The decision by New York City to drop a proposed bill that would limit growth of for-hire vehicle (FHV) companies – such as Uber and Lyft – attracted significant media attention. Based on prior analysis, we reiterate our view that the status of providers (i.e., employees versus independent contractors) poses a greater risk to FHV companies.
The proposed bill, backed by Mayor Bill de Blasio and designed to address traffic congestion, would have capped vehicle growth to 1% annually for FHV companies with 500 or more vehicles. The cap would have been in place through April 2016 while the city studied FHVs’ impact on traffic.
While the agreement is positive for Uber, it doesn’t entirely alleviate the risk of regulatory action against the company. NYC is now conducting a four-month study of congestion and air pollution, implying the issue could resurface upon the study’s completion. As part of the agreement, Uber is releasing data about its operations in the city, a significant move for a company that’s been notoriously secretive about sharing ride data. It has also agreed to maintain its current rate of driver growth of around 3% per month.
Uber’s agreement with NYC comes on the heels of another regulatory challenge in which the California Labor Commissioner said that a driver for Uber should be classified as an employee, not an independent contractor. Uber had to reimburse the driver for expenses and other costs incurred while working as an Uber driver. Uber is appealing the decision.
We acknowledge that politics are at play, and the outcomes of such situations are particularly difficult to forecast. To assess the significance of these events, we reference our Distributed Marketplace Company (DMC) taxonomy (Figure 1), which helps investors identify the salient characteristics and key relationships in the distributed marketplace in order to evaluate the opportunities and risks associated with each company.
Download our full report here.
For more information, see our Flagship Report, “Dissecting the ‘Sharing Economy’: Business model opportunities and risks,” dated June 9, 2015.Michael Shavel, CFA, is a Global Thematic Analyst at Cornerstone Capital Group and a former Research Analyst at AllianceBernstein’s Global Growth and Thematic team.