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Will Uber and Lyft shut down in California?

August 18, 2020, 1:30 PM UTC

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Good morning, Data Sheet readers. Tech writer Danielle Abril here filling in for Adam.

Uber and Lyft may temporarily shut down their ride-hailing services in California as soon as this week.

The move depends on whether a state judge grants them an appeal or more time to reclassify their drivers from contractors to employees, as has been required by law since January. If they lose or if no ruling is made by Thursday, the services said they would go dark in the state until they have the systems in place to pay and track drivers as employees. The services say they’re not ready for the switch, even though they’ve had almost a year to prepare.

“At first I thought this was an empty threat,” said Mark Shmulik, an analyst at brokerage firm AB Bernstein. “But assuming appeals court says ‘no’, I actually do believe Uber and Lyft will shut down temporarily in California.”

This wouldn’t be the first time the ride-hailing giants have halted services based on regional regulatory issues. Both companies spent much of their early years fighting taxi lobbyists and trying to explain to city governments why they should be allowed to operate under different rules.

Historically speaking, that strategy has served Uber and Lyft well.

Uber and Lyft left Austin in 2016 after the city rejected a proposal that would have allowed the services to perform their own background checks on drivers. But one year later, after the public complained to get the services back, the state overrode local regulations in favor of Uber and Lyft.

But the fight in California may not mirror previous battles. 

First, the state is already well familiar with Uber and Lyft, which began operating in California in 2010 and 2012, respectively. This debate focuses specifically on driver pay and benefits, not on whether the services are useful for consumers. And on this particular issue, it’s unclear whether consumers side with the companies, Shmulik said.

So what happens if the judge rules against Uber and Lyft? 

Uber and Lyft will heavily lean on voters to pass Proposition 22, the November ballot initiative backed by the companies that would improve some working conditions for drivers but keep them as contractors. Meanwhile, a temporary shutdown may help the companies twofold. It could drum up support for Prop 22 from voters inconvenienced by the pause, and it could save the companies money at a time when ridership is down. Both companies are losing money every quarter.

“Shutting down in a pandemic, when you have 30% or 40% the volume—you won’t lose too much,” Shmulik said.

If voters don’t pass Prop 22, Uber and Lyft likely would pull out of rural areas, which typically have low demand, and raise prices in the state’s urban areas to offset the extra costs. Uber may also try to push more drivers to work for both its rides and food delivery services to reduce costs, Shmulik said. 

Though the California judge’s decision will only impact ride-hailing services, delivery service DoorDash is watching closely from the wings. Last week, San Francisco District Attorney Chesa Boudin singled out DoorDash in a preliminary injunction similar to the one filed by California Attorney General Xavier Becerra against the ride-hailing giants. The judge’s decision on the requested injunction is expected on Oct. 5.

Uber and Lyft are used to big legal regulatory battles. But they may have met their match in the state of California. 

Danielle Abril

@DanielleDigest

danielle.abril@fortune.com

This edition of Data Sheet was curated by Aaron Pressman.

NEWSWORTHY

Strong opinions, loosely held. I'm not sure I've ever been wrong about a tech business analysis quite so quickly, but the notion that the Epic Games versus Apple legal battle will be stuck in legal limbo for years, as I wrote yesterday, looks pretty unlikely now. That's because on Monday, Epic disclosed that Apple is taking further steps to ice out the gamemaker on iPhones. In addition to kicking Epic's Fortnite game out of its app store, as it did last week, Apple plans to terminate Epic's development account, which will kill the use of the company's popular Unreal Engine software by thousands of other game developers. Epic filed a motion for a preliminary injunction to block the move.

I'm telling you, it's getting mighty crowded. The "tick tock" story on the insane TikTok sale process is going to be a doozy. After rumored interest from Microsoft and Twitter, the latest possible suitor interested in buying my kids' favorite app of the moment is Oracle. President Trump has ordered TikTok's current Chinese owner, ByteDance, to sell the app in 90 days from Aug. 14. Meanwhile, Trump is tightening the screws on another Chinese company, Huawei, by closing some loopholes that allowed chipmakers to continue supplying the telecom giant. Analysts say chances are rising for Chinese retaliation against a company like Apple.

Saved by the bell. A few years ago, one of the hot IPO sectors was fintech startups making online loans, but most of the companies have struggled mightily since. So there was probably no chance that SoftBank-backed Kabbage could exit to the public markets. Instead, on Monday, American Express decided to buy Kabbage's tech and workforce, though not its loan portfolio, at a price rumored to be under $1 billion. Then again, some fintech startups are doing just fine, thank you very much. One of the winners of the pandemic (just Google the "boredom market hypothesis"), online brokerage Robinhood, raised $200 million more of private backing in a deal valuing the company at over $11 billion.

Won't quit skating 'til I'm physically unable. Speaking of once and former hot IPO sectors, EV startup Canoo is going public via a special purpose acquisition company called Hennessy Capital Acquisition Corp. IV. Canoo co-founder and CEO Ulrich Kranz is a BMW refugee who struck out on his own to develop a modular "skateboard" platform for electric vehicles that can be used for his own designs and sold to other carmakers. Canoo gets $600 million out of the deal, but better hurry. Some other once-hot EV stocks like Nikola and Workhouse Group have started sinking.

Rebundling the unbundled bundle. A few developments in the streaming wars: Verizon rejiggered its mix of free offerings, so customers on its newest unlimited plans will get Hulu and ESPN+ free in addition to Disney+. Fewer plans get Apple Music free, however. And Apple said it would offer a bundle of its own: Apple TV+, Showtime, and CBS All Access for $10 a month. Buying the three a la carte currently costs $26 a month.

FOOD FOR THOUGHT

I don't know if former T-Mobile CEO John Legere, who sometimes refers to himself as Batman, has seen the research, but creating an alter ego may provide psychological benefits. Writer David Robson, in a piece for the BBC's Worklife series, explores how thinking of yourself as a separate entity can boost confidence.

Although the embodiment of a fictional persona may seem like a gimmick for pop stars, new research suggests there may be some real psychological benefits to the strategy. Adopting an alter ego is an extreme form of ‘self-distancing’, which involves taking a step back from our immediate feelings to allow us to view a situation more dispassionately.

“Self-distancing gives us a little bit of extra space to think rationally about the situation,” says Rachel White, assistant professor of psychology at Hamilton College in New York State. It allows us to rein in undesirable feelings like anxiety, increases our perseverance on challenging tasks, and boosts our self-control.

ON THE MOVE

Pinterest added its first Black board member, media executive Andrea Wishom, who is president of Skywalker Holdings LLC...Tera Randall is the new VP of communications at Epic Games. She formerly worked at Niantic and Facebook. Not sure she'll have much to do this week...Former Tivo CEO Dave Shull gets the top job at videoconferencing supplier Poly. Shull takes over from interim CEO and chairman Robert Hagerty...Brad Porter, VP of robotics at Amazon, is leaving the company after 13 years. He'll join an undisclosed A.I. startup, Business Insider reports.

IN CASE YOU MISSED IT

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‘It’s clicks versus bricks’: Why tech stocks won’t be fading anytime soon By Rey Mashayekhi

Land O’Lakes CEO Beth Ford on the importance of improving rural access to technology By McKenna Moore

Admit it: You miss being stuck in traffic By Joe Mathews

Americans don’t trust contact tracing apps. Here’s how we can fix that By Sarah Kreps, Nina McMurry, and Baobao Zhang

Diageo’s purchase of Ryan Reynolds–backed Aviation Gin is a turning point for the flooded celebrity-branded liquor market By Rachel King

(Some of these stories require a subscription to access.Thank you for supporting our journalism.)

BEFORE YOU GO

A week after the National September 11 Memorial & Museum in New York City cancelled its upcoming "Tribute in Light" to memorialize the 9/11 attacks, the annual light display is back on. The museum's budget has been crushed by the lack of visitors during the COVID-19 pandemic. But New York Gov. Andrew Cuomo says the state can safely provide staff needed to put on the display, which projects two blue towers of light into the sky where the World Trade Center's twin towers once stood. As Mordicai Gerstein wrote in his amazing children's book The Man Who Walked Between the Towers: "In memory, as if imprinted on the sky, the towers are still there."

view of the Twin Towers in 1995
(A view of the Twin Towers from my New York City apartment, circa 1995.)
Aaron Pressman/Fortune

Aaron Pressman

@ampressman

aaron.pressman@fortune.com