Tech's innovators are starting to ask permission, rather than forgiveness

Not long ago, swaggering companies such as Uber Technologies Inc. and Airbnb Inc. swept through cities like a wrecking ball, establishing billion-dollar businesses and vast constituencies before slow-moving government officials could figure out how to rein them in. Now regulators who’ve seen that movie want a different script. They’re finding ways to force firms to cooperate earlier in the development of new business models. Even Uber, the famous disrupter, was forced to stop testing its autonomous vehicles in Arizona and California after one of them killed a pedestrian.

Yet, as companies shift their strategy, they’re rediscovering why shaping regulations to fit a business model has long been a favoured tactic of more established industries. In its most extreme form, this is known as “regulatory capture” — when an industry has so much influence over its regulators, it practically owns them. A fresh example of this is the fledgling scooter-sharing industry. At first, start-ups such as Bird tried the old “ask forgiveness” approach, but faced stiff resistance in many cities.

Things got off to a rocky start in Santa Monica, California, the first city in which Bird launched, says deputy city manager Anuj Gupta. Bird deployed its scooters without obtaining the proper business license, and the city impounded a few that were blocking pedestrian traffic. The city also handed out more than a thousand tickets to people who rode them on sidewalks.

But instead of blocking them completely, Gupta says, the city drew lessons from its experiences with ride-sharing companies and Airbnb, and offered Bird a provisional licence. After all, he adds, the scooters were popular and had the potential to help the city reach its sustainability goals, including reducing car trips and emissions.

For Bird, initially taking the Uber approach backfired entirely in some cases. In Milwaukee, the city banned Bird scooters the day after they were distributed on its streets, and immediately filed a lawsuit against the company and its chief executive, Travis VanderZanden. The problem, says Milwaukee alderman Robert Bauman, is that the city’s attorney found that state law says electric scooters are illegal on public roads and sidewalks anywhere in the state. 

Bird’s biggest competitor, Lime, has also learned from the mistakes of companies like Uber, says Joe Kraus, general partner at GV, the venture-capital wing of Alphabet Inc., parent company of Google. On July 9, GV announced that along with Uber, it invested a total of $335 million in Lime, and Lime’s scooters will eventually be available in Uber’s app. Emily Warren, Lime’s senior director of policy and public affairs, argues her company goes further than Bird by reaching out to city officials in advance, so that “we don’t catch the city by surprise.”

While regulators in many cities are still reluctant to give the green light, Lime, Bird and more than a dozen competitors —  including Razor and Scoot — are in many cases trying to outdo one another with new ways to appease local regulators. They’re letting the cities know exactly where scooters are in near real time, redistributing those scooters according to the desires of local governments, including to low-income areas, and more.

Scooter companies’ appeasement of regulators embodies tech’s broader move toward accountability, following a period of public outrage over the industry’s overreach and mistakes. Uber’s lightly regulated autonomous-vehicle program killed a person. 

Facebook’s under-the-radar data sharing policies led to the mass exfiltration of Americans’ personal data to private companies and possibly the Russian government. The list of lesser infractions is long.

That’s why it should be no surprise that Apple, for example, is taking it slow in establishing a potentially lucrative market: Food and Drug Administration-approved software for wearables like the Apple Watch. Apple — along with Fitbit, Verily and six other companies — is part of a pilot program in which the FDA would approve vendors of health software, rather than the individual apps themselves.

Uber, meanwhile, knows it can’t launch its planned flying-taxi service the way it launched its terrestrial one. 

However, regulators can only regulate what they understand, and they can hardly be expected to understand technologies that don’t yet exist at scale. That’s one reason the pitfalls of artificial intelligence — which is both powerful and nascent — come up so often. The tension between the rapid march of innovation and the protection of the public means a never-ending cycle of industries transitioning from invention without boundaries to highly regulated industries such as air travel and medicine. 

In scooter companies, this cycle seems to have taken place faster than ever before, says David Yosifon, a professor at Santa Clara School of Law and an expert in regulatory capture.

That might be good for the front-runners, he adds. Once an industry matures, its biggest players will seek to use regulatory capture to protect their businesses. That could be Facebook CEO Mark Zuckerberg calling for regulation of social media after his company becomes the dominant player. Or ride-sharing companies responding to a city’s needs, once they’ve displaced other means of transportation. Or scooter companies dropping by City Hall, only days or weeks after littering the streets with their electric vehicles.