Talking Business

Kansas City’s battle with Lyft reveals the bumpy ride to the ‘sharing economy’

With the arrival of app-driven transportation services, Kansas City is getting a front-seat view but a bumpy ride on the way to the “sharing economy” driven by a new wave of tech-savvy entrepreneurs.

The new guys, author and money manager Zachary Karabell wrote in Slate, want to commit commerce without “mediation by the powers that have traditionally controlled those transactions.”

Those “powers” are the governmental bodies and regulators that set and monitor the rules of commerce and public safety.

You have Lyft and Uber and zTrip, ride-sharing services that rely on smart-phone apps to match volunteer drivers with people needing, well, a lift. Fares are “suggested” and negotiable, sort of.

There’s Airbnb, where through the Internet people can rent spare bedrooms to travelers for a night or two or three.

Similarly, Tesla wants to sell cars directly to consumers through its own stores or the Internet instead of through state-licensed dealerships. And Aereo and other attempts at Internet-based television want to disrupt the cable TV industry franchise and allow you to buy just the TV channels you want.

The sharing-economy companies are counting on their innovations, their frequently cheaper prices and their coolness factor, especially with younger consumers.

They’re aggressively entering new markets, often just trying to blow past federal and state regulatory hurdles.

Challenging the gendarmes — “we’re here, now deal with it” — seems to be a marketing strategy, generating news coverage and spreading the word without cost.

Traditional companies that have suddenly found their business models under attack are responding, often with their own innovations. That’s certainly good for consumers.

But they’re also fighting on the regulatory front, arguing that the new guys should play by the same rules: Pay the licensing and franchise fees, pay for and undergo safety inspections, buy proper insurance and comply with various laws.

The operator of Yellow Cab in Kansas City, Bill George, said his company already has an app to hail a cab, and he’s not afraid of the competition — as long as it’s regulated the way he is.

In Kansas City and other cities, the ride-sharing services face questions about how they screen drivers and make sure the cars they’re using are safe. Another unresolved problem is insurance. Last week, Lyft announced it was partnering with MetLife to “develop insurance solutions.”

Governments and regulators are in a tough spot. Existing laws and regulations were developed over decades. Public safety must be assured, consumers shouldn’t be hoodwinked, and business competitors must be assured fair play.

But we also value innovations that add to consumer choice. Older companies that fail to adapt face “creative destruction.”

We don’t want existing laws to unfairly protect entrenched companies. We don’t like it when those with money or power can influence legislators and regulators to make it hard on game-changing businesses.

In a big-picture sense, the new economy companies argue that direct selling or the services they provide are just arrangements between individuals. So what business does government have interfering?

To adjust to the sharing economy, governments and regulators should be considering whether new technologies that in the end empower consumers require new regulatory frameworks.

For instance, Lyft and other ride-sharing services allow riders to rate their drivers, and those ratings are instantly available to other potential users. Airbnb is set up the same way.

And because Lyft drivers aren’t employees and Airbnb hosts are selling their own extra rooms, if there’s a problem, the companies can just remove them from their servers.

The ride-sharing companies also assure us they can adequately screen drivers and ensure drivers and their cars are safe without going through an expensive governmental and bureaucratic process. If they can, why not the cab companies, saving them thousands of dollars, too?

Instead of making the new companies fit into the old regulatory frameworks, governments could recast new laws that help both the new and traditional companies.

But governments and regulators seem behind the curve. (Not that surprising, is it?)

Karabell pointed out that in New York, Attorney General Eric Schneiderman is demanding records from Airbnb in an investigation into whether its “hosts” are acting as unregistered hotels.

“The only question,” Schneiderman said, “is how long it will take for these cyber cowboys to realize that working with the sheriffs is both good business and the right thing to do.”

Last week the Missouri General Assembly suddenly took up a measure to bar Tesla’s company-owned stores and mandate that people buy vehicles only through franchised dealers.

Also last week, the Kansas City Council quickly closed a loophole in city laws to make it clear that just because ride-sharing companies don’t charge “fares” they still have to comply with standard municipal taxicab rules.

And on Monday, the city filed a court action seeking a temporary restraining order to stop Lyft in its tracks.

So much for rethinking current regulations.

Last week, you could sense Mayor Sly James squirming. Especially because, as he wrote in a blog post before the council action, the city is “trying to be the most entrepreneurial city in the nation.”

But just waving the ride-sharing companies into the city, the mayor said, “would be an affront to our duty to ensure public welfare.”

As for Lyft, “Just because complying with public safety regulations does not meet a company’s public relations/marketing timeline, that does not preclude their obligation to do so, nor does it allow us to waive our responsibilities because the concept is popular on Twitter.”

Recogizing that younger voters are at stake, James emphasized that the city wants to cooperate with the new players, and that zTrip is already operating here legally. And that doing so is in fact innovative and entrepreneurial.

“We’ll be ready to give them a green light,” James said of the new companies.

But based on what the council did, and now the resort to court action, Kansas City is hanging out a flashing red.

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