Drive

Brooke Steger had never met Steve Novick before they attended a September event at the Oregon Rail Heritage Center.

Steger is the regional general manager of Uber, the $41 billion company whose app allows you to summon drivers with the tap of a phone. Uber had spent nearly two years trying to persuade Portland to change its rules and let the company’s drivers operate here. Novick is the city commissioner in charge of transportation and, as far as Uber was concerned, part of the City Hall roadblock.

Steger walked over to introduce herself. Novick didn’t waste much time on pleasantries.

“It would really help if you would change your name,” Novick recalls telling her. “When I hear ‘Uber,’ my tendency is to think about the Third Reich.”

Steger won’t say how she reacted, but Novick’s hostility toward her company signaled the conflict still to come.

Portland appeared unwilling to let anyone trump taxi companies’ control of the city’s car-for-hire industry.

And Uber—a pillar of the so-called “sharing economy” that tries to challenge regulation whenever possible—made clear it intended to bust into the Portland market, regardless of what city officials wanted.

Uber did exactly that Dec. 5, rolling into Portland, flouting the city’s taxi regulations and daring City Hall to throw it out.

The company had used this same strategy elsewhere with success. But in Portland, Uber found a tougher fight than it anticipated. The city sued the company, and by Dec. 18 forced an extraordinary settlement: Uber would retreat from Portland for three months to give city officials time to rewrite the rules that govern Portland’s entrenched taxi industry.

The story behind this deal has not been told before, and it reveals how city officials scrambled to clean up a mess they had made by allowing an archaic and protectionist taxi system to delay the plans of an innovative economic giant.

Make no mistake: Uber won. Its invasion won the company entry into Portland far sooner than if the question had remained pinned down by City Hall inertia. And the taxi companies—once deemed too powerful to threaten—were left at the curb.

But the deal did far more than prevent Portland, for all its trendy vibe, from acting like a Luddite. Across the country, companies such as Uber threaten to disrupt existing businesses that have had to live under government regulation for decades. They do this by arguing their model is better for consumers—all while ignoring the rules and keeping secret the one thing that gives them true power: data on customers’ habits, purchases and desires.

The deal between Portland and Uber could change that dynamic for the first time anywhere by making the city the ultimate sharing-economy laboratory: The city will briefly deregulate its taxi business while Uber shares its tightly held data. The goal? To get a true picture of what the Portland car-for-hire world truly looks like.

It could forever change the way sharing-economy companies and government regulators get along. The question is, can City Hall actually make the plan work, or has it already given up too much ground to a global company known less for its willingness to compromise and more for its drive to dominate?

“Uber sees itself as above government regulation,” says Jeff Chester, executive director of the Center for Digital Democracy, a Washington, D.C., nonprofit advocating for consumer protections. “Uber’s refusal to share data with governmental authorities is about evading public scrutiny. If Portland were able to bring Uber to heel, then Portland potentially could in fact create a kind of breakthrough for the rest of the world.”

The battle over Uber in Portland started 15 months ago, when Corey Owens came to town. Owens is Uber’s global director of public policy. In September 2013, he appeared before the city board that oversees the car-for-hire businesses. Owens wanted the board to approve a service called UberBlack. The service had proven popular in other cities, where customers can summon a fleet of luxury black sedans and SUVs with a tap of their smartphones.

Owens told the board Uber would make Portland better. “Consumers get the value of fast, high-quality transportation at the cheapest rate possible,” he told the board.

But the panel Owens was addressing, the Private For-Hire Transportation Board of Review, had the reputation of looking out less for consumers than for its own interests.

Half of its members represent drivers or existing transportation companies, including taxis, town cars and limos. The board oversees rules that say newcomers to the car-for-hire business must prove Portland needs more taxis before the city will issue new cab permits. The board has helped cab companies and other car services protect their stake.

What probably concerned the city’s taxi industry was not the UberBlack town-car service but the San Francisco company’s core business, UberX, which allows anyone to turn his or her own car into a de facto taxi.

It’s this service that has made Uber wildly popular around the world, allowing riders to quickly summon cars with an app and, in many cases, allowing drivers to charge lower fares than taxis do.

Uber has faced a backlash for what critics describe as ruthless practices: not covering drivers at all times with commercial insurance, not providing access for people with disabilities, and using “surge pricing” to hike fares when demand goes up. Often, these higher fares violate limits set by cities. (See graphic on page 14.)

That’s what prompted the hostile response Owens got from the taxi board that day. Steve Entler, a board member who also is general manager of Radio Cab, accused Uber of putting the public at risk by “contracting with anyone with four wheels.”

City staff asked skeptical questions about Uber’s plans. Entler later described Owens’ responses as evasive and “Uberspeak.”

After the September 2013 board meeting, Owens took to Uber’s blog with a sarcastic screed against Portland’s insular taxi business and the people protecting it.

“I’m here on behalf of Radio Cab,” Owens wrote, mocking the taxi board, “and I’m asking the board member from Radio Cab to please protect Radio Cab.”

David Bradgon, former Metro Council president, drove a taxi for Broadway Cab in 1999. He says the taxi board has always been stacked to protect the industry.

The board, he says, is run by bureaucrats “who didn’t want to be roused out of their slumber. The protectionist argument was always cloaked with this total baloney about protecting the workers and the consumers. The whole system is set up to screw the workers and the consumers.”

Frank Dufay, the city’s private for-hire transportation manager, says the board doesn’t protect the industries it regulates. But Dufay acknowledges its members sometimes look out for their own interests.

“You bring people on the board who are willing to look beyond their little piece of the pie,” Dufay says. “That doesn’t always happen, but that’s the hope.”

The two biggest taxi companies, Radio Cab and Broadway Cab, control 285 of the 460 permits in the city. Between 1998 and 2012, the city added no new taxi permits, leaving Portland with fewer cabs per resident than virtually any city of its size in the nation (see chart on page 13).

With a strict limit on the number of cabs on the street, taxi companies could keep fares steady and competition out.

Over time, however, that grip has weakened. In 2012, then-Mayor Sam Adams led the effort to grant 50 taxi permits to Union Cab, a new, driver-owned company backed by the labor union Oregon AFL-CIO. Radio and Broadway cabbies drove around City Hall, laying on their horns nonstop.

The protest didn’t stop the City Council from approving the permits. It shouldn’t have been surprising: On balance, the Oregon AFL-CIO plays a bigger political role—in terms of campaign contributions and numbers of supporters—than the taxi companies.

Yet the defeat for Broadway, Radio and other taxi companies shattered their sense of invincibility. “Union Cab put a crack in the status quo,” says Hannah Kuhn, who watched the fight as City Commissioner Nick Fish’s chief of staff. “The traditional cab companies lost some influence.”

It wasn’t just that the companies proved to be far less powerful than many had long assumed. It was that Uber—when it wanted something it couldn’t have—didn’t take no for an answer.

At first, Uber appeared to come at City Hall like most businesses that want something from politicians. The company hired a Portland lobbyist, Greg Peden of the Gallatin Group, to see whether Mayor Charlie Hales and the other four city commissioners might be willing to buck the taxi board.

Inside City Hall, there was little appetite. The power that taxi companies held turned out to be less about traditional influence: They didn’t contribute a lot of money to campaigns and didn’t hold much political clout. But the companies had made dealing with taxi rules so contentious and nasty that members of the City Council simply wanted to avoid the issue when Uber came knocking.

“It’s a hassle to tackle,” says one City Hall staffer, asking for anonymity because he fears angering other officials. “I’d bring it up, and people would go scurrying like rats.”

The mayor’s office had met once with Uber in July 2013, shortly before the company asked the taxi board for changes. Hales’ staff told Uber they weren’t on the mayor’s agenda for the next year. “We let Uber know that we had a timetable,” says Hales staffer Josh Alpert, “and we weren’t likely to change that timetable.”

Many companies might push to get on the agenda, or use that time to build relationships at City Hall. Instead, Uber refused to bow to the taxi board and eventually fired its local lobbyist when it couldn’t get immediate action. Rather than continue to press City Hall, Uber simply went away and focused on cities that were welcoming.

Says Steger, the Uber exec whom Novick had greeted with the Nazi reference, “We had to pick where we wanted to put our resources.”

Not much happened for several months, until Hales and the rest of the City Council took steps that many saw as hypocrisy.

While keeping Uber out, city officials had all but ignored the operations of another sharing-economy giant, Airbnb, that was operating in Portland but regularly breaking the rules. The company uses its website and app to match customers with local residents willing to offer short-term rentals of their homes and apartments.

Airbnb allowed its hosts to avoid health and safety inspections and lodging taxes—all of which struck the existing hotel business as unfair competition.

Rather than crack down, Hales embraced Airbnb and led the effort to give the company a legitimacy it enjoyed in few other cities. At Hales’ direction, Portland bureaucrats rewrote city rules to effectively allow Airbnb and its hosts to keep operating. Meanwhile, Airbnb agreed to make its hosts undergo inspections and pay lodging taxes.

Airbnb had applied pressure on city officials—records show the company spent $47,000 lobbying City Hall this year. Airbnb sweetened the courtship by announcing in March it would locate 160 jobs and its national call center in Portland. (It’s now 220 jobs.) The deal also looked cozy: Hales’ daughter, Katelyn, was dating Airbnb’s chief mapmaker.

Hales’ stance toward Airbnb conflicted with his attitude toward Uber. Yes, Airbnb had already insinuated itself into the city, which made it more difficult for Hales to kick the company out.

But Hales openly embraced Airbnb’s free-market approach while putting off Uber’s chance to get a full hearing.

Uber officials publicly pointed out the contradictions. “I hope that the city is able to prioritize innovation,” Steger told WW in July, “especially after they welcomed Airbnb.”

The company then launched a strategy to put heat on Hales and others in City Hall. In July, Uber launched its service in Vancouver, Wash. Uber drivers could drop off fares in Portland but not pick them up there—and that generated frustration among customers who were discovering the new service.

The company crowdsourced outrage. It urged customers on social media to badger Portland city officials by tweeting with the hashtag #PDXneedsUber. Thousands did.

In July, Uber execs returned to City Hall, where Hales’ staff told them the city was preparing to begin the process of reviewing taxi rules. But pressure was building: In the fall, Travel Portland, the Oregon Restaurant and Lodging Association, and the Portland Business Alliance all asked City Hall for faster rule changes. Staffers say Columbia Sportswear CEO Tim Boyle repeatedly called Hales’ office to ask why Portland wouldn’t let Uber in.

In October, Uber officials met with Hales and Novick. This time, Hales pledged the city would start considering new taxi rules no later than January. Uber responded by opening service in Tigard, Beaverton, Hillsboro and Gresham in hopes it would put more pressure on Portland.

Novick says he was serious about taxi reform—and was making calls about rule changes as late as December. “Uber probably underestimated our commitment to taking a real look at the regulations,” Novick says.

But Uber had a right to be doubtful and impatient. City Hall had been avoiding the issue long enough. The company worried the process could take months, if not years, assuming the mayor kept his word. The company urged City Hall to speed things up. Steger says she sent an email to Novick on Dec. 1, asking for a timeline.

“I tried to make this clear to the city: There are many different pathways to a solution,” Steger says. “We didn’t hear anything back.”

On Dec. 4, Hales got a call from David Plouffe, Uber’s senior vice president of policy and strategy. Plouffe ran Barack Obama’s upstart 2008 presidential campaign, then spent two years as a senior White House adviser. Uber looked on its city-by-city effort to overcome regulators as if it were a political campaign and in August hired Plouffe for his expertise.

But when Plouffe called the mayor, Hales was stuck in a land-use hearing. Plouffe left a message telling Hales he had news but was vague about what it was. Hales didn’t call him back right away.

The news Hales didn’t take time to hear was startling: Uber had waited long enough and would simply roll into Portland the next day, without regard to what city rules said.

Uber started calling select reporters Dec. 5 with a heads-up that the company would launch operations in Portland at 5 pm. Novick learned of Uber’s invasion from Oregonian reporter Joseph Rose, and then sent word to Hales.

Hales went to Novick’s office, dialed Plouffe back and put the call on his cellphone’s speaker. According to Hales and two of his staffers, Plouffe and the mayor opened with small talk before Hales got to the point.

“David,” Hales said, “we’ve heard some rather disturbing news.”

Plouffe stalled and evaded the issue. (“He said a lot of words,” Hales told WW later. “But there wasn’t a great deal of content.”) Hales held the cellphone flat in his hand, staffers huddled around him, and Novick yelled into the phone.

“If you come in and break the law,” Novick recalls saying, “we’ll throw the book at you!”

“I hoped we could have been civil with each other,” Plouffe said.

“Announcing you’re going to start breaking the law,” Novick replied, “is not civil.”

Uber’s Steger says today Plouffe and company executives were taken aback at the hostile response. Other cities—Seattle, Miami and Austin, Texas—had been far more pliable when Uber pushed its way in.

But Portland officials were furious. “I just couldn’t stand the idea they get to write their own rules,” Hales says now.

Within hours, Uber drivers, who had been contracted through Craigslist and Facebook posts, were picking up Portland customers. Novick staged what amount to a tantrum, promising sanctions and telling The New York Times that Uber “seems like a bunch of thugs.” The city sued Uber three days later, asking a judge for an injunction that barred the company from operating here.

But the city’s crackdown otherwise fizzled. Transportation officials sent 16 fines to Uber totaling $67,750—but they never fined a driver, and discovered they probably didn’t have the legal authority to tow cars as they had threatened to do (“Drivers, Wanted,” WW, Dec. 17, 2014).

Both sides were stuck.

On Dec. 13, a Saturday, Hales, Novick and three staffers sat down at a dining-room table in the Eastmoreland home of political consultant Mark Wiener. Wiener had helped get Hales and Novick elected, and Uber officials turned to him to see if he might broker a deal. Across the table sat Steger, the Uber general manager, and Caitlin O’Neill, a company policy adviser.

Hales insisted Uber stop operating in Portland in violation of the law. “I have a pretty well-attuned bullshit meter,” Hales told WW later. “And when somebody’s bluffing, which I believe Uber was, I’ve got a little bit of life experience that helps inform me on that.”

But Hales knew his leverage was limited: Uber was big and persistent enough that, eventually, the company could push itself into the city one way or another. Novick had given the city no route of retreat. And there was no guarantee a judge would block Uber.

Uber was also worried, but for the opposite reason. A judge in Nevada had blocked its operations there. No matter how a judge ruled, the company would still have to deal with city officials who were now irate at its tactics.

According to Hales, Uber officials apologized and agreed to give the city breathing room by getting out of town until April 9. By that time, Hales said, the city would make some of Uber’s operations legal.

“We’ve never paused a market,” Steger says, “but I really saw this as a special case.”

The dilemma created by City Hall’s intransigence toward Uber ended up giving Hales a lucky break: He got the chance to demonstrate leadership and political skills often missing from his first two years in office. Hales managed to hold Airbnb and Uber, two sharing-economy companies, to different standards and still appear to have brokered a working deal that allowed Uber into the city.

What’s less clear is whether Novick helped or hurt the city’s efforts. His attempt to crack down on Uber failed, but his belligerence toward Uber helped convince the company it needed to find a compromise.

In the end, Novick remained combative toward Uber, dickered over details and insisted his name be taken off the press release announcing the deal.

Ironically, the delays created by Novick’s resistance helped create the real innovation in the Uber deal. Novick had argued the city couldn’t change the rules for Uber without also changing the rules for existing taxi companies. This got Hales aide Josh Alpert wondering: How could the city actually measure the competing claims of Uber and the taxi companies that each offered customers a better deal?

The answer: The Portland cab market, once tightly controlled, is being blown wide open in an experiment Novick dubs “Taxis Gone Wild.”

Starting in April, the city will for two months drop two major rules governing taxis: how many can operate at any one time, and what taxis can charge customers.

Uber and its biggest competitor, Lyft, can also operate. But Hales says the companies will be asked to supply the city with data on where they’re picking up and dropping off passengers, and how much they’re charging.

“People tell us anecdotes about waiting two hours for a cab,” Hales says. “Facts will be friendly, and data will be helpful.”

But that’s the real test for Hales’ deal: Will Uber share information about how it makes its money?

Big data is what makes sharing-economy companies powerful, and they loathe giving it up. Controlling information about where people are summoning rides, or where they want to rent houses, is the basis of their business model. City Hall is currently fighting Airbnb over supplying the addresses of its hosts, most of whom have so far refused to undergo safety inspections.

Steger says Uber is willing to give Portland information—to a point. “We take our customer privacy and our driver privacy very, very seriously,” she says.

Chester, of the Center for Digital Democracy, is skeptical Uber will give the city the data that really matters.

“Uber is acting more like a secretive anti-government organization than a commercial business,” he says, “but it’s a double-edged sword. You’re talking about the legitimate right of government authorities to look at data. On the other hand, government looking at private data is troubling.”

One thing is certain: The cab business will never go back to what it once was.

During his talks with Uber, Hales never once bothered to tell Radio Cab or Broadway Cab what was happening—a sign the companies’ clout is all but gone.

“We didn’t make up the rules,” says Radio Cab’s Entler, who criticized the Uber exec at the city’s taxi board meeting more than a year ago. “They made up the rules. And for them to change it—to accommodate criminals—seems a little strange to me. And indicates to me that maybe I’ve lived a little too long.

WWeek 2015