Opinion

Uber, Lyft, and Popping Chicago’s Medallion Bubble

I love Chicago — I’ve lived here for 16 years. The pace and opportunity drew me out of rural Illinois. For me there’s an addictive energy to the city; you can almost feel the machine moving around you. And, as someone who is always thinking about and working with technology, city life has the advantage of all the latest and greatest.

Case in point: Chicago was one of the first cities to get Uber and Lyft. As I try to recall the various technologies that have changed Chicago since I moved here, it’s hard to think of one more impactful than ride-hailing apps. It has changed the way we get around and had a significant and lasting impact on one of the most regulated businesses in Chicago: taxicabs.

Ride-hailing companies and their drivers, for the most part, are able to avoid taxicab laws by pre-arranging rides as opposed to being hailed directly off the street. Like many other cities, Chicago tightly controls the number of official “taxicabs.” To operate one you need one of the city’s 6,900 “Taxicab Medallions,” which are literally metal medallions that physically attach to the car. These medallions are owned by taxi companies large and small, and a hefty tax is paid to the city whenever one is sold. For smaller taxicab companies (sometimes only one person) the owners tend to be the drivers, while companies with many medallions usually rent their cars out to drivers.

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With increasing demand and little change to supply, medallion values began to rise rapidly in 2006. By 2013 prices had peaked at more than $360k, up nearly 5x in just 7 years. Arguments can be made for the benefits of limiting supply, but when a medallion costs twice the median home value, something sure seems wrong, especially when you consider that medallion ownership had been an obtainable piece of the American dream for many drivers just a few years earlier. At the same time, this highly regulated monopoly had become more lucrative than ever for city hall.

Having taken my fair share of cabs during that time, I believe the quality and upkeep of the vehicles and the attitudes of many drivers were adversely affected by these inflated medallion prices, particularly the majority of drivers who rented cabs. Adding fuel to the fire was a variety of rising operating costs and ancient dispatch and payment processing systems. Ordering a cab by phone involved a lot of finger crossing, and I remember several occasions where my driver erupted in anger after finding out I wanted to pay with a credit card (even after accepting cards had become required by law).

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Consumers were more than ready for a change, as were many drivers — the timing couldn’t have been better for Uber and Lyft.

In Chicago, Uber started as a black car service, priced a bit higher than a taxi. But over time they added more levels of service, the most notable of which was the ultimate medallion-killer UberX. Lyft made its Chicago debut shortly after. From the start, I knew I would never pay for another taxi in Chicago again. With drivers able to use their own cars, rides were now much cheaper than taxis, and the apps gave a new level of control and information to riders and drivers alike. On top of it all, the drivers had a noticeably positive attitude and a certain excitement about them.

Chicago’s medallion bubble had popped, eventually sending prices back down to the $75k range where they hover today. This has forced some unlucky medallion owners into bankruptcy and wreaked havoc on the financial institutions that used them as collateral for loans.  But for the vast majority, finding a way to circumvent this state-sponsored monopoly has been a great thing, with most people embracing the companies that did it.

This year, however, a landslide of negative press about Uber has begun to change some minds, and I find some irony in it. I welcomed Uber with open arms; they were an innovator, and a rule-breaker with the courage to stand up to “the man.” They truly affected change at a time when the consumers (and drivers) needed it, and we’re still benefiting today. But, when you build a company around bending and circumventing the rules, can that actually penetrate the company culture and have a negative impact on the psyche of employees? And how might that trickle down to drivers and riders?

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I don’t have the big answers here, but what I find interesting is the contrasting light this news sheds on Uber’s closest competition, Lyft. Being friendly and treating people right has always been central to Lyft’s business and marketing, so much so that they had to turn it down a notch a few years ago. But now, as its biggest competition seems to be veering off in the opposite direction, a culture of being good to people is really paying off. And, it’s not just riders who are turning to Lyft: I’ve had two drivers this year tell me they used to drive for both Uber and Lyft (very common these days), but switched to Lyft exclusively. Their reasons essentially boiled down to both ethics and Lyft simply treating them better.

Whether or not Uber truly deserves this shit-storm is hard to say. I’ve used Uber hundreds of times across North America and the UK, and almost always have had a great experience, but I have not worked with Uber outside of being a rider. I have however had the pleasure of working with Lyft’s Marketing teams in several cities. I can also say for certain that there is something particularly outstanding about Lyft’s corporate attitude and culture, and it shines through in their employees and the way they do business.

It’s an exciting time in public transportation, and we couldn’t be more proud to have Lyft as a client. And to Lyft, we’d like to give a big “thank you” for allowing us to share in this case study some of the great things we have achieved together.

Keep it real, Lyft!

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CommuteStream aims to redefine the public transit experience and how businesses interact with riders. CS makes affordable transit-mobile advertising products that are highly targeted and scalable — specializing in driving foot traffic and mobile interactions. We learn the travel patterns of riders, matching individuals with the most relevant ads.

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