When Uber Leaves, What Happens?

Uber and Lyft have stopped or threatened to stop serving cities around the country. When they actually do, start-ups and riders scramble to fill the hole.
by | June 15, 2016
Downtown Austin (Shutterstock)

When Michael Leto heard the news last month that Uber and Lyft were pulling out of Austin, Texas, because of an ordinance regarding driver background checks, he hopped on the first flight there. As the CEO of a Phoenix-based ride-hailing company called Fare, Leto saw an opportunity too good to pass up.

Leto arrived in Austin on a Monday afternoon, met with the mayor on Tuesday and got approval to operate in the city the following Friday. In Fare’s first two weeks there, the company had already paid nearly 1,300 drivers for roughly 20,000 trips. The business in Austin is so good, Leto said, he’s planning on moving his company headquarters there.

For smaller ride-hailing companies like Fare, the prospect of a suddenly wide-open marketplace -- one without the 800-pound gorillas of Lyft and Uber in a city full of drivers and riders already accustomed to the concept of ride-sharing -- is an unprecedented business opportunity. The scramble to build the “next Uber” in Austin has been rapid. With more than 900,000 residents, a huge university, active nightlife and a tech-savvy workforce, Austin represents an ideal test bed for new tech services.

Since Uber and Lyft left Austin, half a dozen ride-sharing operators have secured the city’s permission to operate, and a soon-to-launch nonprofit is likely to join the list soon. Another company is linking people to rides on a Facebook group while it perfects its peer-to-peer technology.

“You think about competing with multibillion-dollar companies, and then you show up in a city where all of the infrastructure and training have already been done," said Leto. "It’s been quite a nice transition for us to come to Austin."

Uber and Lyft, the nation's two leading ride-hailing providers, announced they would exit Austin almost immediately after voters there opted to keep a city ordinance requiring fingerprint-based background checks for prospective drivers. The two companies spent more than $8 million supporting a May 7 ballot measure that would have overturned the fingerprinting requirement, but Austin residents soundly rejected it. Uber and Lyft announced less than two days later that they would leave. Some former drivers -- who are likely out of work -- have since sued the companies, claiming they broke federal law by ceasing operations without enough warning.

Austin's experience could affect decisions in the many other U.S. cities that are considering fingerprint-based background checks for ride-hailing services. New York City, Houston and a handful of smaller Texas cities already impose similar requirements. Uber and Lyft continue to operate in New York, but Lyft left Houston after it enacted its fingerprinting law and Uber is now threatening to do the same. Uber also left the smaller Texas cities with fingerprinting requirements.

Austin marks the first place where the public, which Uber often rallies to its side against regulators and policymakers, rejected its policies. Now it could also be the place that shows whether Uber and Lyft are indispensable.

So far, though, it's unclear how exactly the companies' departure will impact Austin residents. Demand for rides right now is typically lower than at other times of year. The spring semester for the University of Texas, which enrolls 51,000 students, ended the day before the vote, leaving fewer potential passengers in town. Tourism season hasn’t kicked into high gear yet, and some of the city's largest draws won't occur for months -- including the Austin City Limits music festival, which begins in September, and South by Southwest, slated for next spring.

For the drivers -- many of whom lost their livelihoods when Uber and Lyft left -- the city has worked to help them bounce back. It's held a job fair to match drivers with new companies and helped set up a hotline to assist former Uber and Lyft drivers in finding work or getting services like unemployment.

“Uber and Lyft left their drivers, in particular, and their riders, in the lurch,” said Councilmember Ann Kitchen, who heads the city council committee that drafted the safety rules for ride-hailing companies.

The city can’t favor any of the companies, but it has offered services for all of the drivers and companies that have shown interest.

Kitchen also said that the surge of companies applying to operate in Austin shows that the ordinance is not overly restrictive.

“We always said that Austin is a great market, and we expected there to be TNCs [transportation network companies] that wanted to come to Austin that would operate within the public safety values and requirements of the community," she said. "That’s what all of these TNCs are doing.”

Many of the new arrivals offer services they hope will set them apart from Uber or Lyft, should they ever decide to come back. Several promise not to use surge pricing -- one of users' biggest complaints about Uber. Others let users schedule trips ahead of time -- a feature Uber only recently added. Fare allows users to select preferred drivers if they're nearby.

Meanwhile, residents looking for rides have explored new ways of finding them. A Facebook group of 32,000 people links passengers with prospective drivers who agree to fares and modes of payment ahead of time. The page is coordinated by Arcade City, a company developing an app that would directly connect drivers and passengers “with no middleman.” Arcade City’s website touts its approach as an “Uber-killer” but warns, “Just don’t ask for our fingerprints.”

Most new entrants, though, say they will abide by the city-mandated fingerprinting requirements. The city received 1,753 requests for the background checks in the four weeks after Uber and Lyft left. Not all of those are for drivers for ride-hailing apps (taxi drivers and chauffeurs, among others, must also go through background checks). But it appears most are, because 1,600 people have told the city to share the results with ride-hailing companies.

Of the 1,753 background checks requested, the city has processed 1,514. The vast majority (1,207) turned up clear records. Another 307 required further investigation. Of those, 175 were from drivers who want to work for ride-hailing companies.

Companies are required to have at least 50 percent of their drivers undergo the background checks by August 1 and 99 percent by February 2017. Drivers who have more than three moving violations, who have been charged with driving without insurance or who have been charged with driving on a suspended license are prohibited from driving for TNCs. Ride-hailing operators who violate the ordinance face fines of at least $500 per offense.

One reason companies have rushed into Austin so quickly is that they know Lyft and Uber could return anytime they want, so long as they agree to abide by the background measure. The companies could also seek state legislation to preempt the Austin ordinance -- and another like it in Houston -- when the Texas legislature returns next spring. In fact, the ride-hailing companies did exactly that two years ago in Ohio after Columbus passed a fingerprinting requirement.

Neither company responded to requests for comment.