5 million in funding since it was founded in 2007. Investors include Mayfield Fund, Floodgate Fund and K9 Ventures.

On Wednesday, AOL's TechCrunch reported that Zimride had closed a new, $15 million round of funding led by Founders Fund. The company has declined comment.

Investors spend money on businesses, not communities, and Zimride holds the promise of solid returns. On the same day of the PUC deal, the company said Lyft would start operating in Los Angeles on Thursday.

If regulated as a taxi service, Zimride will find it much tougher to grow than if it is seen as only a mobile app maker that arranges rides. While the CPUC has given it a temporary green light, the potentially game-changing decisions for the taxi industry have yet to be made.

Image courtesy of Shutterstock.