I’m an idealist, it’s always been a problem of mine and I do apologize in advance.
—Travis Kalanick, open letter to Washington, DC, city council members1
Until this point in its brief but eventful history, Uber had moved with relative caution into new cities. Though Travis Kalanick and his colleagues had come to distrust taxi ordinances as schemes designed to protect incumbents and their shoddy levels of service from new competition, they examined local laws closely and were flexible when required. Uber was by and large a law-abider, not a law-bender. Over the next two years, and for surprising reasons, that changed.
In 2012, the company would come face to face with steely regulators, an international rival with aggressive expansion plans, and, unlikeliest of all, possible disruption from two other Silicon Valley upstarts that were ready to discard taxi laws altogether. These events would bring out Kalanick’s remarkable adaptiveness as well as his fierce competitive streak, with heady ramifications for the company, American cities—even the world.
On January 11, 2012, at 10:35 a.m., a short, cryptic message from a rider-advocacy group called DC Taxi Watch quoted the top taxi official in the U.S. capital. Chairman Linton: @uber DC is operating illegally, it read.
The Tweet was sent from inside the drab, postwar DC Taxicab Commission headquarters in Anacostia. The city’s taxi drivers had packed a normally sleepy hearing to make their voices heard. Uber’s town-car drivers, they argued, had been illegally operating for the past two months.
Ron Linton was inclined to agree. Appointed only six months before by Mayor Vincent C. Gray to head the taxicab commission, Linton was in his early eighties. He was an avuncular policy planner and longtime reserve officer in the city police department who wore a stern disposition and an obvious toupee. Like his counterpart Christiane Hayashi in San Francisco, he fashioned himself an agent of change and was determined to modernize the capital’s pitifully antiquated taxis, which ignored minority neighborhoods and didn’t accept credit cards. They didn’t even have dome lights or a uniform color to distinguish them from other cars. But Linton was hell-bent on doing it from inside the industry and preserving the jobs of the region’s eighty-five hundred licensed drivers. Uber is “operating illegally, and we plan to take steps against them,” Linton assured the boisterous drivers at the meeting.2
Uber’s DC general manager, Rachel Holt, was just settling into her new office when she saw the Tweet from the hearing. As in the other cities Uber had entered, the maze of local taxi regulations didn’t seem to explicitly prohibit the company’s service. In DC, yellow cabs had to use taximeters to calculate fares, while limos could only charge a prearranged fare. But there was a third classification in the bylaws, under section 1299.1 in the District of Columbia Municipal Regulations, which seemingly contradicted the other two rules by stipulating that sedans carrying six passengers or fewer could charge on the basis of time and mileage.3 Uber’s approach clearly qualified.
Holt was a former Bain consultant and marketing manager at consumer-goods maker Clorox, in Oakland, whose fiancé worked in DC. When she started looking for a job in the capital, she had one important condition: “The only thing I knew I didn’t want to do was politics,” she says. A friend showed her a job posting at Uber, which was looking for someone to lead the rollout in Washington. After meeting Graves and Kalanick, she says she became excited about the autonomy that came with being “CEO of a city” and working for a young, promising startup. She spent her first month in San Francisco, then logged a month at the office in New York, learning the ropes and helping Graves and Geidt to reframe the New York strategy. After that, she moved to DC. Uber started facilitating rides there in November 2011 and officially launched in December. It didn’t take long to get the region’s cosseted taxi drivers, unaccustomed to new competition, steaming mad.
After she saw the Tweet from the taxicab commission hearing, Holt e-mailed Linton’s office asking for a clarification. She was told she would hear back within forty-eight hours. That was a Wednesday. Ron Linton was true to his word. On Friday, his office tipped local press to assemble outside the Mayflower Hotel on Connecticut Avenue. The chairman then ordered an Uber town car from the Cleveland Park neighborhood and took it to the hotel, where he was met at the circular driveway by five hack inspectors from the DC Taxicab Commission.
Surrounded by three reporters, the officers slapped the stunned driver with $1,650 in fines for driving an unlicensed vehicle in the District and not having proof of insurance on hand, among other infractions. Then they impounded his car for the Martin Luther King Day long weekend. Standing in front of the press, Linton slammed Uber for unleashing regulatory havoc in the city. “What they’re trying to do is be both a taxi and a limousine,” he said. “Under the way the law is written, it just can’t be done.”4
Holt, who had arrived three minutes late to the scene after being alerted by the driver that trouble was afoot, was perplexed. According to the actual citations, Linton was going after the driver himself, a Virginia resident, not Uber, and he was doing it based on one of the city’s more arcane and senseless rules—that limo drivers must present a fare to the passenger in advance, rather than using a meter that measures time and distance. The fines did not affect whether Uber could continue to operate in the city and seemed mostly aimed at intimidating drivers and keeping them from signing up with Uber in the first place.
The dispute shifted to the internet. Ryan Graves blogged about the incident on the Uber website, noting the company would be covering the driver’s fines and compensating him for a weekend of missed work. “We are surprised that a public official is making statements about Uber violating the law without sending some kind of notice stating specifics,” he wrote.5 He also invited users to Tweet their support and call or e-mail the DC Taxicab Commission directly. It was the first step down a path that would become increasingly important that year: mobilizing Uber’s customers to fight on its behalf.
For his part, Linton, who passed away in 2015, suggested that he was protecting incumbent taxi firms as much as enforcing the law. “I’m getting tremendous pressure from cab companies [over] the way Uber is functioning,” he said to DCist, a local blog, a few days later.6 “Nobody loves a regulator. We got rules, we got regulations, we got laws.” Perhaps aware of the regulatory swamp that he had wandered into, he then referred the matter to the city’s attorney general, Irvin B. Nathan, and asked him to evaluate Uber’s legal status. That spring Holt met with Nathan and his staff, and officials speculated that the entirety of Section 1299.1, the provision that seemingly gave Uber protection, was nothing more than a typographical error. Uber could keep operating for the time being, but its battle in DC had only just begun.
On Travis Kalanick’s trips to Paris and other European cities, one emerging rival in particular was catching his eye. Hailo, a startup operating out of the lower deck of a retired World War II merchant ship docked on the Thames, was supplying a smartphone app to drivers of London’s iconic black taxicabs, the equivalent to yellow taxis in the United States.
Hailo was started by Jay Bregman, an American with a master’s degree in media and communications from the London School of Economics. In 2003 Bregman had begun outfitting bike messengers with GPS devices to make their routes more efficient. His company, eCourier, was ahead of its time and was decimated by the financial crisis in 2009. Surveying the carnage after eCourier’s assets were sold off to a larger competitor and watching Uber’s emergence in the United States, Bregman saw an opportunity to use the iPhone to aid London’s taxi drivers, who were facing an onslaught of competition from an expanding type of for-hire vehicles, called minicabs, which had to be prebooked on the phone or at a minicab-fleet office. “The insight was to bring these guys into the modern age and give them tools to galvanize them and help them win back work,” says Ron Zeghibe, an investment banker who helped Bregman sell eCourier and became Hailo’s co-founder and chairman.
Bregman recruited three London cabbies for Hailo’s founding team and started pitching the service to the city’s grizzled drivers. Because black cabs were already relatively expensive compared to minicabs, the company didn’t charge riders anything to use the Hailo app. Instead, it encouraged them to tip and took a 10 percent commission from the fare. Drivers complained, at first, but then the app started delivering new passengers that they wouldn’t have found by cruising the streets and looking for people waving their arms in the air. By early 2012, Hailo had been downloaded two hundred thousand times and was being used by two thousand drivers.7 It was the first of several formidable international rivals that would soon loom large on Uber’s radar.
Then Jay Bregman made his first critical mistake. Hailo raised $17 million from the venture capital firms Accel Partners and Atomico and on March 29, 2012, in a poorly calculated display of bravado, it announced plans via the tech-news site TechCrunch to expand to the licensed taxi fleets of Chicago, Boston, Washington, and New York—all Uber markets. “Already, Hailo has hired a Chicago general manager and is looking to quickly expand in the coming months,” read the last sentence of the TechCrunch article.8
The news of Hailo’s expansion resonated around the world. It was read as far away as China, where, as we shall see later in this account, entrepreneurs and venture capitalists suddenly recognized that linking taxis and limos with riders via mobile apps was an idea powerful enough to cross continents. The problem was that Hailo’s introduction into its target cities was actually months away. And inside Uber, where execs read the story closely, the line about Chicago in particular triggered alarm bells. Allen Penn, a manager in Uber’s Chicago office, went into war mode, assembling his colleagues on a conference call that very night to discuss a response. The obvious solution was to try to beat Hailo to it—to bring Chicago’s yellow-cab fleet onto the Uber app.
That was a serious move, with ramifications for not only the way Uber worked but also the way the company presented itself to the world. Up to that moment, calling an Uber was meant to be classy, upscale, and pricey. An Uber ride at that point was 50 percent more expensive than a ride in a regular taxi. In the estimation of founder Garrett Camp, the name stood for something meaningful—stepping out of a black BMW to meet your friends outside a nightclub was so uber. Was it also uber to stand on the corner of Michigan Avenue and Wacker Drive and order a checkered yellow with a funny smell in the backseat?
Over the next few days, there was heated debate inside the company about putting traditional taxis on the system. Uber would have to accommodate their metered fares and stringent licensing requirements and cede most of the commission to the driver to replace the tip and service fees, cutting deeply into its standard 20 percent margin. Many Uber employees and execs opposed the move. “We did this high-end thing, this ‘everyone’s private driver’ experience,” says early engineer Ryan McKillen. “We wanted it to stay high end and make it amazing. Doing taxi just felt like so the opposite.”
Kalanick eventually put an abrupt end to the discussion with a pointed insight about why Uber was successful in the first place. “I’m going to literally flip this table if anyone says one more time they are worried about destroying the brand,” he said in a meeting, according to Penn. “The luxury of Uber is about time and convenience. It’s not about the car.”
With urging from board member Bill Gurley, who was wary of anyone undercutting Uber on price, Kalanick reached an important conclusion. Uber didn’t necessarily have to be a high-end brand. It could compete against all forms of alternative transportation by presenting the most efficient, most luxurious option at any price.
A week after the TechCrunch article, Allen Penn was visiting family in Kentucky when Kalanick called and asked him if he could launch a new service, dubbed Uber Taxi, in a week. It would take three. In San Francisco, engineers retrofitted code from an Uber marketing stunt at the recent South by Southwest Conference, which had allowed attendees to order barbecue and pedicabs, and created a new feature to give riders in Chicago a choice between black cars and taxis. On the Chicago streets, Penn and his team started taking taxis, inviting cabbies to the Uber offices, and showing off the app.
Uber rolled out its taxi service on April 18, 2012. Because Kalanick was still nervous about the reception, he framed Uber Taxi as coming from a wing of the still-tiny startup, an entirely fictitious department that he dubbed Uber Garage.9 “Google has Google X, and we have the Uber Garage,” Kalanick told me that year. “If we have an idea we don’t like, we put it in the parking lot.”
Uber beat Hailo to Chicago’s taxi fleet by a mile. The London startup wouldn’t open for business there for five more months.
But that wasn’t the only reason Uber drove circles around its first major international competitor. There was also a sharp difference in strategy, which was on stark display a few weeks later when Kalanick and Jay Bregman shared a stage at the LeWeb conference in London’s Westminster Central Hall, in a panel billed by organizers as a taxi-app smackdown between the CEOs and their backers. Bregman brought with him to the stage one of his investors, Adam Valkin from Accel, while Kalanick brought Shervin Pishevar, who started the session by having the Uber logo shaved into the hair on the back of his head.
Both entrepreneurs politely defined their differences. Hailo was linking the existing supply of licensed taxis, trying to make cabbies more productive by filling in the margins of their day. Uber (aside from the Uber Taxi experiment) was trying to build an entirely new network of professional drivers with luxury vehicles. Hailo drivers could swerve to the side of the road to pick up passengers hailing them from the street; Uber drivers, legally, couldn’t.
Then they started throwing rhetorical punches. “We haven’t built our product around a market, we’ve built an experience around a customer desire,” Kalanick said, unaware that he hadn’t taken the tag off the sleeve of his new sport coat. “That’s probably the fundamental difference.”
Bregman touted the benefits of using licensed cabs and pointed out the obstacles that Uber was still encountering in New York, where wait times could still be over five minutes. By giving the apps to cabbies, Hailo could “oversupply first and provide great service from the get-go and then it only gets better as our number of cabs increase and the number of customers increase.”
Kalanick noted calmly that in places like New York, the number of cabbies on the road at any time was restricted by many factors, such as the limited supply of medallions, shift changes, and spikes in demand. “You need to have flexible supply and sometimes that’s when a new network can really come into play,” he said.
By the end of the panel discussion, there was little resolution about which approach was better. But a few years later, I caught up with Bregman at a café in the West Village. He had left Hailo after bringing it to North America and getting thoroughly trounced by Uber.
“We thought we would be getting displacement business—people who would stop hailing off the street and start using the app,” he told me. “What actually happened was that people stopped driving their cars and renting cars during travel and instead started using ride-hailing apps.” As demand boomed, yellow-taxi apps couldn’t keep up supply—just as Kalanick had predicted.
Hailo later tried to pivot in London, adding a minicab option to its app, just as Uber had introduced a taxi option in Chicago. But it didn’t work. Hackney drivers felt betrayed and stormed the Hailo offices in protest, attacking Hailo’s three cabdriver co-founders on social media and denouncing them as traitors.10 Hailo then had to retreat from the minicab service as well. “The problem,” Bregman told me wistfully, “is that you really have to pick sides.”
That summer, Uber considered closely the lessons of its Uber Taxi experiment. In Chicago it had put a cheaper ride next to a pricier one, and, according to internal data, both businesses flourished. Riders, not surprisingly, responded favorably to cheaper rides.
So if Uber’s brand was versatile enough to accommodate the germ-infested backseats of yellow cabs, what else could it include? Kalanick and his colleagues produced two answers. One was a fleet of luxury SUVs, to be used by larger parties, that would cost more than traditional Uber black cars. The second was a fleet of four-door hybrids, an option that would cost the rider less than the original Uber offering. The name of the service, UberX, was simply the best the company could come up with. “It was a placeholder. We called it UberX because we couldn’t figure out a name for it,” says Uber’s product chief at the time, Mina Radhakrishnan, who adds that Uber Green and Uber Eco were briefly considered and rejected.
Now, an important clarification: Unlike Lyft and Sidecar, the so-called ridesharing companies that were at that very moment making their debuts in San Francisco, the original UberX accommodated only professional drivers who held taxi licenses. Kalanick envisioned a fleet of black Toyota Priuses to be driven by the same types of licensed chauffeurs who were behind the wheels of other Uber vehicles.
Uber introduced these options on July 4, 2012, with a blog post that promised “Choice is a beautiful thing.”11 Kalanick told the New York Times that day, “This is the first big step Uber is taking to go to the masses.”12 The SUVs and hybrids were set for San Francisco, New York, and, soon, Chicago—and Washington, DC.
Uber’s business was now growing in DC by 30 to 40 percent each month, surprising even its managers.13 When Rachel Holt started in Washington, Graves had asked her to get the company’s business in the city to $7 million in gross bookings by the end of the year. She hit that goal by April. “I thought, Gee, this is going well,” she says. But the celebration was short-lived. Uber’s growing popularity and plans to roll out UberX were about to provoke another five months of bare-knuckle political brawls.
After ineffectual discussions between Uber execs and Washington’s attorney general, the issue of Uber’s regulatory status fell into the lap of the DC city councilwoman Mary Cheh, the chairperson of the Committee on Transportation and the Environment. Cheh, sixty-two, was a graduate of Harvard Law and a Democrat who had struggled for years to drag anachronistic DC cabs into the modern age. “Even while Uber was coming around, I was in process of trying to reform the taxicab industry which was in the twentieth, maybe the nineteenth, century,” she says. She was also a pragmatist who sought peaceful compromise between many of the powerful local taxi interests in what was turning into a radioactive topic. That spring she sent a letter to Ron Linton and the DC Taxicab Commission, asking them to stop towing Uber cars, and then started working toward a compromise among all the parties who were increasingly incensed by Uber’s success.
What was needed, she reasoned, was an unambiguous clarification of Uber’s legal status that cut through the contradicting regulations and allowed it to operate in the city. Cheh spent the week after Memorial Day 2012 negotiating with Rachel Holt and Marcus Reese, a colleague of Uber lobbyist Bradley Tusk, as well as with Claude Bailey, a well-known local lawyer and lobbyist that Uber had hired to represent it in the city. She also met with Jim Graham, a bow-tie-wearing councilman from Ward 1 and the most vocal champion of the city’s yellow-taxi fleets and their drivers (and whose chief of staff had pleaded guilty to charges that he accepted an “illegal gratuity” to promote taxicab legislation in 2011.)14
The result of those talks, Cheh thought, was an elegant short-term compromise that she called the Uber amendments. The regulations, added to a broader transportation bill, would give Uber legal sanction to operate. But they also added a price floor, which required Uber to charge several times the rate of a taxicab. Claude Bailey, accustomed to such compromises but not, perhaps, to Kalanick’s brand of fiery idealism, indicated a willingness to accept the deal. Cheh then set a city council vote for July 10 and promised that the provisions were only temporary and would be revisited in the next year. “I tried to explain to them that the provision was nothing more than a placeholder. What I needed was room to maneuver,” she says.
What happened next would mold the political tactics of Uber, and many of the tech startups that sought to emulate it, for years to come.
In San Francisco, Kalanick had never fully agreed to a minimum fare. Now, recognizing the approaching competition from companies like Hailo and realizing that services like UberX would require aggressive price cuts, he decided he wanted to fight—to the consternation of his own lobbyists, who had already agreed to Cheh’s deal.
Then Kalanick started hurling rhetorical hand grenades, labeling Cheh’s proposal a “price fixing scheme” on Twitter and accusing the councilwoman of “doing everything to protect the taxi industry.”15
But Uber was going to need more than Tweets to sway the DC city council. First, colleagues remember, Kalanick sought the backing of the DC tech community and tried to enlist the support of the online-deals company Living Social, based in Virginia. When they didn’t respond, Kalanick decided to go right to his customer base. He sent an impassioned letter to thousands of Uber users in DC, complaining that the city council would make it impossible for the company to lower fares and ensure reliable service. “The goal [of the Uber amendments] is essentially to protect a taxi industry that has significant experience in influencing local politicians,” he wrote, basically accusing Cheh and her colleagues of corruption.16 Then he supplied the phone numbers, e-mail addresses, and Twitter handles of all twelve members of the DC city council and urged his customers to make their voices heard.
The next day he posted a public letter to the council members, writing ominously, “Why would you so clearly put a special interest ahead of the interests of those who elected you? The nation’s eyes are watching to see what DC’s elected officials stand for.”
Mary Cheh was taken aback by the ferocity of the response. Within twenty-four hours, the council members received fifty thousand e-mails and thirty-seven thousand Tweets with the hashtag #UberDCLove.17 When they arrived for the last session of the summer on July 10, Cheh’s colleagues all turned to her in confusion and fear. The amendments, she told me years later, had been “a toss to Jim Graham and the taxi drivers,” and now, with the weight of the internet bearing down on the council members, the amendments clearly weren’t worth it.
“I didn’t want to lose anybody on the bigger bill for this one provision,” she says. The price-floor idea was gone by midmorning and an alternative amendment was proposed allowing Uber to operate legally in DC until the matter was revisited at the next meeting in September.
Cheh later compared Uber’s reaction to the stubbornness of the gun lobby, with its unwillingness to yield even an inch. But she hadn’t seen anything yet. Until that point, she had dealt with Travis Kalanick only from afar.
After that first skirmish, Kalanick started spending more time in DC. Marcus Reese, the lobbyist, says the Uber CEO was charming and persuasive in one-on-one meetings with council members in the historic Wilson Building on Pennsylvania Avenue. Then, in September, Kalanick was asked to testify at the all-day meeting of Cheh’s Committee on the Environment, Public Works, and Transportation. Ron Linton’s Taxicab Commission had once again proposed a bevy of new restrictions, including one that would ban limo fleets with fewer than twenty vehicles—another seemingly arbitrary dart aimed at the independent drivers who worked for Uber.
Kalanick got plenty of advice from his lobbyists in advance of his testimony. Play it straight. Just stick to the talking points and don’t engage in a philosophical back-and-forth. The real advocacy takes place in other forums. In public hearings, you should be benign and respectful.
He started testifying at 1:15 p.m. after a morning that had included appearances by Ron Linton, various drivers, and Jay Bregman, who wore a suit and tie and pointed out that Hailo worked harmoniously with regulators in London and Dublin and planned to do so in DC as well. But Kalanick wasn’t in the mood for gentle courtship. Facts and intellectual arguments, not charm, were his weapons, and unlike Bregman, he wasn’t ready to kiss any political rings. Wearing a blue blazer with a white shirt, he interrupted Cheh’s first question with the words “I would disagree with that characterization.” Things went downhill from there.
“You wanted to make sure that there was a minimum fare on our services so that only rich people could use Uber, not people of middle income,” Kalanick told her.
Cheh pointed out that the proposed and discarded price floor was meant as a way to ensure a peaceful transition to a more permanent arrangement. “I know that you like to cast this as some sort of fight,” she said. “Do you understand that? I’m not in a fight with you.”
“When you tell us how to do business, and you tell us we can’t charge lower fares, offer a high-quality service at the best possible price, you are fighting with us,” Kalanick replied.
“You still want to fight!” Cheh said in exasperation. The conversation turned to surge pricing. “I am curious about whether that is somehow a kind of gouging,” she said. “If there’s more demand, why should the rider have to pay more money?”
Kalanick launched into an explanation of the economy of Communist Russia and how long lines formed at stores for essentials such as toilet paper. “It’s because the price of toilet paper was too low,” he said. “There wasn’t enough supply. Everybody could afford toilet paper, but they could never get it because there were too many people that wanted it and not enough people willing to supply it. And so that’s kind of the situation that gets created when you’re not able to change price.”
“So they didn’t have any toilet paper,” Cheh said with mock amazement.
“It was a rough situation,” Kalanick replied. “Look, price controls by governments, you know, they don’t always go well. In fact, I’d say ninety-nine percent of the documented cases don’t go well.”
“But what I’m trying to figure out is why you get the advantage,” Cheh said, recalling standing in a long hot line in 1968 to view Robert Kennedy lying in state after his assassination and being horrified as vendors jacked up the prices for water. “I’m not sure I fully agree with you that this is really an economic mechanism that makes everybody happy!”
In San Francisco, Salle Yoo, Uber’s relatively new chief counsel, was watching a webcast of the hearing. According to Marcus Reese, at around this point in the testimony, she started texting him, asking him to pull Kalanick from the stand as soon as possible. He is in the middle of a public hearing, Reese texted back. I can’t just walk up to him and say you’ve got to go!
The pro-taxi councilman Jim Graham, sixty-seven, wearing a taupe suit and a gold bow tie, was sitting to Cheh’s right. “I’m trying to make a point,” he scolded Kalanick. “And the point that I’m trying to make is that if you remain unregulated, and the taxicabs remain increasingly more regulated, there’s a fundamental inequity to that.” He urged Kalanick to reconsider a minimum fare. “I don’t want this city to be [all] Uber. I really don’t. Because there’s too much of a history of our taxicab industry.”
“If you allow competition, what you’ll get is a better taxi industry,” Kalanick said.
“You can’t have competition where one party is unbridled and able to do whatever they please whenever they want to do it and the other party has their hands and feet tied,” Graham said. “That’s not competition.”
“That means drivers are making a better living and riders are getting a better service,” Kalanick said. “And that doesn’t sound bad to me.”
Graham said that many taxi businesses in the District were small businesses. “This is a good thing. This is something we want to protect and nurture. This is not something we want to destroy for the sake of some kind of consolidation into a big company.” Kalanick tried to interrupt him. Graham snapped, “May I be a member of this committee, please? Do you mind?”
Kalanick laughed. “Go ahead.”
After Kalanick left the stand, Graham, visibly infuriated, suggested reinstating and even increasing a proposed minimum fare. Janene D. Jackson, a deputy chief of staff to Mayor Vincent Gray, came up to Marcus Reese and Claude Bailey and offered her own memorably harsh review of the testimony. “Never bring that guy back here!” she said, according to Reese. Later, Jackson couldn’t recall saying that specifically. “The hearing was probably a bad one because I have no recollection of it, except that he pissed almost everyone off,” she told me.
And yet. By December, with Uber spreading like wildfire through the capital, and knowing that its users were ready and willing to defend the service, Cheh and her colleagues saw the writing on the wall. On December 4, the Public Vehicle-for-Hire Innovation Amendment Act defined without ambiguity a new class of sedans that could be dispatched via a smartphone app and could charge by time and distance. It passed the Washington, DC, city council unanimously, garnering even Jim Graham’s vote, without debate.18 “The real issue is how receptive the government is to the progress of the people,” Kalanick told me a few years later. “It’s not about the city council or the government, it’s actually about how the incumbent industry is persuading them, let’s say, to do what I would consider the wrong thing.” Ultimately, he added, “DC was very receptive. But it took them time to see it and feel it.”
Uber had flexed its political muscles for the first time, and won. A new tactic was then added to the playbook: when traditional advocacy failed, Uber could mobilize its user base and direct their passion toward elected officials. Uber was not the first company to employ this tactic, but it quickly became among the best at it. In its ensuing first wave of political battles—in places like Cambridge, Massachusetts, Philadelphia, and Chicago—Uber would enlist the support of its customers and, usually, win.
Kalanick had broken every rule in the advocacy handbook. Nevertheless, Uber’s lawyers and lobbyists, who had begged him, unsuccessfully, to seek compromise and testify with humility, began to whisper in reverent tones about a new political dictate that contravened all their old assumptions. Travis’s Law. It went something like this:
Our product is so superior to the status quo that if we give people the opportunity to see it or try it, in any place in the world where government has to be at least somewhat responsive to the people, they will demand it and defend its right to exist.
That fall there were many reasons to celebrate. Uber had intercepted Hailo before its incursion into the United States, won in DC, and demonstrated the primacy of Travis’s Law. With more than a hundred employees and growing fast, the company moved into fifth-floor offices on 405 Howard Street, in the South of Market District. The offices were modest; there were three conference rooms, there was no kitchen, and the elevators were always packed. Drivers routinely gathered in the lobby, waiting to pick up company-provided iPhones. Engineers worked in the office from midmorning until late at night, relieving stress with occasional games of floor hockey around the clustered cubicles. Amid all that hubbub was Kalanick himself, who couldn’t sit still and could typically be found pacing the floor of the office.
The company was now on pace to generate $100 million in revenue over a twelve-month period. To mark the occasion, Kalanick rented a few adjacent houses in Tahoe, a four-hour drive from San Francisco, and the entire company retired there for a week. Ryan McKillen, one of the early engineers, remembers sitting on a porch overlooking the lake with Conrad Whelan. “Years from now people are going to say, ‘I was at Uber Tahoe,’” Whelan told him.
McKillen calls it “an overwhelming moment,” the idea that the tiny little startup whose employees were once crammed into a conference room was now changing the world. “It was crazy,” he says. But the true craziness hadn’t even begun.
Back home, even more momentous events were unfolding. It had started with something in the air—an obvious idea, perhaps, to those who were carefully studying the Uber phenomenon and were able to see its logical conclusion. The idea appealed to both risk takers willing to ignore decades of strict transportation law and idealists who believed that the idea was so powerful and necessary that policy makers would simply have no choice but to bend the laws to accommodate it.
The idea was this: Until that point, Uber allowed only licensed chauffeurs and taxi drivers to use its system. But what if you opened the service to anyone with a car and allowed him to pick up passengers looking for a ride via a smartphone app? You could fill empty seats in cars, reduce the chronic congestion on America’s highways, and allow drivers to make money on the side. It could be carpooling on a mass scale—a digital manifestation of organized programs like 511.org in California or the Sluglines in DC, where drivers stopped in designated lots to pick up passengers so they could access the HOV lanes.
A decade earlier, this might have been called something like mobile hitchhiking. But its originators, carefully trying to fit the idea within the legal protections that state law afforded to casual carpooling, devised a more innocuous term: ridesharing.
Internet-enabled ridesharing already existed, amorphously and unremarkably, well before it became a massive moneymaking opportunity. Ridesharing was a popular standalone category on Craigslist in many cities and on the labor marketplace TaskRabbit, founded in 2008, where requests for rides to the airport constituted 10 percent of the early traffic, according to its founder Leah Busque.
In 1997, Sunil Paul, a native of India and the founder of an anti-spam company Brightmail, had the intuition that a phone could one day be used to facilitate rides between people traveling in the same direction. He was granted a patent for his System and Method for Determining an Efficient Transportation Route by the U.S. Patent and Trademark Office in 2002.19 Paul sold Brightmail to the PC security vendor Symantec in 2004, spent a few years as a venture capitalist, and then, inspired by the successes of Uber, co-founded a company in San Francisco called Sidecar.
Sidecar started giving rides in February 2012 via its apps for the iPhone and Android smartphones. Though it went out of business in 2016, outfinanced and outmaneuvered by Uber and Lyft, it can lay claim to being a pioneering ridesharing company.20 Anyone—not just taxi drivers or licensed chauffeurs, but your uncle Frank in his beat-up 2008 Accord with the bad paint job—could start driving, as long as he or she cleared an online background check, showed a driver’s license and proof of insurance, and maintained a favorable rating from passengers. At first, riders using Sidecar were not required to pay a fee but encouraged to make a suggested donation to the driver, with Sidecar taking a 20 percent cut. It was an attempt to align the service with casual carpooling rather than for-hire taxis. “Our vision is that your smartphone becomes as powerful as your car to get around,” Paul told me that year.
But in the long run, no company became more associated with the ridesharing idea, or more of a looming threat in the eyes of Kalanick and his colleagues, than the sharing-economy pioneer and near nonstarter known as Zimride. After a four-year slog, Logan Green and John Zimmer’s long-distance carpooling service had contracts with dozens of universities and several companies to use customized versions of its website, and they had a bus service that ran between a few major cities. “We had grinded out a multimillion profitable business,” says Zimmer.
But it wasn’t growing rapidly, and it wasn’t satisfying Logan Green’s idealistic dream—which had originated on that college trip to Zimbabwe—of filling the seats in the mostly empty cars that clogged the world’s highways. Zimride also wasn’t Uber, the company that had demonstrated the remarkable power of smartphones to make transportation within cities more efficient and reliable.
In the spring of 2012, with Uber taking off in cities like Chicago and Washington, DC, the Zimride founders and a few employees started brainstorming new products. One idea was a way to share pictures from road trips; another was a way for people to use their phones to share their locations with family and friends. But the third idea, originally dubbed Zimride Instant, caught the imagination of everyone there. Wherever drivers were going, they could use the company’s apps to pick up passengers, not just between cities but inside them.
The notion was discussed at a Zimride board meeting at the company’s offices at 568 Brannan Street. Board members wanted to know: Was this even legal? Kristin Sverchek, a partner at the law firm Silicon Legal Strategy and Zimride’s outside counsel at the time (she would join the company a few months later) could have stopped the whole thing. She didn’t, pointing out that taxi regulations had been crafted decades before smartphones and internet ratings systems were invented. “I was personally always of the philosophy that the great companies, the PayPals of the world, don’t get scared by regulation,” she told me. “I never wanted to be the kind of lawyer that just said no.”
Engineers started working on the system, which was renamed Lyft, after a suggestion from a design intern named Harrison Bowden. Lyft would have the same primary ingredients as Sidecar—a suggested but voluntary donation, driver and passenger ratings, the background check—and it followed Sidecar into public tests in San Francisco by three months. It could have easily been dismissed as an uninspired follower but instead was greeted as a novelty, primarily because Zimmer and Green had thought carefully about a new set of rituals needed to turn a ride with a stranger into a comfortable and safe experience.
The Lyft founders devised a sort of mating dance for strangers sharing a car. Riders were told to climb into the front seat, not the back. They were instructed to exchange a fist-bump with the driver. Conversation was encouraged—everyone here was a fellow passenger on a new internet wave that was connecting people and communities through supposedly superior transportation alternatives. “Getting into someone’s Honda Accord was not a normal thing to do,” Zimmer says. “It’s the thing your parents told you never to do. We had to think about the whole experience.”
In a grand flourish, Zimmer decided that every driver using Lyft should affix a pink carstache to his or her vehicle’s front grille. The carstache, a jumbo furry mustache recently popularized by another San Francisco company as an eccentric car accessory, had been an inside joke at Zimride, the gift that employees gave away at marketing events and hung on their cubicle walls. Zimmer decided it could be a brand icon and would help turn an otherwise intimidating vehicle into a warm and inviting Lyft car. Carstaches could also command attention. To live in San Francisco in the year 2012 was to wonder, with mounting curiosity, why those weird pink carstaches were suddenly everywhere.
The Zimride founders would not, even under protracted torture, admit that the user interface of archrival Uber was an inspiration for their own design (or vice versa, for that matter, though both companies clearly drew heavily from each other’s product features and rhetoric). In the Zimride founders’ view, Uber and Lyft were entirely different. “We didn’t think of them as similar to us,” Zimmer told me. “Our vision has always been every car, every driver, and never ‘everyone’s private driver.’ We didn’t want to be a better taxi; we wanted to replace car ownership.”
But Kalanick saw through that and knew immediately that the services were competitive. Lyft had some good ideas; only after the carstaches appeared around town, for example, did Uber begin furnishing its own drivers with a windshield decal of the Uber logo.
In a historic irony, though, Kalanick fervently believed that services using unlicensed drivers were against the law—and would get shut down. “It would be illegal,” he said on the podcast This Week in Startups even before Lyft and Sidecar had launched. “Unless the driver had what’s called a TCP license in California and was insured.”21
“You don’t want to get into that kind of business?” asked host Jason Calacanis, the Uber angel investor.
“The bottom line is that we try to go into a city and we try to be totally, legitimately legal,” Kalanick replied.
Kalanick was in something of a catch-22. If he responded with his own unlicensed ridesharing service and it was declared illegal, the larger and older Uber could face a much heftier penalty. But if he did nothing, he risked letting Lyft and Sidecar grow uncontested and undercut him on price. “We were getting so much regulatory heat for the black-car business and it was so clearly legal, that when we saw what I called a regulatory disruption, we didn’t think it was going to fly,” he told me that year.
The best option seemed to be to watch and wait. Around that time, Zimride co-founder Matt Van Horn, the high-school friend who had accompanied Green to Zimbabwe, ran into Kalanick on a largely empty Muni subway car headed downtown, and he asked him what he thought of Lyft.
“Not legal,” Kalanick grumbled, according to Van Horn. “If it’s legal, we’ll do it too.”
That fall, the California Public Utilities Commission seemed to confirm Kalanick’s suspicion. It sent cease-and-desist letters to Lyft, Sidecar, and TickenGo, a French company that had just moved to San Francisco and introduced its own ridesharing app for the iPhone.22 The companies were allowed to operate but ordered into talks with the CPUC, which regulates common carriers like limousines, airport vans, and moving services, as well as the state’s public utilities.
To represent its interests in the battle ahead, Lyft hired Susan Kennedy, the assertive and hyperconnected former chief of staff of Governor Arnold Schwarzenegger and, before that, one of the five commissioners of the CPUC. Kennedy knew intimately the byways and internal rivalries of her former agency, located in a building with an elegant circular stone façade at the intersection of McAllister Street and Van Ness Avenue. The entire agency had recently come under intense scrutiny after the 2010 explosion of a gas pipeline in nearby San Bruno that killed eight people, including a CPUC employee and her teenage daughter. She also knew that while the cease-and-desist had emanated from the enforcement division on the second floor, which was led by a brigadier general named Jack Hagan who was known for wearing a firearm in a holster on his ankle, the real policy-making decisions happened on the fifth floor, in the offices of Michael Peevey, her former boss and the CPUC president. The departments on the second and fifth floors, populated by enforcement officers and lawyers, respectively, with widely disparate dispositions and goals, were often fiercely at odds with each other.
Kennedy’s easy familiarity with policy makers on the fifth floor likely affected the course of this story.
California was ground zero in the ridesharing movement. It was the first to regulate the ridesharing upstarts, and its deliberations were being closely watched—not only by Travis Kalanick at Uber but by other states who knew the ridesharing phenomenon would be coming to them soon. Nearly the first thing Kennedy did was stride confidently into Peevey’s office, where, to her surprise, she found local attorney Jerry Hallisey, who represented Uber. “When are you going to shut these guys down? When?” Hallisey was asking Peevey, who also recalled this conversation.
Kennedy plopped into a chair and listened. After Hallisey left, she started talking into Peevey’s ear and didn’t stop for weeks. “This is a monumental shift and a brand-new industry,” she told him. “This is the cradle and you will either be the guy who was standing in its way and crushed an industry or the guy who facilitated a whole new world.”
Their exchange continued over e-mail, which Kennedy later shared with me. She argued that the CPUC needed to start an OIR, a formal rule-making process, to devise guidelines for something that was genuinely new. “The cease and desist approach is the wrong one,” she wrote, noting that Lyft and Sidecar did not employ drivers and therefore did not formally fall under his jurisdiction and could fight any order in court. “What problem are you trying to solve with regulation, particularly in a competitive, nascent market? Protect the taxicab industry? Passenger safety? Regulation for regulation’s sake? You need to answer this question before you try to shut these services down… Can we talk about this some more before the staff goes off the deep end?”
“You have some good points,” Peevey wrote to Kennedy. “Still, I have this nagging fear that the area of ridesharing, aided by technology, will grow and grow and there will be terrible accidents, with the drivers only having minimum insurance coverage.”
Peevey was prescient. But Kennedy compared that fear to absurd local efforts to limit the expansion of wireless phone service because people were afraid they might be cut off from emergency 911 services if a cell phone battery died. She noted that Lyft and Sidecar were touting one-million-dollar backup insurance policies, a complement to a driver’s personal coverage. And she suggested there was an aura of inevitability around the ridesharing services, linking them to organized carpooling across the Bay Bridge and arguing that “you can’t put the genie back in the bottle.”
Peevey, in his midseventies, was an economist and lifelong public servant who wore old-fashioned eyeglasses and had a prosthetic nose, a souvenir of his battle with skin cancer. He would leave the CPUC in 2014 under criminal investigation for pressuring PG&E and Southern California Edison, the state’s energy utilities, to contribute funds to research groups he supported.23 (As of late 2016, no charges had been filed.) But Peevey was also defiantly proud of being pro-innovation and as a longtime resident of San Francisco, he had his own personal experiences with the eminent failures of the local taxi industry.
“I used to get into these arguments with the cab guys,” Peevey recalled when we spoke at a Starbucks near his Los Angeles home in 2015. “‘You just want to condemn these people but you don’t offer anything yourself, you don’t want to offer anything new, all you want to do is ring our building with your cabs in protest and honk at us.’”
If Peevey ever considered shutting down Lyft and Sidecar, Kennedy quickly turned him around. That fall, he instructed Marzia Zafar, his director of policy, to let the ridesharing companies operate but to figure out a way to protect the safety of riders.
Zafar, who ran the subsequent rule-making process and would write the eventual regulations, cut an unusual figure for a regulator. She was an Afghani immigrant with a Mohawk who had moved to the United States as a child and had once driven a cab herself for her uncle’s taxi company in San Bernardino County. Zafar and her colleagues invited representatives from all the various interested parties in for conversations, and there she got an education in the profound differences in these emerging markets.
The taxi and limo companies all arrived separately, stating their gripes against Lyft and Sidecar but also Uber and, comically, one another, based on decades of simmering hatreds. Travis Kalanick also visited the CPUC conference room on the fifth floor that fall, with Hallisey, his attorney, and general counsel Salle Yoo. He made a lasting impression. “It was the strangest thing, I still remember,” Zafar says of the meeting. “He basically turned his chair the other way, toward the wall. His back was facing us, very deliberately.” Zafar recalls Kalanick’s first words as being “Why don’t you take Lyft out of the market? They are not complying with your regulations!”
Zafar’s colleague Paul Clanon, the CPUC’s executive director, later reflected, “The guy’s a jerk, but I have to say I kind of have a soft spot for him. Maybe the way you build organizations as successful as Uber is by not giving a fuck what regulators think of you.”
Logan Green and John Zimmer, escorted by Susan Kennedy, also made their way up to the fifth floor. They were earnest and personable, explaining with their usual missionary zeal their goal of filling empty seats in cars.
“They always came across as choir boys,” says Kennedy. The CPUC “had to trust somebody when writing new laws. You can’t write in a vacuum, you have to listen to industry.” She speculates that if Uber had been the original advocate for ridesharing, there might have been provisions like drug testing of new drivers, which would have slowed down sign-ups and impeded the growth of the industry. “I wonder if Uber realized what they did for them,” Kennedy says.
The CPUC reached a consent decree with Zimride and Sidecar in January 2013.24 The companies agreed to comply with basic safety requirements, like requiring drivers to show proof of insurance and checking their backgrounds for criminal history, which they were already doing. The decree also required them to check drivers’ DMV records for driving infractions, which they were not. Then they were allowed to operate pending the creation of a new set of rules, which were slated to be formulated after a comment period and a public hearing that spring.
A few weeks later, Lyft expanded into Los Angeles and Sidecar moved more aggressively into L.A., Philadelphia, Boston, Chicago, Austin, Brooklyn, and DC.
The ridesharing wars had begun.
Travis Kalanick had watched, waited, and even quietly agitated for Lyft and Sidecar to be shut down. Instead, they spread, undercutting Uber’s prices. Now that their approach had been sanctioned, Kalanick had no choice but to drop his opposition and join them. In January 2013, Uber signed the same consent decree with the CPUC and turned UberX into a ridesharing service in California, inviting nearly anyone with a driver’s license and proof of insurance, not just professional drivers, to open his or her car to paying riders.25
Kalanick then announced his broader intentions to compete nationally with the ridesharing companies with a seminal white paper, posted to the Uber website and grandiosely titled “Principled Innovation: Addressing the Regulatory Ambiguity Around Ridesharing Apps.”
“Over the last year we’ve stayed out of the ridesharing fray due to perceived regulatory risk and watched two competitors roll out in a few cities in which we already operate, without nearly the same level of constraints or costs, offering a far cheaper product,” he wrote. “In the face of this challenge, Uber could have chosen to do nothing. We could have chosen to use regulation to thwart our competitors. Instead, we chose the path that reflects our company’s core: we chose to compete.” Uber, he wrote, would add ridesharing to UberX nationwide and roll it out in cities where there was tacit approval, regulatory ambiguity, or an absence of enforcement. Drivers would have to undergo online background checks and would be covered by a million-dollar liability policy to be held by a wholly owned Uber subsidiary, which was named Rasier—German for “shave.”
Uber, in other words, was coming after the mustache.
There was no shortage of animosity between the companies and their willful execs. Around that time, Kalanick and John Zimmer got into a heated and puerile battle on Twitter, accusing each other of having inadequate insurance and ineffective background checks; “@Johnzimmer, you’ve got a lot of catching up to do… #clone,” wrote Kalanick, angling for the last word.26
But by April they were effectively on the same side at the CPUC’s public workshop, a meeting intended to gather input for the forthcoming set of new laws to regulate ridesharing. The hearings, held on April 10 and April 11, 2013, in the auditorium in the CPUC building and open to the public, were just the kind of circus that would be replicated, with slight variations, in countless cities, states, and countries all over the world over the next few years. Angry taxi drivers, their unions, execs from Uber and the other ridesharing companies, and interest groups representing the disabled and the blind all crammed into the auditorium at 505 Van Ness to loudly articulate their concerns.
“People don’t like to talk about the fact that this competition will kill our taxi industry,” railed one of the first speakers, Christiane Hayashi, head of the San Francisco MTA and Uber’s first regulatory foe, to applause from the gathered cabbies. “But when this unregulated and illegal competition has devastated the landscape, no one will be left to provide universally accessible door to door transportation services to our residents. Should they be regulated as taxicabs? Yes!”
Hayashi had previously taken two Lyft rides, paid nothing of the suggested donation, and then marveled that Lyft drivers would no longer pick her up. When she asked John Zimmer why over breakfast one morning, he looked up her ride history on his phone and noted that she hadn’t paid anything. Hayashi was outraged by what she viewed as a privacy violation.
With limited success, Marzia Zafar tried to keep the proceedings moving and civilized. The ridesharing companies testified, one after the other, often over the jeers and taunts of the assembled taxi drivers. After the debacle in DC, Uber’s lawyers kept Kalanick far from the proceedings; instead, Ilya Abyzov, general manager of the business in San Francisco, took the podium and insisted that Uber was only a software company. “Our offices have programmers, not drivers,” he said. “Uber is agnostic about ridesharing. Whatever the decision is, we will follow it.” When Zafar opened the session to questions, an immigrant driver stood up and cut through Uber’s carefully crafted distinctions. “Sooner or later, you will have to face the issue that you are a car service,” he yelled.
The testimony of Lyft’s attorney Kristin Sverchek grew even more heated. When the discussion turned to insurance, one driver, a local medallion holder, started showering her with profanity. “Hold on, hold on! He just referred to me as a dumb bitch,” Sverchek protested at the podium. “I think that’s completely inappropriate.” Zafar agreed and threw the driver out of the auditorium.
The decision by the five PUC commissioners on the ridesharing companies was ultimately unanimous. Under Michael Peevey’s influential direction, and with letters of support from Mayor Ed Lee in San Francisco and Mayor Eric Garcetti in Los Angeles, Peevey and the four other commissioners voted to formally legalize ridesharing, classified the firms as “transportation network companies,” and said they would revisit the ruling in a year. The new rules required the companies to, among other things, report the average number of hours and miles each driver spent on the road every year—a requirement Uber would subsequently ignore, racking up millions in fines.27 It also reiterated that the companies were required to hold a million dollars in supplemental insurance to cover drivers, but only while passengers were in their car—a provision that was soon shown to be tragically inadequate.28
Nevertheless, the ruling legitimized the TNCs and gave them ammunition for coming legal fights in other states and countries. And it tilted the playing field back in the favor of Uber, which had more resources in more cities. Now Ryan Graves, Austin Geidt, and their launch teams could analyze the market in each new city and decide whether and when to launch Uber Black, UberX, or Uber Taxi.
The ruling had some unintended consequences. After Marzia Zafar confessed to drafting the new regulations, her uncle, the taxi-company owner in San Bernardino, didn’t speak to her for a year.
It also put pressure on some of Uber’s first and biggest fans—its black-car drivers. Sofiane Ouali, driver of the white 2003 Lincoln known around San Francisco as the unicorn, had spent his savings to lease half a dozen cars for a black-car business he was running on Uber’s platform. His company, Global Way Limousine, flourished for a year, at one point with sixteen drivers taking shifts. But when ridesharing took off, Ouali knew trouble was ahead. Fares were coming down and drivers no longer had any reason to split their commissions with a fleet owner—they could just drive their own cars and work directly for Uber. “I never got angry about it,” says Ouali, who returned his extra cars but kept driving. “I understood that Uber couldn’t risk its business.”
In a kind of cosmic irony, the unicorn itself was totaled in an accident on St. Patrick’s Day when a drunk driver ran a red light (no one was seriously injured). Ouali decided not to have it repaired. “I ended up thinking maybe it was the right decision,” he says. “Unicorns work like this. They disappear and maybe magically reappear someday.”
Uber had survived its most serious challenge yet, pivoted (albeit reluctantly at first) into what would prove to be a much larger business, and shown itself to be a flexible player unwilling to surrender leadership in the field of transportation apps for smartphones. It had Sidecar and Lyft to thank, which Kalanick was inclined to admit when he was in a charitable mood. “The one area where they brought some thunder was on that regulatory piece,” he told me in 2014. “I look at entrepreneurism as risk arbitrage. You are basically looking at risk and saying, ‘I think people are misunderstanding it and I’m going to go after it.’”
Kalanick had been among those who had overestimated the risk, misplayed it, and been bruised by it. Uber had waited on the sidelines of ridesharing for seven months, and in that time new rivals had gained critical momentum. What Lyft and Sidecar did was ambitious, he conceded, vowing: “We are not going to let this happen ever again.”
Sidecar expanded too aggressively, and its drivers’ cars were impounded in New York, Austin, and Philadelphia.29 Lyft, more careful, was building a distinctive brand. It would become Uber’s most tenacious competitor in the United States.
The lessons of the past year now seemed obvious. Moving cautiously and playing by the rules had proven to be a costly mistake. People around the world wanted these new transportation options, and according to Travis’s Law, their fervor could provide the political cover to fuel a rapid expansion. If the taxi lobby and their political surrogates didn’t want to let the future unfold, well, he had seen that movie before, with the music industry during his file-sharing days. There was no point trying to negotiate with them. To maintain Uber’s position in the vanguard of upstarts changing transportation, Kalanick, already aggressive and determined, was going to have to be even more aggressive and determined—and even, perhaps, a little bit ruthless.
It was an attitude that would change the world’s perception of Uber. And despite earnest protests to the contrary, it would rub off on one of Uber’s fellow upstarts—Airbnb.