Digital Disruption Uber-Style Is Never Pretty

The legal and regulatory backlash that ride-sharing company Uber faces in Germany will play out across many more industries.

Rob Preston, VP & Editor in Chief, InformationWeek

September 4, 2014

4 Min Read

Old economy vs. new economy is a meme that goes back decades, but it's bursting back into prominence as governments, regulators, and entrenched industry groups take on a range of digital disruptors in the name of competitive fairness, consumer protection, and tax collection. A German court's ruling this week banning two of Uber's digitally based car-sharing services in the country is but the latest, most overt example.

A regional court in Frankfurt issued an injunction that temporarily stops the company from operating its Uber and UberPop ride-sharing services anywhere in Germany. The rationale? The two services constitute unfair competition because, by using unregistered drivers who don't pay standard taxi insurance rates and other fees, Uber can undercut the prices of mainstream competitors.

The court ruling -- which doesn't apply to Uber's premium service, which relies on registered drivers -- came in response to a suit filed by Taxi Deutschland, a nationwide association of dispatchers. The association also claims that Uber and its drivers aren't paying their fair share of taxes.

[Big data, social business, and other factors are coming together to cause disruption across all industries. Here's how to stay ahead of the curve: Future Of Work: 5 Trends for CIOs.]

Uber, which continues to operate in Germany despite the threat of fines and jail time, reports that it has experienced a steep rise in signups in the country following the court ban, just as it did in England earlier this year following a protest in London against Uber's treatment by the local transportation agency. So much for a chilling effect. Uber says it will be able to operate legally in Germany once its application appealing the court ruling is accepted. A formal hearing is expected in about four weeks.

Uber, of course, isn't the only digital pioneer that entrenched interests have tried to stop or slow down. The big music labels squashed Napster after their claims of copyright infringement were upheld. State sales tax collectors are now getting their pound of flesh out of The state of Minnesota initially threatened to prevent institutions using Coursera's MOOC software from offering online courses to state residents without prior authorization, though the state eventually backed down. Local regulators and tax authorities are trying to crack down on Airbnb's digital room-sharing (and potentially dinner party) services, claiming they amount to running illegal hotels (and restaurants). FedEx's Fred Smith, a tech-astute CEO, has called most of the reporting about package-delivering drones "mythology," even as FedEx does its own drone testing.

Author and economist Jeremy Rifkin calls this digital revolution a Collaborative Commons, whereby Internet-based providers draw on a range of drivers, music sharers, home and textbook renters, knowledge dispensers, and other "prosumers" to undercut established rivals. (In a statement, Taxi Deutschland head Dieter Schlenker hilariously called it a "Locust-like Sharing Economy.")

One man's horde of locusts is another man's swarm of innovators. Still, we can't ignore the legitimate concerns. Even though it's easy to copy and distribute music, movies, and other forms of digital entertainment without paying for the privilege, that doesn't make it acceptable for Napster and the scores of copyright violators that followed it to engage in the practice. The FAA is right to ask hard questions about the safety of commercial drones used for everything from delivering lingerie to inspecting railroad ties. Here's a grayer area: Should certain healthcare apps be subject to FDA approval?

In any regulated business or industry, there's a middle ground somewhere. Airbnb provides a valuable service; it has filled a void in the hotel market. But should home renters not have to pay standard hotel occupancy taxes? And should you have to live next to a home operated like a B&B when you bought your home in a non-commercial zone?

Likewise, Uber shouldn't be banned because its low prices are "anticompetitive." The conventional taxicab players need to get more efficient. This is a wake-up call. Many of them are still about as sophisticated as Taxi's Louie DePalma. Meantime, however, expect the cost of Uber and like services to rise as insurers identify consumer customers acting as commercial drivers and raise their rates.

We'll see many more of these battles play out across industries. Expect lots more protests, lawsuits, and over-the-top accusations -- and even more ugly disruption. (Uber reportedly is employing hardball tactics against its top competitor, Lyft, a case of one disruptor trying to disrupt another.) Capitalism is rarely pretty.

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About the Author(s)

Rob Preston

VP & Editor in Chief, InformationWeek

Rob Preston currently serves as VP and editor in chief of InformationWeek, where he oversees the editorial content and direction of its various website, digital magazine, Webcast, live and virtual event, and other products. Rob has 25 years of experience in high-tech publishing and media, during which time he has been a senior-level editor at CommunicationsWeek, CommunicationsWeek International, InternetWeek, and Network Computing. Rob has a B.A. in journalism from St. Bonaventure University and an M.A. in economics from Binghamton University.

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