The Untold Story of Ridesharing — Part II: How the “Sharing” got into “Ridesharing”

Continued from Part I

Fast forward to 2007, I’d had twins, gotten divorced, sold Brightmail and taken the now-traditional, victory-lap sabbatical. I was ready to re-engage in the world of startups. Having children had changed my view of the world. The definition of what mattered was no longer measured by my own lifetime. I could imagine their lives and their children’s lives. Long range concerns like climate change loomed larger and I committed to do what I could to bend the curve of that impending disaster.

I wondered if we could get rid of private cars if we made carsharing more convenient. I had joined the board of City Carshare, a pioneer in the field, and was very familiar with the service. I tried an experiment. I sold my car and tried to just use carsharing, transit and taxis instead. It quickly became a nightmare. It was very hard to get two small kids to school each day. My daughter still remembers the short cut we’d take to the City Carshare location which involved a steep hill through the woods, a path now blocked with a “Danger ” sign. Taxis lacked toddler car seats, if they even bothered showing up. Transit didn’t go everywhere at convenient times. It seemed like owning a car was the way to go, so I gave up my experiment and bought a SUV, a green Toyota Highlander Hybrid.

There had to be another way to have big impact on transportation, I thought. In the era when Tesla was just getting off the ground and not yet run by Elon Musk, I wondered if it was possible to supercharge electrification of automobiles by re-engineering an existing auto company brand. I recruited a team with a plan to take over the luxury carmaker, Jaguar, and turn it into a electric car company. It was a bold, audacious idea. But it was too weird for the venture capital funders and I didn’t have the experience or reputation in the private equity world to raise funds for the idea. Plus, I was learning that electrification of cars was one of the hardest ways to have impact on the climate.

I led a project, The Gigaton Throwdown, to understand how to scale solutions to climate. We found electrifying cars is one of the most expensive ways to impact carbon emissions compared to alternatives like solar, wind, biofuels, and energy efficiency. Informed by that project and frustrated by the lack of support from investors, I killed the electric car company project.

The end of the car project left me thinking the real opportunity was using information technology to create a very scalable, capital efficient way to change transportation. In the summer of 2009, I taught at Singularity University and helped incubate a company to create peer-to-peer carsharing, Getaround. At the end of the summer I offered to invest in the nascent team and join as an executive chairman, but they turned me down, concerned I would exert too much control over their company. Annoyed at being rebuffed, I decided to experiment with P2P carsharing myself. A key obstacle was insurance. Personal insurance didn’t cover renting out your car to someone else and an insurance company could cancel your insurance if you did so.

In an effort to understand the issue, I met Dave Jones, an Assembly member in the California legislature. He asked, “Why don’t you tell me what changes are needed?” I sent him a note with ideas for how to change laws to allow P2P carsharing to exist, but didn’t think anything would come of it. A few weeks later, I got a call from his staffer, “Dave would like to introduce a bill using your ideas.” Wow. I was floored that it could be that easy. I took several trips to Sacramento to lobby and testify. It passed unanimously in both houses, and on September 29, 2010 Arnold Schwarzenegger signed the country’s first P2P carsharing law. It changed insurance rules to allow carsharing as long as an individual didn’t make more than the annual cost of owning or operating their car.

The new law created an important distinction that would become important years later with the invention of ridesharing. The idea of commercial use of a car revolved around making a profit. Prior to this law, thinking about profit referred to the per mile cost of operating a car. For years, the IRS had used a standard number like $.50/mile as an average cost of operating your vehicle — in the case that you didn’t keep receipts of your actual costs. AB1871 said profit would be measured annually, not per mile. A typical car costs about $6,000 to $8,000 per year. AB1871 allowed a car owner to make occasional income off their car without threatening their personal insurance. It was a new way of thinking about “not making a profit.”

I got a law passed that redefined what it means to make a profit from a car … and I learned an important lesson about innovation and the law.

AB1871 taught me an important lesson. Don’t worry so much about the law when you are innovating. I’d put a lot of effort into changing the law before creating and scaling the innovation of P2P carsharing, only to discover I didn’t think the innovation was that hot. I had spent months not just getting that law passed but doing a pilot with City Carshare with my Highlander, ripping out its dashboard to modify its innards to be compatible with City Carshare. It wasn’t a very scalable model and I killed the project. While I first thought insurance was the biggest risk, I learned over those nine months that it was secondary to more basic problems with the model.

The episode also taught me something about my own anger and pride. I held onto the carsharing project in part because I was angry at the Getaround team. Letting go of that project also let me leave the resentment behind. When I closed that door, others opened.

Next, I started working on ideas that would integrate many modes of transportation into one interface. I envisioned taxi, limo, buses, rail, carsharing, and carpooling all available in one integrated interface. It was, in 2011, an early version of what Google and Apple Maps would become. If you are curious, the patent applications we filed back then are still on file at the Patent Office and are publicly available. I still think the integration of various modes into one interface is a good idea. It’s where Google and Apple maps are headed.

The challenge with these sets of ideas was trying to get taxis to adopt new technology. I was wary of having to integrate with the legacy technology of the taxi industry. Integrating with legacy systems is almost always a nightmare and if you can avoid it, you do. I still had nightmares of integrating with legacy modems at FreeLoader and the rats nest of software to integrate with legacy newspaper systems after we were acquired by Individual, Inc. Plus taxis had the problem that they always prefer a street hail over a phone or computer request. The guy flagging on the street is a sure thing and doesn’t require drive time to get there.

I’d been hunting for the right combination to enable the future I saw of smartphones replacing the need to own a car. I hadn’t been able to assemble the pieces to something compelling, but they were about to come together.

Next Part III: The Birth of Sidecar and Ridesharing

The Untold Story of Ridesharing — Part III: The Birth of Sidecar and Ridesharing

Continued from Part II

One of my ongoing frustrations of this era was lack of great software developers to work with on my ideas. I felt the need to iterate with real products, but didn’t have a real software team to partner with. Then I ran across a small company based in Ann Arbor that seemed to have a similar vision of the future.

Jahan Khanna and his partner Adrian Fortino had built an Android based system to predict bus arrivals at the University of Michigan. I flew up to Ann Arbor twice to share my vision of a world where private cars are replaced by smartphone apps. “Let’s join forces,” I pitched to them. I would become CEO, and we would convert Jahan’s company, Shepherd Intelligent Systems, into the new company. By late fall, Jahan was living in San Francisco and had brought several of his fellow UMich developer friends with him.

We committed to trying ideas quickly. Our vision of the future was a shared ride service using smartphones that would route dynamically based on demand. The challenge was the same as all companies with big vision — How do we start and get traction now? Our first idea was to start with a fixed route that required use of a smartphone to order and pay. We called it “38 Air” because it mirrored the popular and overcrowded 38 Express bus that stopped outside our office. We spent a month on it before our lawyers told us it was 100% illegal. (Interestingly, this idea was launched years later by Chariot and other startups. Two things changed in the subsequent years. First, because of the new corporate commuter buses, San Francisco created a system that allowed private buses to pay to access public bus stops. Second, because of Sidecar, Lyft, and Uber, regulators became more open to innovation in transportation.)

Our first idea was inspired by the 38 Geary line.

38Air lasted only weeks. Next we tried a dynamic routed shuttle that a group of friends could coordinate. We envisioned friends going out on the town would use this service to split the cost of a limo. Jahan mocked up simple software and we tried it out with me as the driver in that same Highlander Hybrid. I picked up friends all over the city in route to Chambers, a bar in the Tenderloin. It sort of worked, but it was complicated. Too complicated. Next, we tried coordinating passengers to ride and split the cost of an Uber black car or taxi. That was even more complicated.

By now it was late in 2011 and our seed money was running low. Our first three ideas failed. One of the ideas we had been kicking around was to just allow any person to give rides without a commercial license. Uber required drivers to have licenses (known in California by its acronym, TCP) and that meant only black cars and limos. I’m rich and I thought they were pricey. For the 20 somethings I worked with who had just moved to San Francisco, the Uber price point was impossible. It was reserved for dates and desperate situations. Meanwhile we knew peer-to-peer carsharing was possible. Could something similar be done for rides?

A friend told me about an interesting service, Homobiles. It was car service started by a local queer leader for the LGBTQ community. It operated with no TCP licenses. Instead, volunteers drove their own cars with their own personal insurance. Patrons had to make a request via phone or text and could donate money but it was not required. I took homobiles to the airport for a trip to New York. It cost me $20 for a trip that normally cost $50 in a taxi. Wow. This system was cheaper than taxis, nevermind Uber. Homobiles had been in the press yet hadn’t been shut down. It seemed to be operating in a grey area of regulation by taking donations. We wondered, “Can we create a scalable, technology-enabled version of homobiles that could allow us to then create our shared ride vision?”

There were big challenges. Homobiles operated with no insurance coverage. Taxi and limos were covered for $750,000 to $1 million. They didn’t vet their drivers beyond personal references. And they operated like taxis, with orders coming in over the phone. There was no app, no turn-by-turn directions for drivers, no cash-less transactions, etc.

We thought, what if you could create a system that combined the convenience of Uber with the affordability of Homobiles, and the environmental benefits of carpooling and transit? That is what we set out to do with the first version of Sidecar. We also had to figure out how to operate in a grey area of the law. If we were clearly illegal, we’d get shut down immediately with no defense argument. I was not interested in slogging out a fight with regulators and lawmakers like I did with peer-to-peer carsharing.

So we designed our system with legal constraints in mind. Our payment system was donation based, like carpooling and Homobiles. There was a suggested amount to pay, but riders could dial it up or down. We defined “not making a profit” in the same way as I had for peer-to-peer carsharing — on an annual basis, not mileage. We used the new capabilities of doing electronic background checks on drivers, so they were as secure as San Francisco taxi drivers. We also told drivers we’d cover liability that wasn’t covered by their personal insurance up to $1 million, an arrangement similar to what I’d designed for peer-to-peer carsharing. And, of course, we had electronic payment through credit cards, GPS, and a rating system for drivers. Unlike Uber and taxis, our drivers were not professionals, so we gave them turn by turn directions to navigate the city.

Despite all the preparation, I was nervous that consumers wouldn’t be willing to get into a stranger’s car. On New Year’s Eve Jahan was out at 2am trying to get a ride home. Taxis were nowhere to be seen. Uber’s black car service was ridiculously priced. Desperate to get home, he waved down a guy doing pizza deliveries and convinced him to give him a ride home. It turned out he was delivering close to Jahan’s home anyway. Jahan tipped him $20. He called me the next morning practically yelling, “This is so going to work!”

The original version of Sidecar launched in February of 2012. Not very pretty but it did the job!

We introduced Sidecar in February 2012 and it was an instant hit. Everyone who tried it loved it. The hesitation of getting into a strange car turned out to be just momentary and people took comfort in all the precautions we took, like background checks. Archive.org captured that our website was live on Feb. 7, but I have to admit I don’t remember the exact date. We were so busy, we didn’t capture it ourselves!

The Sidecar vision was to become a multi-passenger, multi-stop ride service driven by everyday people — what eventually became Sidecar Shared Rides, Uberpool, and Lyft Line. In the spirit of getting to a minimum viable product (MVP), however, we stripped out the complexity of multiple passengers and stops. It would take years before we got to the original vision.

I called our invention, “Ridesharing.” It was like carsharing, but for rides, so “Ridesharing.” I liked the name because it was descriptive and aligned with the vision to one day allow strangers to share rides. It was also evocative of the sharing economy, a category that was gaining currency. The naming choice would get the attention of others who were doing carpooling, which was also called “ridesharing.” One carpooling company, Zimride, caught wind of it and quickly copied what we created. They called their version “Lyft.”

About a month later, one of our team overheard two people who he surmised were the founders of Zimride at The Creamery, a cafe in the SOMA neighborhood of San Francisco. It was blocks from Zimride offices. “I can’t believe how much traction Sidecar has,” said one. “I don’t know how we’ll ever catch up with them,” the other one replied. It was one of our first hints that Zimride was planning to compete with us. The very first hint, however, was that within the first weeks of Sidecar’s launch, we saw that Zimride founders and board members were using Sidecar. Curious, I called one of them and got a stammering response to the question, “You guys aren’t thinking of doing this are you?”

Five years after launching, ridesharing has taken over transportation even in small towns like Sonoma, California. I shot this parking space notice in February 2017.

The remaining part of the story has been told many times. Lyft launched with a big fuzzy hot pink mustache on the front of every one of their cars. They captured awareness and soon were growing faster than we were. UberX copied ridesharing, too. They both raised even more money to build on their existing funding advantage. And the rest, as they say, is history. Which is to say, we were history. We tried to make the category less capital intense through innovations and set a blistering pace of innovation that continued to beat Uber and Lyft, but were unable to overcome their money advantages to recruit drivers and riders. Today ridesharing famously remains one of the most capital hungry private investment categories.

Part IV: Silicon Valley’s Attitude Toward Patents

The Untold Story of Ridesharing — Part IV: Silicon Valley’s Attitude Toward Patents

Continued from Part III

When people ask what lessons I’ve learned from Sidecar, there are the obvious ones about competing against well funded companies and the role of marketing. But one factor isn’t widely discussed: Uber and Lyft violated our patent and we couldn’t do a thing about it. A different attitude about patents would have changed the history of the industry.

I didn’t think much of my patent until the late 2000s when I started thinking about transportation again. Patents had become valuable and had impact. At Brightmail I built the company around a key patent that ended up being seminal for email security. While at Brightmail, I didn’t think the patent helped us much. After the sale to Symantec, however, I heard from competitors it served as a barrier, and they spent a lot of time trying to avoid violating it.

In the fall of 2011, I sent notes to Uber executives offering to license our patents. We offered again to Lyft and Uber in 2012. The deal I had in mind would have given us revenue from the licensing and also put their ride service on a more comprehensive service that allowed people to share rides on Uber or Lyft or taxis and also order bus and transit rides. We wanted to create our Shared Ride service and leverage what Uber and Lyft had already created. Combined with access to carsharing and transit, it would replace the need for owning a car. But my vision of a grand deal didn’t last long because I either got cold silence or a “not interested” from both companies. I was flabbergasted. They were just going to walk over the patent and ignore it?

That began a series of efforts to try to figure out whether we could take action against Uber and Lyft. We learned some basic facts about how hard it is to litigate patents, so we put it aside to focus on the business. Then, as they continued to roll out services that infringed more and more on the patent, such as Lyft Line and Uberpool, we would look again. What we learned is that it is really, really hard to enforce patents these days. You have to be a large, well capitalized company with a dedicated legal staff. We got estimates ranging from $6 million to over $10 million to enforce a patent, not to mention the massive distraction of depositions, and “discovery,” the process of turning over documents related to a lawsuit. There was no way we could afford to sue Lyft or Uber and they knew it. So they just ignored us.

There was another factor. In Silicon Valley, enforcing a patent is seen as somehow uncouth and against the values of innovation. We heard from potential investors, some board members, and members of the startup community sentiment like, “We fight over markets, not over patents.”

Attitudes about patents have changed a lot. Silicon Valley culture is disdainful of patent claims.

Luckily for us, other industries cared more about patents. When we were forced to put the company up for sale in 2015, we realized the patent portfolio might be valuable outside the Silicon ethos. And indeed, in auto, retail, and more traditional industries, potential buyers did look at the patent as valuable. It helped us get to an asset sale to General Motors in January of 2016.

Well, that is the story. Its one that is still unfolding. With autonomous cars the cost of a ride will make ridesharing cheaper than owning a car, even cheaper than transit. The disruptions are going to be massive and widespread, affecting the automobile industry, wages and employment, city planning, real estate, insurance, even organ donation (the major source of healthy organs is, sadly, from auto accidents). It’s amazing to contemplate and I’m proud of my small part in helping it come to life.

(originally published on Medium March 1, 2017)

Top 5 Tech Surprises of 2016…plus predictions for 2017

1.Autonomous vehicles start getting real

The conventional wisdom was that autonomous cars would take a long time to deploy and would be a luxury feature for private car owners. Instead, we saw rapid technology innovation and capitulation to the idea that fleets will first deploy autonomous vehicles. Think ridesharing and freight service.

Tesla, Google, Uber, and auto makers hit major milestones getting to full autonomous vehicles. GM was the most aggressive in realizing it was behind on tech and business model. They overcame their NIH (not invented here) and bought Cruise (autonomous), Sidecar (ridesharing), and invested in Lyft. Otto, an autonomy startup bought by Uber, did the first commercial autonomous freight delivery on a large semi-truck.

In 2017 I see continued advancements in technology and the first commercial passenger trips on fully autonomous vehicles with no driver.

2. Internet media is YUGE!

We knew this would be a big year for internet media because of the election, but wow, what a year. Internet media didn’t just affect the election, it resulted in shots fired in a DC Pizzeria, a Pakistani minister escalated nuclear threats. Facebook admitted it had responsibility to slow the spread of fake news and took first steps to help. The line between manipulation and transparency was tested by Russian hackers and Wilileaks.

In 2017 we will come to terms with the fact that we have to fix internet media. We fixed email spam. We can fix this. If you want to help, let me know.

3. Virtual Reality bites

2016 was supposed to be the big breakout year for VR with the release of many headsets and content. Augmented reality (AR), meanwhile, was supposed to take longer to get to fruition.

Then Pokemon Go happened. Easy to build content (apps) on a cheap widespread hardware platform (smartphones) beat out sophisticated and high resolution content on purpose built expensive hardware (content on VR headsets). We re-learned an old lesson: PC v. mainframe and Mac; Internet v. ISO; VHS v. Betamax; and Android v. iPhone.

In 2017 we will see dedicated VR and AR headsets continue to struggle while apps and AR/VR hardware for smartphones get better and better.

4. Space available

Some ideas have been dreams for decades and two of them became reality in 2016. SpaceX did a successful vertical landing of a rocket, creating a pathway to make space more accessible by reducing the cost of launch. And a small private company, Lunar Express, got the rights to land on the moon, paving the way to a whole new way to explore other things in our solar system.

In 2017 we’ll see Virgin Galactic launch its first space tourists, starting with founder Sir Richard Branson.

5. She is always listening

We entered the year still thinking “privacy is dead.” But some things happened in 2016 that are freaking people out. There was the Russian hacking the Democrats and disclosure of billions of accounts hacked at Yahoo and elsewhere. We also saw that governments have a long reach into our lives. The US government insisted that Apple change its software to allow access to someone’s private phone and Facebook cooperated with the Chinese government to change its software to suit Chinese control. Finally, the Snowden movies (see both the Hollywood version and the documentary if you can), drove home to everyone how vulnerable we are.

During the Apple v. DOJ debate, I kept wondering about my new Alexa device from Amazon. It (she?) is always listening for the command prompt, “Alexa.” If a government could demand that Apple and Facebook change their software for higher levels of surveillance and control, why not ask Amazon or Google to modify their in-home assistants? Well, it is kind of happening in 2016. The first subpoena was issued to Amazon asking for information from an Alexa device. It’s not a request to actively record, but watch for that in the future.

In 2017, with a Nixionian president in office with the powers of the NSA, we’ll see cybersecurity adopted by liberals in the same way gun sales spiked after Obama’s election. Overblown? Maybe. Like the Snowden revelations, though, by the time you know about it, it will be too late to protect yourself. So now is the time to get on encrypted messaging like Signal or Whatsapp, get a VPN (virtual private network), and change your friggin passwords to something better.

Have a beautiful, peaceful, prosperous 2017.

And change your passwords, really. There are some surprises you really don’t want.

Update (Jan 3, 2017): I just went through many of the security improvement steps on this excellent Medium post and suggest you do too.

(this blog was originally published on Medium at https://medium.com/@SunilPaul/top-5-tech-surprises-of-2016-1c571ce7155d)