This post is from the Northstack Memo, our newsletter and commentary on recent happenings in the Icelandic startup ecosystem, written by @kiddiarni.

Transportation Ministry to look into Uber & Lyft

From Vísir:

Jón Gunnarsson, minister of transport, will appoint a working group to look into the possibility of ride sharing companies like Uber and Lyft operating in Iceland to meet the growing demand of taxis. The minister has already decided to increase the number of taxi permits.

”We’re gathering data and following that, soon in the fall, we’ll create a working group which will have the task of going through the data and creating suggestions for the future of these issues in Iceland,” says Jón. He says the working group will look specifically at Uber and Lyft, because both consumers and foreign surveillance authorities have complained about the current setup.

To put this into perspective, we should add a couple of facts (borrowed from Hallgrímur Oddsson’s excellent piece on Uber & Iceland from last year).

  • There are 560 taxi licenses in the Reykjavik area, the same as in 2003. Since then, inhabitants have increased by 30,000, and the number of tourists has grown from 320 thousand in 2003 to around 1.8 million in 2016.
  • Reykjavik is the only capital in Scandinavia Uber hasn’t entered (they’re leaving Copenhagen and Helsinki, more on that later).
  • There’s a notorious “grab a lift” group on Facebook for the Reykjavik area, boasting ~37.000 members, and regularly mentioned as a danger to both people and taxi drivers by taxi drivers.

Also, in 2014, Reykjavik reached some minimum number of signatures for Uber to start looking into coming here, and Ryan Graves, former CEO and then SVP of Global Operations promised to bring Uber to Reykjavik. As you know, nothing has happened since (to the knowledge of consumers, that is).

Lyft, on the other hand, is even less likely to show up anytime soon. They have focused exclusively on servicing the United States, apart from partnership dealswith other ridesharing companies like Didi (China) or Grab (Southeast Asia).

Why should they bother?

The transportation market is undergoing very interesting changes. There are three major changes affecting the market at the same time, as explained by Ben Thompson of Stratechery:

  • Consumers moving to Transportation-as-a-service (as seen by Uber users)
  • Cars moving to electric (making TaaS more affordable in the long run by decreasing marginal costs on driving)
  • Cars becoming self-driving (eliminating the need for a driver, and driving marginal costs even lower).

Uber’s long term play (and gigantic valuation) is by most accounts based on becoming a leading force in this shift. Consumers are already using the service a lot, and Uber (as well as almost every other technology company out there) is investing in self driving cars. Enormous growth (in locations and users) of the last several years, has fueled the company.

Which is why I’ve been pessimistic about the possibility of Uber coming to Iceland. The cost (and risk) is too high and the benefit too low for the company to decide to come here. Reykjavik, even with the tourists, is just too small to make a difference. The smallest city on a list of the world’s 300 largest cities has 361.000 inhabitants, and if you count the metro area, it has 2.2 million.

Reykjavik, with its 123 thousand inhabitants (and 220 thousand in the metro area) doesn’t seem big enough for a company like Uber to risk litigation. Especially not now that Uber has left Finland’s Helsinki because of legal issues, and has been declared illegal by courts in Denmark.

Or well, at least until we change the rules around it.

The opportunity in pre-emptive legalising

These news are therefore very exciting. Iceland’s size and remoteness make it an unattractive market for most companies looking into international expansion. Add to that very strong labor unions, an expensive labor force, high taxes, not to mention the turbulent currency, and you have a mix of ingredients that don’t make Iceland attractive to market entrants – especially not when these entrants are directly challenging the status quo.

That’s why Iceland’s strategy in dealing with these technologies and society-changing concepts should be to legalise first, ask questions later. Not only should we legalise it, we should recruit the companies and help them set up shop here, in some cases even look into subsidizing their market entry. We’ve been doing it with huge investments before (a recent example is United Silicon), so why not the consumer serving companies that are ushering a new way of going around business? The consumer surplus provided by companies like Uber, Airbnb, Amazon Prime, Netflix and more, should at least be worth the discussion.