Lyft supporters rally outside Seattle City Hall. (GeekWire file photo)

In this corner: We have a young, innovative company that says it’s changing the playing field, and making life better for everyone through innovation. This company’s opponents say it isn’t playing fair.

In that corner: We have the government agency responsible for overseeing the playing field. The company’s opponents are calling on this agency to do something.

The battle: The young, innovative company says existing rules don’t apply because it’s a new playing field, regulation will stifle innovation, and the good of what it’s doing for consumers is self-evident. The government agency says it’s not a new playing field and that the company’s actions are causing harm and need to change.

Representatives of the taxi and for-hire industries speak with Seattle City Councilmember Bruce Harrell after a December hearing.

The outcome: Despite a valiant effort by the young company (and its supporters), they lose and find they’re now clearly, permanently on a playing field overseen by the government agency — with their actions subject to scrutiny and regulation in some form from here on out. The company’s opponents don’t get all they want, but the government agency’s action helps them beat back the company, giving them time to adapt and regroup.

Given the attention being paid to the Seattle City Council’s cap on ridesharing companies like UberX, Sidecar and Lyft, you may think I’ve just outlined that story. To a degree I have. But I have also outlined the story of United States v. Microsoft Corp. with the role of the United States being played by the Seattle City Council, and that of Microsoft by the ridesharing companies. There are differences, but the similarities are important to understand because both of these cases show what happens when the fast-moving world of tech and innovation collides with the slow-moving world of legislation and regulation. And these cases show that while that the innovators naively believe they are outside those laws and regulations because of innovation (or above the laws because of arrogance, some would say), in the end they find they have no choice to but to accept they’re now part of a new, different game: the game of politics. Because the important lesson from these clashes is that the government will win.

buddpullpoliticsWhile I normally write on security and privacy, I also have some background in politics from before I got into tech. With that background and my career in technology, I have my own perspective on this collision of tech and politics. Specifically, I have my ideas as to why these kinds of collisions happen and why they’re fated to always end the way they do, when they do. What’s important to learn from these tales isn’t what went wrong for these companies, but what other young, innovative companies (i.e. startups) should do to prevent these collisions — because, like War Games, the only winning move is not to play.

Money vs. power

The chief issue that underlies these collisions is the fundamental difference in outlook between business and government. Business is about money, government is about power. Money is logical and measured in numbers; power is emotional and measured in influence and respect.

Typically, young, innovative companies will view government as irrelevant to their project: they’re too focused on innovation, after all. If government does come knocking (and it doesn’t always), these companies view themselves as outside the government’s jurisdiction and figure it will go away. If the government doesn’t go away and the matter comes to a head, the companies will then tend to make arguments in support of what they do that are grounded in logic: their reasoning for why the rules in question don’t apply to them; how their innovation makes life better; and how their work is good for the economy.

These may be good arguments. But they don’t really matter because the company is pleading its case at the wrong time and in the wrong way. If these arguments are being made in the Seattle City Council chamber during a hearing or in a courtroom during a trial, they’ve already lost. These arguments are most effective when made to the people that have the power to initiate regulation or other restrictions before they actually act, in order to forestall them. You are looking to influence the process. And to do that, you have to have access, and show respect with that access.

When I watched the beginnings of the Microsoft antitrust trial, the thing that struck me most was how Microsoft was failing to try and gain access to those in power, engage them, give them the proper respect and try to build up influence. Some said it was Microsoft’s arrogance, and I can see that. But I also saw naiveté: a belief that the logic of business and technology was better than the emotion of government and power, and so would prevail. We know how that worked out. It was a miscalculation that almost ended Microsoft as a single company, certainly altered the future of the industry, and (I believe) ultimately drove Bill Gates out because of the toll it took on him.

How to succeed in politics (and business)

House_of_Cards_title_cardTo understand what lies at the heart of this miscalculation, Netflix’s series House of Cards gives us a good example. Yes, it’s fiction, but it’s fiction that gets the operation of power very well in my opinion (one reason why it’s popular inside the Beltway). At one point, Frank Underwood, played by Kevin Spacey, remarks, “You may have all the money but I have the men with guns.” It’s a raw statement, but true. At its heart, power in government represents the ability to use the coercive power of the state. It’s why those in power look down on those who just pursue money, like in this House of Cards clip from season 1. No matter how logical your arguments are, those in power make the final decision for their own reasons, and they know it. It’s not just a matter of letting the facts speak for themselves; it’s a matter of making the facts speak for themselves in the most effective way.

Microsoft failed to appreciate this game and engage in it promptly if not proactively. When we look at ridesharing companies, we see they’re making the same mistake. They didn’t engage city councils proactively. And when they saw the first sign of trouble in San Francisco, they still failed to take action promptly. Failing to engage was a huge error in my opinion, since taxi services are highly regulated and so closely integrated with city government in all major cities. More than any other industry, ridesharing companies should have understood early on the importance of working with, rather than against, government. They didn’t, and now they’re forced to play a catch-up game.

It remains to be seen what happens with ridesharing companies. They didn’t lose entirely in Seattle, but the loss in Seattle will likely lead to losses in other cities as their opponents are emboldened. One of the likely signs that you’ll see that ridesharing companies have figured out they need to engage and play the game will be the formation of an industry association that can engage and lobby city councils and governments on their behalf. That’s a classic first step in finally waking up to the reality of the game. And the game of politics is never done, really. Years from now these companies may be in a position to try again from a better, stronger position of greater influence than they have now, and realize different results. One thing is sure for rideshare companies, though: they’re now firmly in this game for good.

The lesson from Microsoft and ridesharing companies for other young, innovative companies is a clear one. Understand the regulatory and legislative environment you’re operating in early, accept that you are (or will be) a part of it, and engage proactively and positively with the people who do have the guns in your industry. Do this especially if you have potential competitors who are already playing the game. Guess who those legislators and regulators are listening to today, if not to you?

It’s easy to decry this as a corrupt, antiquated system. But pragmatism is one area where business is better than government. Business people are good at accepting facts on the ground and dealing with them. And whether you agree with the game or not, it’s a reality.

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  • JamesPaulWhite

    Your analogy would work a lot better if Lyft held an overwhelming monopoly position in the taxi ride market and had spent more than a decade illegally using that market power to crush competitors with new products and services like ridesharing. Microsoft’s political failings wouldn’t have mattered a whit if they weren’t a criminal enterprise. It is indeed ironic that Bill’s nightmare of being under the thumb of the Department of Justice just like IBM came true. The difference being more politically pragmatic (rather than supremely certain that his view was exactly the right one) would have made is that he could have cooperated and avoided being convicted.

    • melitagnm105

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  • Ryanisinallofus

    “regulation will stifle innovation!” – mtGox

  • Realist, not Opponent

    If these companies were actually innovative, you would have a point. Their true innovation is cutting costs by not paying licensing and regulatory fees, not having sufficient insurance, passing on costs to drivers, etc.

    Many of the people you see commenting are not “company opponents.” We just don’t believe it’s ok to break the law in pursuit of profit, and we don’t believe having an app suddenly turns you into a different type of company. These companies are taxi companies, nothing more, nothing less.

  • Guest

    The problem with Seattle politicians is simply that they are terrible. So worried are they about being “fair” and “offending” people that they are mostly paralyzed and incapable of actually leading. We’ve seen this over and over again. The monorail (dumb idea), the tunnel (we could have had a viaduct for literally billions less and it would actually function with downtown exits, duh!), the many, many pointless meetings and initiatives, I could go on and on.
    Mostly though, you’ll notice, that Seattle politicians don’t actually tend to come from a background of building and owning a business. “Living wages for everyone!” Um, and where does that money come from? Right, nice sentiment that’s unfortunately not based in reality.
    As far as the Uber et al debacle, what’s been proven so far is that the existing taxi service sucked and most people didn’t use them. So much for regulations Ryanisinallofus. Taxis here tend to smell bad, the drivers are on their cell phones non stop, the taxi shows up when it shows up, and overall it is a poor experience. This is why people like Uber, plain and simple. It works. I used an Uber car to have my daughter taken to a concert the other day and the driver called me to let me know that he dropped her off and everything went great. Amazing!! He didn’t have to do that and I didn’t ask him to.
    Regarding Realist, not Opponent’s comment, I don’t know if Uber is less or more expensive than a cab- AND I DON’T CARE. The service is much, much better. It seems like it is roughly the same but again, whatever, it is simply a much better service.
    Sally Clark wants to “help level the field.” That’s nice, I wonder how the investors of Uber, Lyft, and Sidecar feel about her sentiment? Again, Sally has never actually started and run a business so while she may think she’s just helping out she’s not, she’s interfering with a market in transition. As we all know from so many examples, this will just be temporary, the market always finds a way to win no matter how much inane government meddling is involved.
    Moreover, where were our vaunted and distinguished politicians who didn’t bother to increase the number of taxi medallions FOR OVER 23 YEARS?! The population of Seattle explodes and they do nothing except increase bike lanes. Yes, regulations once again keeping pace with the market. Idiots.
    I don’t think it is wrong to require the same level of insurance. Fine. Limiting the number of cars though? So the dip s*&t socialist can ensure a “living wage”? Um, the market will do that.
    Right now instead of driving places, instead of being a taxi service, I can use Uber on a Friday night to pick my kids up from a friends house from across down so I can have a glass of wine with my wife. Would I have called a cab before? Not a chance. Now I’ll have to revert back to driving. Thanks Ed and Sally, you’ll never see a vote from me again. Ever.

  • David Cooke

    This is why they have to legalize weed. Unlike legal businesses that are easy to intimidate with force (I have the men with guns), the cartels are happy to shoot back.

  • chi1cabby

    I’m an Uber(taxi) driver in Chicago. Uber is recruiting Chicago cab drivers to join their UberX service in their personal cars. I attended one of their info/signup sessions. UberX was unable to name even a SINGLE insurance company that would cover me and my personal car if joined UberX! In my opinion UberX is inducing and perpetuating insurance fraud by signing up unwitting drivers! Every SINGLE UberX, Lyft, SideCar driver is hiding their ride-sharing status from their insurance providers…these individuals will be on the hook for untold humongous damages and liability when a serious accident eventually happens. And UberX will simply deactivate the driver, deny liability and walk away, as it did in the case of death of Sofia Liu on 12/31/13 in San Francisco! The insurance policy that UberX tauts is the secondary, and only a excess liability policy…the drivers own insurance is the primary insurance. But every personal carinsurance has an exclusion that prohibits vehicle-for-hire activity. So not only any claim would be denied, but the policy would be cancelled too! I think feds need to step in and have a look at these deliberately misnamed “ride-sharing” outfits for violating RICO statutes for engaging in this fraud in one municipality after another!

    • Dude Manly

      MISINFORMATION. I actually wonder if you are intentionally lying, or just misinformed about how personal injury law works. A driver who has coverage can be sued (in WA state) up to and even exceeding the policy maximums, and the insurance provider is required to fight the lawsuit and cover any claim beyond policy maximums. If you are an Uber driver, and you get into an accident, your insurance company is REQUIRED BY WA LAW to cover any damages, which is why policy premiums are already some of the highest in the country. UberX can not simply just walk away, either. If a plaintiff has a legitimate claim of damages, they can easily file a lawsuit (complaint and summons) against UberX in WA court, have the right to a jury trial, and UberX would be required to pay any judgement if the plaintiff wins – which they would if they have a legitimate complain. The taxi companies are using fake accounts like this one to spread misinformation. Do not listen to them. It’s time to remove the corrupt Seattle City Council.

      • ClaimsAdjuster

        Dude: “If you are an Uber driver, and you get into an accident, your insurance company is REQUIRED BY WA LAW to cover any damages, which is why policy premiums are already some of the highest in the country.”

        What? Insurance companies deny claims all the time – especially in cases of insurance fraud, which is what most UberX vehicles are doing.

  • Matt Brubeck

    How can you say with a straight face that Microsoft at the time of the 2001 US antitrust case was a “young, innovative company” in a “new playing field”? At that time Microsoft was already over 25 years old, worth billions of dollars, and had dominated multiple consumer and business markets for most of the previous two decades (starting with the release of MS-DOS for the IBM PC twenty years earlier). It had just succeeded in using its Windows monopoly to effectively kill competition in web browsers and usher in a multi-year period of stagnation in the web as a competing platform.

  • Dude Manly

    Honest question for the author: If “the government wins” as you claim, and their position is in direct strong conflict with the interests and wishes of their constituents, is that really a win? This situation proves that Seattle City Council is incapable of dealing with the current Seattle economy and ecosystem. It is time for a new City Council, and this absurd action has already mobilized a number of wealthy young techs who are now pooling their money to get these clowns removed from office and replaced by those will encourage innovation and the welfare of our city, versus limiting it to protect otudated monopolies. Monopolies that make their money by exploiting immigrant drivers, charging them $600/week for cab leases, which leaves them almost nothing as earnings, forcing them to drive unsafely to try to earn enough to live. The government exists to SERVE the people, not DICTATE. Seattle City Council must be flushed!!

  • Dude Manly

    PS – Microsoft was a monopoly. In this scenario, the taxi companies would be Microsoft, and they just bought off the Seattle City Council to effectively ban all competitors. This is government corruption at its worst. IT’S TIME FOR A CHANGE!!

  • Thiago

    Well, I have only heard good things about the service. Even so, I find it strange all the press it’s getting. After all, it amounts to a really nice taxi service. Thiago |

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