What happens when an innovative idea is so far ahead of its time that current legislation cannot appropriately be applied?
A private hire car that can be summoned by smartphone more easily and less expensively than a taxi is great news for commuters but a disaster for traditional taxi drivers. Do the benefits of a superior service outweigh the risks of an unregulated market? It’s a question that we’ve seen played out many times in the past few years, especially in radical new areas such as the ‘sharing economy’ but also in quirky new updates to traditional sectors such as public health.
I look at three of the biggest innovators, Uber, E-cigarettes and Airbnb, and see what we can learn from their battles with the regulators.
Uber, the taxi service that isn’t a taxi service
Uber, which was founded by Travis Kalanick in 2009 as a luxury car service in San Francisco, is valued at over $50 billion six short years later (1), beating Facebook to the big fifty and quite possibly making it the fastest growing company of all time. The ride-sharing app connects passengers who want to get from a to b with drivers who want to make an income. It costs half than a regular taxi, usually arrives faster, and no money changes hands, instead everything happens online.
Uber is for all kinds of people and is driven by all kinds of people, but its success hasn’t come without controversy. Most famously, London’s black cabbies are up-in-arms about the app, claiming that Uber drivers are a) unsafe and unregulated and b) acting as taxi drivers, which is illegal as taximeters legally belong to black cabbies only. It’s hard not to feel for the black cabbies, who have to memorise the streets of London before they can pass ‘the knowledge’ and work a black cab, but sat nav has made the knowledge obsolete. In a recent court decision it was ruled that the ride-sharing app does not constitute a taximeter, so Uber’s success in London seems inevitable.
E-cigarettes, the tobacco product that certainly isn’t a tobacco product
E-cigarettes are another innovative idea – a device that enables smokers to get the nicotine that they love without also inhaling the tar that kills two-thirds of them. Since e-cigarettes were invented in China by desperate to quit smoker Hon Lik, global sales have broken the $6 billion (2) mark, a number that has the traditional tobacco industry in panic. The vast majority of e-cigarette users are ex-smokers, though public health bodies are worried about the number of young people taking up the habit, and a good number of businesses that are connected to e-cigarettes are small independents.
E-cigarettes have been successful because they are more enjoyable and more effective than other nicotine replacement therapies, such as gums and patches, whose sales have tanked since e-cigarettes first hit the market. There are a large number of ex-smokers who claim anecdotally that e-cigarettes have helped them quit, but governments have been harder to convince. It hasn’t all been plain-sailing for e-cigarettes though. Despite Public Health England claiming that the devices are ‘95% less harmful than cigarettes’ others have claimed that the long-term health risks of e-cigarettes are unknown, and could potentially be dangerous. It’s also been argued, without scientific support, that e-cigarettes may act as a gateway to smoking.
So far e-cigarettes have risen largely unmolested by regulation. But the tobacco products directive due to come into place in May 2016, which also covers e-cigarettes, will make requirements of the industry that independent businesses simply cannot afford to reach, such as ‘leak-proof bottles’ and limitations on tank size. It’s estimated that 90% of the current e-cigarette products will be taken off the market, the remaining 10% will mostly be ‘cig-a-like’ models favoured by the big tobacco companies.
Airbnb, the bed and breakfast service that usually offers bed, but no breakfast
Home-owners with room to spare have been making an additional income by renting out their unused beds to guests since 2008. Another San Francisco start-up; Brian Chesky’s baby is valued at a cool $24 billion (3). It has been enormously popular with tourists looking to see how locals live while simultaneously spending less – so popular that it has embittered hotel owners across the globe who feel that Airbnbers don’t pay the same tax or follow the same regulations that they have to.
New York has been famously inhospitable to Airbnb, with the attorney general accusing Airbnb hosts of, “widespread illegality.” Regulators have levied fines and collected taxes in New York and other popular tourist destinations such as Barcelona (4), but the company was recently declared legal in London (5) after MPs decided that the website is a good way for cash-strapped Londoners to make end’s meet.
When a consumer is faced with an innovative solution to an existing problem, there are winners and losers. Uber’s rise in popularity corresponds with a loss of custom for London’s black cabbies. The process of old ideas being replaced by the new is known as creative destruction (6) — also called the ‘essential fact’ of capitalism. If you are a business person thinking of moving into an innovative field, or even starting something entirely different of your own, the only question to ask is, “do my local regulators have an appetite for destruction?”
About the author: Pascal Culverhouse is CEO of the Electric Tobacconist, an online e-liquid and e-cigarette retailer.