klein2_800Governments can—and should—use private sector technology to add value to the customer experience, resulting in higher revenues for the government and better service for the public. Examples of private sector technology that enables collaborative consumption are all around us—from carshare and rideshare systems, to house- and room-sharing programs, to office sharing, and even to the sharing of formalwear and tools. The trend toward sharing the use of what I like to call “lazy assets”—things that are not in use all the time—is exploding in popularity, especially in cities.

Wanting an alternative to outright ownership of a little-used asset, people are choosing to engage in peer-to-peer sharing or to pursue fractional rentals from a company that owns the assets and maximizes their use.

Sharing reduces costs for individual consumers and requires fewer natural resources to be used to make products for every individual. Of equal importance, these plans dramatically increase the choices available to consumers. The ease of having thousands of different configurations of service and product options available instead of the single version that one person owns—and the benefit of prices that typically are all-inclusive—can greatly reduce the hassle and stress inherent in busy urban lives.

klein3_240Such frictionless services are one of the biggest factors in making cities more affordable places to live—particularly for younger people, but also for the people on the supply side who can generate income from the peer-to-peer model. Internet-enabled room-sharing service Air BnB is a one example of a technology platform that empowers many different types of people on the supply and demand side.

Share Wars

Recently, I have been following some snarky online articles regarding the sharing economy. Among some people, there is a perception of “share-washing”—in which activities that call themselves “sharing” are really just traditional commerce in disguise. This is particularly so as more organized, well-funded companies capitalize on the access versus ownership model. The most hammered-on example is the ride-sharing platform Uber—particularly the low-cost, nondescript UberX model, which is displacing traditional taxi service in many cities.  I do think this nascent industry made a bit of a mistake coming out of the box as “ride sharing” versus “private livery” or something similar, but I understand why the industry did it: the term embodies what it is trying to do. Unfortunately, it conflicts with the longstanding definition of rideshare/carpool that requires that it not be a chauffeured special trip, as well as the 1982 law defining it and how it works. That said, these laws were written with a suburb-to-city mentality and purpose, and as people flock back to cities the needs are different and short point-to-point trips are crucial.

Regardless of whether you like Uber’s or competitor Lyft’s (whose signature mustache cars are pictured above) tactics—or their representation as “rideshare”—they are providing a valuable service to consumers in an industry that has often refused to change with the times (with some taxi systems still laggards about accepting credit cards) and therefore making itself prime for disruption. In addition, these new services are helping cities by filling the gaps in the transportation system at low cost. Those low costs are offset, in part, by the devaluation of taxi medallions. In New York City, by my calculations, the medallions’ current value is well over $130 billion, calculating the 13,437 medallions at a current value of more than $1 million each, but may fall fast once UberX and Lyft are allowed to operate their peer-based services at $0 medallion cost.

Not least, these new services offer an opportunity for people who ordinarily would not drive a taxi for nine to 12 hours per day but who need flexible, part-time work in the “new” economy, which has seen a 75 percent increase in part-time workers over the last six years.

The beauty of market-driven solutions at a basic level is this: if you cannot provide a product or service that people want, and get enough repeat business to make it profitable on an ongoing basis (while keeping a four-star rating on Yelp), at a price that people can afford, you will fail. This may seem pretty obvious, but it is a valuable alternative service-delivery mechanism, especially compared with subsidized government-run services, many of which are very much in need of those subsidies.

The availability of services like Uber, Lyft, and car-sharing service Zipcar keeps government on its toes. What Uber in particular has shown government is that if government doesn’t pay attention to disruptive technology, new companies will find a way to work around the government. Although I might have chosen somewhat different tactics than many ride-sharing services have (now referred to as transportation network companies or TNCs), they have been very effective. They have created a net-positive influence because they ultimately have shifted the balance of power in favor of consumers.

I dealt with some of the same issues in the early days of Zipcar, where I worked as a vice president, and with my early-to-market electric-powered, organic food truck company. Back when I was a young, feisty urbanist business guy (I’m now an older, feisty urbanist business guy) working with Zipcar, local government wanted to put us in the rental-car box to regulate us, even though Zipcar offered hourly-access vehicles that often were parked in private driveways and garages. But our business model would not work if an $8 convention center tax were added to an $8 hourly rental; no one would use it.

After many meetings with the powers that be in various cities including Washington, D.C., we figured it out together: a new local regulatory structure was born for “car sharing” in most locales, which allowed us to operate and work toward profitability. Once that was out of the way and governments like Washington, D.C.’s started waiving excise taxes at the department of motor vehicles as well (like many do for electric and hybrid vehicles), we moved forward and actually partnered with multiple government agencies to provide high-profile on-street car-sharing service throughout the Washington area, including locations at Metro subway stations. (One year earlier, Metro had threatened to sue us because we were experimenting with adding our Zipcar-chip to Metro’s SmarTrip fare card ourselves since the transit authority would not even entertain the idea. Oh, how quickly things can change.)

Backbone versus Last Mile

klein1_360Zipcar and the various government entities realized that we could mutually benefit in Washington. Government operated the backbone of the transportation system and recognized that the last-mile service and the multitrip and hauling flexibility that people needed were lacking. So, in exchange for the government’s providing high-profile spaces and additional marketing, we placed cars throughout the city, including in lower-income, less-dense neighborhoods. Both the private sector and the public sector had skin in the game; it was a partnership, and it worked. Zipcar in Washington hit its tipping point toward success partially as a result of these partnerships. It was viewed as an extension of the public transportation backbone. Regionally, people from all walks of life got to experience this flexibility. This is the mainstreaming of an alternative service through public/private partnership.

But the service would not fly if customers did not see its value and use it. To my way of thinking, one of the most rewarding results was that vehicles in less affluent neighborhoods, where some people were spending over 50 percent of their after-tax income on transportation, became some of the busiest in the region. We learned that everyone needs a car sometimes.

In the May/June issue of Urban Land, I wrote about bike sharing and the importance of true public/private partnership (PPP). While a utopian transportation system may not be possible, I believe we can come close over the coming decades. For example, officials in Helsinki, Finland, recently made a bold announcement: by 2025, it would not be necessary to own a private vehicle in that capital city due to the integration of public and private options with the MAAS, Mobility As A Service, application and payment system.

With a combination of enhancements to the public transportation backbones through expanded subway, bus rapid transit, streetcars, light rail, bikeshare—and government’s embrace of technology and innovation in the private sector—we can do this. The key is going to be the public/private partnership and government and business taking a hard look at what each excels at. For example, I am not convinced that many cities will still be in the business of providing local bus service in ten years. In some cities, such as D.C., it may mean forgoing the transit authority’s bus service in favor of the privately operated Circulator bus service, which operates at 40 percent lower cost (despite being represented by the same labor union) and provides a higher-quality experience with consistent ten-minute headways. In other cities, it may mean getting rid of local bus service during off-peak hours, or getting rid of it altogether in favor of private jitneys that offer customers more time-based and geographic flexibility at a fraction of the operating cost for the government-managed alternative.

So when we look at the continuum of PPPs, there is a range of options for every city and circumstance. There are several key principles for both the public and the private entities:

  • Embrace change whenever possible and shape it;
  • Put the public ahead of officials’ personal views and interests;
  • Be willing to tweak models to achieve compromise that benefits the public good and allows for profitability;
  • Recognize that more profitable services are better-run services for consumers; and
  • Increase transparency to help ensure the best performance.

Aligning the public sector’s greater-good goals goes hand-in-hand with profitability for the private partner—if you put in the effort. We have heard the same refrain when it comes to environmental enhancements to projects: “it costs too much,” which has proved to be hogwash. They can be less expensive and produce better outcomes.

When there is a never-ending focus on the customer to promote repeat usage, profit, high scores for customer service—and ultimately contract renewal—the public wins. I have seen this model work again and again. Put the public first, get their input, and be transparent with the results.

Gabe Klein, a ULI visiting fellow, was head of the Chicago and Washington, D.C., transportation departments. He helped build Zipcar as a vice president from 2002 through 2006 and regularly consults with cities and private companies on shared transport systems.