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Technobabble: Smartphones help fuel new 'tax' service

By Jason Ogaard, columnist

Taxis have been around for a long time — so long that there are a lot of rules and regulations surrounding the industry.

In many major metro areas in order to operate a taxi service you have to buy a taxi medallion that the city auctions off. Since the city only auctions off so many medallions, winning bids can get high.

In New York City the price for a taxi medallion has gone over $1 million. That one is a corporate medallion, meaning that the taxi doesn't have to be driven by its owner and could be in use 24 hours a day. But $1 million is a steep price to pay beyond all the other overhead that goes into operating a taxi service.

Limiting the number of taxis available through the medallion auctions has some very noticeable effects.

The first is that the number of taxis available to the public is artificially scarce. It's harder to get a taxi and it costs more when you finally do get one. The scarcity also allows taxi drivers to be picky about their fares.

Many people have reported that taxi drivers won't let them in the taxi until the driver knows the destination. If the fare won't cost enough the driver drives off.

So we have the city making extra money from medallion auctions, taxi companies benefit because of less competition, and consumers are left with poor options if they want to get a taxi. Oh, also the consumer pays a lot more now as a result.

This is a market that was asking for some disruption, and two new companies have done just that. Uber and Lyft, both offering car rides to consumers, have entered strong over the last two of years. These companies work, like a lot of new start-ups, mostly via smartphones. They don't employ drivers or own the cars directly. They provide the connection.

Riders and drivers can sign up for one or the other or both.

As a rider when you sign up you provide them with your credit card information. You open the app and ask for a ride. If one is nearby, the app will let you know where they are and their estimated time to get to you. You can even get an estimated cost before you ask for the ride. When you're at your destination, you don't need to pull out cash or a credit card. The payment is handled right through the app, even the tip.

To avoid taxi regulations Uber and Lyft have been carefully skirting the letter of the law. Taxi regulations apply to companies that own cars and hire drivers. Uber and Lyft drivers own the cars and are paid directly by the passengers, the app maker taking a percentage of each payment. Technically, Uber and Lyft don't employ drivers or own the cars so they aren’t breaking the law. That hasn’t stopped several cab companies from filing suits against them. And while Uber and Lyft aren’t breaking the letter of the law, they are breaking the spirit of the law.

Fortunately city councils have been listening to the complaints of their constituents regarding taxi services and have put in place agreements to allow Uber and Lyft to operate indefinitely.

These alternative taxi services first appeared in San Francisco, but now operate all over the world. Minneapolis just allowed them to start operating a few months ago so the next time you’re in town you can use your smartphone to call a cab.

Jason Ogaard is a Red Wing High School graduate and a software engineer in the Twin Cities. Contact him at