Who is the Villain in this Disruption Story?(priceonomics.com)
priceonomics.com
Who is the Villain in this Disruption Story?
http://priceonomics.com/who-is-the-villain-in-this-disruption-story/
46 comments
They do burden the airport to some degree though. The airport allows off-airport rental agencies to drive their giant billboard buses onto the premises, and also provides a curbside for them to load and unload passengers.
Clearly FlightCar doesn't burden an airport in the same way, however they do to some extent. Maybe if the airport worked with them and provided some portion of short term parking for their customers for a cut of the price it could be beneficial to both parties?
Clearly FlightCar doesn't burden an airport in the same way, however they do to some extent. Maybe if the airport worked with them and provided some portion of short term parking for their customers for a cut of the price it could be beneficial to both parties?
The degree of "burden" that FlightCar imposes on SFO is irrelevant to SFO's ability to charge a fee to FlightCar. SFO owns a platform and nobody is entitled to use it without paying, even if such use costs SFO nothing. (Which is not the case here, since FlightCar rentals are displacing car rentals that would otherwise pay a fee to SFO.)
Can you explain to me how SFO can prohibit FlightCar from picking up or dropping off passengers at SFO anymore than they can prohibit my friend from dropping me off or picking me up there? Since when you prohibit someone from the roads at a public facility when they're conforming to the law?
FlightCar is a business that uses another entity's property and services without permission and for profit,but without remuneration. This is not at all comparable to a private individual doing a friend a favor for free. I would imagine that the airport would start with a cease-and-desist letter, perhaps along with an offer to come to to some sort of revenue-sharing agreement for continued access. Failing a voluntary resolution, a lawsuit might follow.
To address your last point, let's use another example. Football stadiums are public facilities often owned by local municipalities. But that doesn't mean I can go in and start selling hot dogs.
To address your last point, let's use another example. Football stadiums are public facilities often owned by local municipalities. But that doesn't mean I can go in and start selling hot dogs.
But you can deliver hot dogs to stadium patrons on public roadways at the stadium. The airport can C&D all it wants. Fine. Cat and mouse. FlightCar will simply match the letter of the law. Good luck.
Disclaimer: I have had pizza delivered right up to Solider Field in Chicago before a game. Using a public road.
Disclaimer: I have had pizza delivered right up to Solider Field in Chicago before a game. Using a public road.
Are the roads inside an airport still public? I imagine they aren't, even the airport is publicly owned, the roads inside the airport complex fall under the airports jurisdiction in the same way a business compounds front gate marks the end of public road presence.
The roadways are almost certainly not public. Even if they were, the city could pass an ordinance making this completely illegal, just the same way that it's illegal to scalp a ticket within a certain range of the stadium. If the city/county's revenue stream is on the line you can be sure that it's in their best interest to do that.
Sure, but can the pizza guy come in and sell you pizza in the stadium, then take you off the property to collect?
I think the example would be more along the lines of the stadium wanting a fee from tailgaters cooking hot dogs in the parking lot.
Is SFO a public facility? It would not surprise me if the roads within the airport boundary were private roads.
If so, they can prohibit your friend from dropping you off just like any house owner can prohibit your friend from entering their driveway.
If so, they can prohibit your friend from dropping you off just like any house owner can prohibit your friend from entering their driveway.
I definitely agree. SFO, or any airport for that matter, is not obligated to let companies like FlightCar do business on their premises. I was only trying to illustrate that there was a potential for them to capitalize on the situation. Given our litigious society, if they allowed FlightCar to operate they would probably just be sued in turn by the rental car agencies.
According to Wikipedia "SFO is owned by the City and County of San Francisco but located in adjacent San Mateo County". That should give them standing.
Disruption is not a TV drama. That there is no obvious villain, is not an argument in support of the status quo. The issue is inefficiency. Why take two cars into the airport when I can just fly-and-go? The inefficiency of storing empty vehicles for longish periods of time increases costs on market participants and on the public. How the burden of disruption will be distributed amongst incumbents and new players is surely an important question. But the article appears not to care that efficiency improvements may be held hostage to such negotiations. Conflating whether to allow FlightCar with how best to allow FlightCar and its ilk.
The efficiency argument actually has very little to do with the story. I doubt anyone (including the airport) disputes the benefit of increased ride sharing.
The point is that FlightCar is offering the same or competing services as an Airport rental car agency without paying the same use fees as a rental car agency. This has less to do with efficiency and more to do with them exploiting loopholes to avoid paying the same costs as more established rental companies. They benefit from the increased rental demand, cab stands, and private roads produced by the airport, but don't pay for it.
If their entire business model is dependent on not paying the airport fees, it's probably not as disruptive as they claim.
The point is that FlightCar is offering the same or competing services as an Airport rental car agency without paying the same use fees as a rental car agency. This has less to do with efficiency and more to do with them exploiting loopholes to avoid paying the same costs as more established rental companies. They benefit from the increased rental demand, cab stands, and private roads produced by the airport, but don't pay for it.
If their entire business model is dependent on not paying the airport fees, it's probably not as disruptive as they claim.
I am not familiar with this story in detail. Yet on the face of it, these services are not directly equivalent. Without knowing details of their implementation, it is clear that in principle, FlightCar has the potential to be disruptive, by the usual definition of the term. This is because it utilises assets more efficiently: land, labour and vehicles. The airport's existing financial arrangement is not really relevant since FlightCar could, presumably with some operational difficulty, operate outside of the boundaries of the airport. What you see as a loophole, I view as an indicator of a business model which became broken by technology and a trend toward more responsible use of scarce resources. You may not like it, and public opinion may even be with you, but I don't see how this is not classic disruption.
I actually agree with you. They could operate completely outside the boundaries of the airport, in which case they would not have to pay the use fees to the airport.
The problem is that part of their value prop to customers is that they offer airport pickup (they send a black car to bring you from the airport to the rental agency). This puts them in a position where the airport has a right to demand use fees, since they are using the same roads and infrastructure as any other rental car service.
Reducing costs by not using the infrastructure, and therefore completely circumventing the need to pay the use fees, would be disruptive. Using the infrastructure but refusing to pay is not disruption. They are not doing anything more efficiently, they are just refusing to pay.
This issue should be understood as completely distinct from their core car-sharing business model, which is disruptive to the rental car industry.
The problem is that part of their value prop to customers is that they offer airport pickup (they send a black car to bring you from the airport to the rental agency). This puts them in a position where the airport has a right to demand use fees, since they are using the same roads and infrastructure as any other rental car service.
Reducing costs by not using the infrastructure, and therefore completely circumventing the need to pay the use fees, would be disruptive. Using the infrastructure but refusing to pay is not disruption. They are not doing anything more efficiently, they are just refusing to pay.
This issue should be understood as completely distinct from their core car-sharing business model, which is disruptive to the rental car industry.
Couldn't you replace the word "Airports" with pretty much any other business?
[Entertainment companies] are less fearing change than trying to maintain their funding system.
[Cell phone companies] are less fearing change than trying to maintain their funding system.
[Game companies] are less fearing change than trying to maintain their funding system.
Isn't that what holds back a lot of companies--why change if they're making enough money as it is. In some ways, I feel like that's the big thing that held Sony back and let Apple dominate the MP3 player market.
EDIT: This is just a comment on the headline, not anything in the article -- just to be clear!
[Entertainment companies] are less fearing change than trying to maintain their funding system.
[Cell phone companies] are less fearing change than trying to maintain their funding system.
[Game companies] are less fearing change than trying to maintain their funding system.
Isn't that what holds back a lot of companies--why change if they're making enough money as it is. In some ways, I feel like that's the big thing that held Sony back and let Apple dominate the MP3 player market.
EDIT: This is just a comment on the headline, not anything in the article -- just to be clear!
You can, but the difference is that those are all private companies, so if they have to find new funding, its their own responsibility to do so or fail. Airports are part of our public transportation infrastructure, and any new source of funding they find will result in higher costs for everyone except FlightCar users, because all the costs from rental companies will get spread out elsewhere. A public company like that has much different pressures (for example, they likely would not be allowed to fail if they have trouble finding a revenue source people like, and can always fall back to taxes) than a private company which is on its own.
>Airports are part of our public transportation infrastructure, and any new source of funding they find will result in higher costs for everyone except FlightCar users, because all the costs from rental companies will get spread out elsewhere
Alright, pass those costs on. What's the alternative? We live with a less efficient system because we're used to car renters subsidizing everyone else?
Alright, pass those costs on. What's the alternative? We live with a less efficient system because we're used to car renters subsidizing everyone else?
>>Alright, pass those costs on.
It seems rather silly and inefficient that people have to pay more for their airport coffee or airplane tickets just because rental car companies decide stop paying their fees.
>> What's the alternative? We live with a less efficient system because we're used to car renters subsidizing everyone else?
Car renters aren't "subsidizing" everyone else. The article makes clear that rentals are just one of a variety of revenue sources for airports. Looked at another way: why should public transit riders pay for the infrastructure to support rental car agencies and shuttles?
Also, assuming FlightCar is truly disruptive, they should be able to provide a more efficient and cost-effective service despite paying the airports an appropriate use fee.
It seems rather silly and inefficient that people have to pay more for their airport coffee or airplane tickets just because rental car companies decide stop paying their fees.
>> What's the alternative? We live with a less efficient system because we're used to car renters subsidizing everyone else?
Car renters aren't "subsidizing" everyone else. The article makes clear that rentals are just one of a variety of revenue sources for airports. Looked at another way: why should public transit riders pay for the infrastructure to support rental car agencies and shuttles?
Also, assuming FlightCar is truly disruptive, they should be able to provide a more efficient and cost-effective service despite paying the airports an appropriate use fee.
Nothing inherently stops Flightcar from just raising prices the 10 - 15% necessary to pay the airport. It might hurt their disruptive price advantage, but if the rental companies are funding the airports operating and Flightcar isn't, that is an artificial advantage.
"Regardless, if FlightCar does succeed in disrupting the rental business at airports, then the money that airports once derived from rental companies will need to be replaced. Nationwide, car rental fees account for about 14% of airports’ revenues - a figure that is higher in small airports with less retail and ground transportation options. SFO took in $94 million from car rentals in the last fiscal year."
"...Unlike the story of ride sharing apps and the taxi industry, this story doesn't seem to have an easy villain..."
I'm getting lost in the premise here. Does every story of disruption have to have a hero and a villain? This seems to be a rule of how these things work in the author's eyes? Why the heck is that?
I own a car. I park the car. If I allow other people to use the car, the location the car is parked has nothing to do with anything. If it did, would we start allowing different fees depending on where my car was when I loaned it to somebody? That's crazy.
There's not a villain. There's a broken revenue model for airports that doesn't work anymore. That's good -- things keep changing and we wouldn't expect everything to remain stable forever. Airports need to change like everything else. Creative change that gives us all more of what we want more efficiently is a good thing. We need lots more of it. It doesn't have to fit into a good-guy/bad-guy narrative.
Like I said, I have no idea what the point the author is trying to make here.
I'm getting lost in the premise here. Does every story of disruption have to have a hero and a villain? This seems to be a rule of how these things work in the author's eyes? Why the heck is that?
I own a car. I park the car. If I allow other people to use the car, the location the car is parked has nothing to do with anything. If it did, would we start allowing different fees depending on where my car was when I loaned it to somebody? That's crazy.
There's not a villain. There's a broken revenue model for airports that doesn't work anymore. That's good -- things keep changing and we wouldn't expect everything to remain stable forever. Airports need to change like everything else. Creative change that gives us all more of what we want more efficiently is a good thing. We need lots more of it. It doesn't have to fit into a good-guy/bad-guy narrative.
Like I said, I have no idea what the point the author is trying to make here.
Keep in mind that many localities utilize car rental taxes at airports to subsidize public bonds unrelated to the airport. This a particularly good way of paying for publicly financed stadiums. Airport Car rental taxes are popular with local voters because they don't actually tax local voters. Hotel taxes are also popular for this reason.
I was thinking about this business from a traveler’s point of view. If I drop my car off and it has a built-in GPS, doesn’t that just give the renter a map to an empty house to rob? I realize not all cars have built-in GPSs yet, but it won’t be long before they all do.
You can find someones house without needing their cars GPS. If Flightcar lists a persons name anywhere, you know then if they are on a flight and probably not at home.
Though it could make sense to recommend wiping your gps before loaning your car if it does keep a memory of recent trips.
Though it could make sense to recommend wiping your gps before loaning your car if it does keep a memory of recent trips.
And if the rental company is doing their job at all properly, the info they collect gives you a giant flashing arrow pointed straight at a prime suspect. It's going to take a fair bit of work to be able to pull off such a scheme without getting caught, and there are probably easier ways to make money with that much effort.
I can't feel sympathetic at all to the idea that this car rental company should somehow avoid these fees.
This is not a story of potentially overbearing or obsolete regulation such as that faced by companies like Uber and Airbnb. This is simply a property owner controlling activity on their own property. The fact that airports are usually owned my governments is completely incidental here. You'd no doubt find the same sort of fees at a privately-owned airport. If you want to do business on somebody else's property, you play by the owner's rules, end of story.
This is not a story of potentially overbearing or obsolete regulation such as that faced by companies like Uber and Airbnb. This is simply a property owner controlling activity on their own property. The fact that airports are usually owned my governments is completely incidental here. You'd no doubt find the same sort of fees at a privately-owned airport. If you want to do business on somebody else's property, you play by the owner's rules, end of story.
Agreed.
The obvious move for FlightCar is to partner with nearby garages, and offer a valet service to drive passengers to their terminals. To sweeten the deal, FlightCar might offer to wash or do basic maintenance (oil change) on the car for an added fee.
The passenger gets
The obvious move for FlightCar is to partner with nearby garages, and offer a valet service to drive passengers to their terminals. To sweeten the deal, FlightCar might offer to wash or do basic maintenance (oil change) on the car for an added fee.
The passenger gets
- convenience of getting dropped off at terminals (vs. walking from airport parking)
- convenience of taking advantage of car "dead time" to get cleaned / serviced
- some money (from the rental), to bootThat's already what FlightCar is doing: their facilities are all off-airport, in another city 5 minutes away.
The valet drop-off/pick-up service (and air-travel-related marketing) is what SFO thinks entitles them to the rental agency fees... even though the drop-off/pick-up is indistingushable, in terms of impact, from having a friend drive you.
The valet drop-off/pick-up service (and air-travel-related marketing) is what SFO thinks entitles them to the rental agency fees... even though the drop-off/pick-up is indistingushable, in terms of impact, from having a friend drive you.
A private company couldn't write tickets, and likely couldn't discriminate against private cars that just happen to be hired (but otherwise indistinguishable from the private cars delivering other customers).
SFO has been granted a monopoly on land, waterfront, and airspace by several levels of government, and is owned by the public, so this reductionist "the owner can do as they damn well please, social welfare be damned" analysis doesn't apply.
SFO has been granted a monopoly on land, waterfront, and airspace by several levels of government, and is owned by the public, so this reductionist "the owner can do as they damn well please, social welfare be damned" analysis doesn't apply.
Yeah, I think this is a great idea, but they should pay the damned airport fees. They derive exactly the same benefits from the airports being there that traditional car rental companies do, so they should shut up and pay the piper.
Actually, they don't derive the same benefits. They have no cars or counter on-site.
Also, it's likely a majority of their drop-offs and pick-ups aren't even people renting cars! Instead, they're locals, who've dropped off their car at a remote lot for maybe-renting. Why should such a person be routed out through the remote rental-counter-center, when they're not a car-renter? They're most like any other local arriving via cab or limo, so that's the airport-usage-fee that should apply.
Also, it's likely a majority of their drop-offs and pick-ups aren't even people renting cars! Instead, they're locals, who've dropped off their car at a remote lot for maybe-renting. Why should such a person be routed out through the remote rental-counter-center, when they're not a car-renter? They're most like any other local arriving via cab or limo, so that's the airport-usage-fee that should apply.
I hate how they default to a completely out of scope argument: but we're providing a valuable service by putting unused cars to work. No, you're providing yourself with paychecks. The operations of your business are only a subset of that.
It's the same kind of un-scoped reason that leads to conclusions like trickle down theory. They think because they're proving a service that someone can presumably benefit from, that gives them a blank check to consume as much as they can to provide that service, thus completely negating the positive impact of their business through crock-pot philosophy. Obviously, there is no sound logic in this line of reasoning. Obviously, they're not going to argue that they should pay more since they don't have a fleet to maintain. "Invisible" hand?
The solution is quite simple really: there is no simple solution. If you're going to displace a business you can't replace them with something less then what they were and expect to make more money than they did, at least not in a sustainable way. It's simple thermal dynamics.
This is all a subset of issues born of cargo-cult thinking, techy buzz words and such that give businesses respect they simply co-opted by using the word/technology in marketing materials. More bubbles, more start up trends, more 'combinators separating uninformed people and their money without providing real value and expecting to get their @#$% &*!! for doing us the favor.
It's the same kind of un-scoped reason that leads to conclusions like trickle down theory. They think because they're proving a service that someone can presumably benefit from, that gives them a blank check to consume as much as they can to provide that service, thus completely negating the positive impact of their business through crock-pot philosophy. Obviously, there is no sound logic in this line of reasoning. Obviously, they're not going to argue that they should pay more since they don't have a fleet to maintain. "Invisible" hand?
The solution is quite simple really: there is no simple solution. If you're going to displace a business you can't replace them with something less then what they were and expect to make more money than they did, at least not in a sustainable way. It's simple thermal dynamics.
This is all a subset of issues born of cargo-cult thinking, techy buzz words and such that give businesses respect they simply co-opted by using the word/technology in marketing materials. More bubbles, more start up trends, more 'combinators separating uninformed people and their money without providing real value and expecting to get their @#$% &*!! for doing us the favor.
SFO should charge based on actual passenger or vehicle impact, not business model. Charge every dropoff or pickup equally, if need be.
I would think "Space plus dropoff" is good. If Avis has a parking lot in the airport parking lot, they should pay more.
How do you charge people to stop at the terminal without severely crippling an already saturated people drop off / pick up pipeline?
What would probably work better is a toll ticket just to enter the airport complex via the main gate. Airports (almost always) have front gates to lock the entire compound if necessary, add a toll booth.
What would probably work better is a toll ticket just to enter the airport complex via the main gate. Airports (almost always) have front gates to lock the entire compound if necessary, add a toll booth.
You answered your own question.
The visit toll could be collected electronically, via transponder or a bill mailed to the car's registered owner, to require no slowing or stopping of traffic.
They could also allow free or cheaper visits at the far end of the SFO 'airtram' (where the existing rental car center is located).... the differential could even vary with congestion.
If they want to throw a bone to occasional, casual flyers and friends on pickup/dropoff duty, let each license plate have 1 free visit each N days. (Though, the logic and fairness of charging every visit equally based on its congestion impact is strong.)
There are better ways to meet any legitimate concerns of SFO than to force new services into the old rental-agency cookie-mold.
The visit toll could be collected electronically, via transponder or a bill mailed to the car's registered owner, to require no slowing or stopping of traffic.
They could also allow free or cheaper visits at the far end of the SFO 'airtram' (where the existing rental car center is located).... the differential could even vary with congestion.
If they want to throw a bone to occasional, casual flyers and friends on pickup/dropoff duty, let each license plate have 1 free visit each N days. (Though, the logic and fairness of charging every visit equally based on its congestion impact is strong.)
There are better ways to meet any legitimate concerns of SFO than to force new services into the old rental-agency cookie-mold.
SFO's "legitimate concerns" are that they can control activity on their property. If they want to charge rental car companies extra, that's their right. This isn't society-wide regulation, it's a business entity (one that happens to be owned by a government) deciding what to do with their own property.
A regular business could not issue the tickets SFO is issuing. A regular business would also be subject to additional antitrust and fair-business-practice constraints.
So if you're suggesting the airport be privatized, and then offering services like any other "business entity… deciding what to do with its own property", I think that'd be a great plan.
But SFO is a public entity, using state power to enforce extra monopoly privileges. It doesn't get to just say "because we want to do it this way with 'our' property", even if it's silly. It's the city of San Francisco's property, and their actions should be serving the public interest.
An equitable regime of charging based on actual visit impact achieves that. On the other hand, enforcing the old formulas out of tradition is lazy and destructive - and suspiciously protective of SFO's longtime partners among the incumbent rental agencies.
So if you're suggesting the airport be privatized, and then offering services like any other "business entity… deciding what to do with its own property", I think that'd be a great plan.
But SFO is a public entity, using state power to enforce extra monopoly privileges. It doesn't get to just say "because we want to do it this way with 'our' property", even if it's silly. It's the city of San Francisco's property, and their actions should be serving the public interest.
An equitable regime of charging based on actual visit impact achieves that. On the other hand, enforcing the old formulas out of tradition is lazy and destructive - and suspiciously protective of SFO's longtime partners among the incumbent rental agencies.
> and their actions should be serving the public interest.
We still have state owned toll roads across the country. There is an established habit of limiting road traffic via tolling even on public roads.
We still have state owned toll roads across the country. There is an established habit of limiting road traffic via tolling even on public roads.
Exactly! As proposed upthread, the airport should charge a toll per visit based on impact, not based on old business model patterns.
Toll roads (state owned or private) charge by use, which is fairly reasonable and efficient, not by a deep inspection of your gross revenues.
Toll roads (state owned or private) charge by use, which is fairly reasonable and efficient, not by a deep inspection of your gross revenues.
A regular business could ban these people from their property, then get the police to enforce the ban. Ticketing seems, if anything, more gentle.
The key point I think here is the transportation of people from the airport to the car lot. An airport should absolutely be able to put a fee on this. If customers were able to make their own way to an offsite lot I don't see what the grounds for a fee would be though.
Key paragraphs =>
"This week, Forbes reports that “Airports are the next big battleground in the sharing economy” as the startup FlightCar, which competes with the car rental industry at airports, faces a legal challenge.
The city and county of San Francisco has sued FlightCar for running a rental car company without certification from the airport. "
"This week, Forbes reports that “Airports are the next big battleground in the sharing economy” as the startup FlightCar, which competes with the car rental industry at airports, faces a legal challenge.
The city and county of San Francisco has sued FlightCar for running a rental car company without certification from the airport. "
FlightCar, and to a lesser extent the other off-airport rental companies (who still run shuttles from the rental car center), don't burden the airport with space in the multistory garage on the airport property. As such, they shouldn't be subject to taxation by the airport.
SFO's an interesting case because it exists completely beyond the boundaries of the city and county of San Francisco, with FlightCar's property even further afield in Burlingame. I fail to see how they could even have standing.