California’s Bay Area is moving towards a new means of transportation, but not if the state government can have its way. SideCar is a San Francisco-based startup that offers real-time ridesharing to a community of smartphone users who need transportation throughout the city. The obvious goal of the business is to transport users around the city quickly and at a lower rate than alternatives, but it also has added social benefits.
The SideCar community is comprised of independent drivers who use their own vehicles to give rides to unknown users who place requests using an iOS or Android app. Extensive background checks are performed on each driver and SideCar ensures that each driver has a good driving history, a license, and is insured. SideCar also handles payments to the drivers, which are optional donations: a practice the startup thought would help avoid legal issues.
To many this seems like an innovative way to travel locally in a community that increasingly relies on technology, but the California government thinks differently. The California Public Utilities Commission (CPUC), backed by taxi driver lobbyists, characterizes SideCar as a car service and claims it does not have the proper permits or authority to operate such a service. CPUC served the company (and other ride-share startups) with a cease-and-desist letter and a $20k fine for operating a car service illegally. However, Sidecar maintains that it is not a car service. The company only provides the communication resources to permit community members to arrange their own car service and therefore does not need the permits and authority necessary to operate a car service. SideCar compares categorizing the service it provides as a car service to labeling Airbnb as a hotel chain, Travelocity as an airline, or Ebay as a store.
Despite threats from CPUC, eager investors have not been deterred from providing more than $10 million in funding to the startup. SideCar plans to use the capital to expand outside the Bay Area and double the size of its staff (currently, SideCar has 20 employees).
The California government faces the common challenge of trying to fit new technology (ride-share startups like SideCar) into existing regulations. CPUC traditionally regulates privately owned electric, telecommunications, water, transit, and passenger transportation companies. Do ride-share startups fit into this class or do they require new regulations? California has an interest in regulating new businesses, but must do so without sacrificing innovation. Legislatures and courts across the country have struggled to extend existing law to cover new developments in technology over the last few decades. Just as the taxi drivers in San Francisco feel threatened by ride-share startups, telephone companies once unsuccessfully tried to ward off Internet telephony in its infancy. Sometimes it is necessary to create new regulations since the old ones simply were not designed with such drastic changes in technology in mind.