Last week, Arizona’s House of Representatives approved legislation to prohibit platform owners like Apple and Google from locking app makers into their own payment systems. The bill passed only narrowly, and it must be approved by the Arizona Senate and Gov. Doug Ducey before it can become law. But regardless of the bill’s ultimate fate, the vote is the latest sign of a dramatic shift in public attitudes toward Silicon Valley’s most powerful companies.
For the first two decades of the Internet era, there was a broad consensus that politicians shouldn’t tie Silicon Valley companies down with burdensome rules and regulations. Companies like Apple, Amazon, Google, and Uber were widely admired. In 2007, presidential candidates from both parties made pilgrimages to associate themselves with Google. In 2015, Jeb Bush, Ted Cruz, and other Republican hopefuls tripped over each other to position themselves as the most Uber-friendly candidate.
Tech companies’ prestige bolstered their political power. Those who proposed regulations to rein in tech companies—or in some cases just wanted to subject them to the same rules as other companies—were often dismissed as out-of-touch reactionaries and enemies of progress.
But all that is changing. Products like YouTube, the iPhone, and ride-hailing apps have become banal parts of modern life. The companies behind them are widely considered entrenched incumbents. And so the public and their elected representatives increasingly treat them like other big, powerful companies. Politicians score points by railing against them. Proposals to rein them in sometimes poll well.
The next few years are going to be particularly challenging for companies like Apple, Google, Facebook, and Uber because they are global companies. They not only have to worry about antitrust lawsuits by the US federal government, they also face heavy scrutiny from US states and from foreign governments around the world. For the tech giants, there’s a danger that a policy experiment in one jurisdiction could become a precedent that’s copied around the world.
Technology Scorched-earth tactics used to work for Uber and Lyft
Back in 2016, the city of Austin, Texas, wanted Uber and Lyft to fingerprint drivers—a rule that already applied to regular taxi drivers in the city. The idea was approved by 56 percent of the city’s voters. Uber and Lyft responded by going nuclear—shutting down their Austin operations until the city changed its rules.
Austin officials argued they were simply requiring Uber and Lyft to play by the same rules as other taxi providers. But many members of the public, especially customers of the services, bought into a different narrative: that Austin officials were out of touch and hostile to modern technology. Having a significant part of the public behind them gave Uber and Lyft a lot of power—power Uber and Lyft ultimately used to get the state legislature to override Austin’s rules.
This wasn’t a one-off victory. It’s a playbook the companies used over and over again in their early years. Uber and Lyft would frequently swoop into a new metropolitan area without worrying too much about local taxi regulations. Spending millions in venture capital, they’d try to build up a customer base as quickly as possible. City officials feared a backlash from these customers, and they didn’t want to be seen as standing in the way of progress. So they almost always relented.
Technology Now Uber and Lyft are on the defensive
This strategy has become less effective in recent years. Partly that’s because activists have generated more negative press for these firms. Once the gusher of venture-funded subsidies dried up, driving for Uber or Lyft proved to be a low-paying and precarious gig. Critics have also highlighted the problem of sexual assaults occurring in Uber and Lyft vehicles—although it’s not clear if Uber and Lyft have a bigger problem here than traditional taxis.
But perhaps the most important shift is that Uber and Lyft are no longer seen as underdogs. In the early 2010s, these companies’ survival still seemed like an open question. Customers worried that incumbent taxi companies would use antiquated regulations to smother them in the cradle. So when Uber and Lyft argued that a particular regulation could force them to leave a city or state, customers believed them, and some lobbied their elected officials to back off.
Today this just isn’t a serious concern. Uber and Lyft are multibillion dollar companies operating in dozens of cities. Many jurisdictions have passed legislation explicitly allowing this type of service to operate.
As a result, the companies are finding it more and more difficult to beat back efforts to regulate their business practices. In 2019, California passed legislation requiring Uber and Lyft to treat their drivers as employees. As they’ve done in the past, Uber and Lyft threatened to shut down their services if voters didn’t overturn the law. Voters ultimately approved a ballot measure sponsored by Uber and Lyft. But Uber and Lyft were forced to make some tactical concessions; the voter-approved measures offered gig-economy drivers some added protections.
And things are going even worse for Uber outside the United States. Last month the Supreme Court of the United Kingdom ruled that Uber can’t treat its drivers like independent contractors. Courts in France and Spain have reached similar conclusions—though Uber seems to still be resisting a switch to an employee model in France.
In each of these jurisdictions, a key Uber argument is that enforcing traditional labor law will break Uber’s on-demand business model. That argument is hard to evaluate, since Uber has mostly been successful in defeating these efforts. But Uber will very likely need to change how it does business in the UK, France, Spain, and probably other jurisdictions in the coming years.
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If Uber manages to come up with a viable model that treats drivers as employees, it will face pressure to adopt the same model in other cities. Though, of course, the opposite is also possible: maybe a switch to an employee-based model will make Uber’s service dramatically worse in places like France and Spain, strengthening Uber’s case in future battles.
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