Uber was not generally illegal [0]. So called “Black car” (or private car for hire) services (so called because these cars used to be limousine like vehicles but now can be anything, e.g. UberX) where a driver arranges pickup with a passenger in advance — which is how Uber started - is not regulated in most cities at all, or is regulated very differently than taxis.
What legally distinguishes taxis and requires medallions in many cities is the ability for passengers to “hail” an unknown taxi from the sidewalk and get a ride. (Uber didn’t start out offering taxis, but now some of the vehicles that they make available are also taxis.)
You cannot “hail” an Uber on the street and get a ride in it (unless that Uber, now, happens to also be a taxi). You had to book trips in advance. The trips might have been booked only a few minutes in advance, but that was the legal distinction between these two classes of transportation.
I am not aware of there being any regulation involved if you wanted to arrange a ride from the Seattle airport to the Space Needle with me as your driver on a certain date for a certain price, for example. Or 10 minutes from now. (Actually that’s a bad example. I believe there are certain areas of the city where drivers have to offer city-regulated fixed price fares either to the airport or from the airport or both, to certain sections of downtown. It’s a relatively small area though; I don’t know if it includes the Space Needle or not.)
In fact, Uber was able to grow so quickly because so many of these “private car for hire” services already existed in major cities. The cars were often owner-operated small businesses, with one car or a small fleet of vehicles and employees (with the owner typically being one of the drivers). They were able to tap into this excess supply and put it to use. At least that was the case in Seattle where I spoke to many Uber drivers during its early years, all of whom had existing businesses and wanted to give me their business card to cut out the middleman (Uber). They used Uber to gain additional business during downtime from their other clients, and often offered their business cards to riders before Uber started cracking down on that [1].
Originally if you had a relationship with a private car service and you were planning trips days ahead, then you could typically get a better price than Uber would offer for market rate pricing (once its low promotional discount pricing eased up) with no advanced planning. (However Uber now appears to offer the ability to schedule rides up to 30 days in advance; I don’t know if this change is the fare or not). Since Uber takes a cut of the transaction you can probably still get better pricing from individual private services. The value that Uber offers for most passengers in the ability to get reliable high quality transportation on demand. (High quality in the sense that poor quality drivers are removed from the platform)
Uber provided legitimate value by connecting the supply of private-cars-for-hire with the passengers who wanted to hire them, creating a sort of marketplace. (Not a true marketplace because Ubers set the price of fares; but I’m marketplace in the sense that drivers and passengers can choose to use the platform to connect and conduct a transaction of driving for hire.) Uber won by providing a superior experience for both parties having a reputation system for both sides with a 5-star score.
How many people reading this have had the experience of ordering a taxi and having it arrive late or not at all? Or have simply been frustrated by the lack of visibility into when it will arrive, or whether it’s even coming, when you need to get to the airport? Or when you get to your destination you learn that “the credit card reader is not working”? (which is illegal in many/most cities). I’ve certainly had all of these experiences in many cities with taxis.
Taxi drivers experienced no real penalties for misbehavior like falsely claiming their credit card reader is not working, or for not maintaining it in working order, or for taking tourists on a “scenic route“ to their destination” (unless a passenger called the taxi company and report them - and who would bother? Plus I don’t necessarily know the local law in the area, like whether the taxi is required to have a working credit card reader; and in the days when Uber was building traction, I might not have had mapping software on my phone so as to know whether the taxi was taking me on an unnecessarily long route.)
Uber provided a legitimately better product experience by solving these problems. You could see your vehicle as it traveled to you, eliminating the uncertainty around whether transportation was coming and an ETA for its arrival. You could enter your destination and Uber would provide turn by turn driving instructions that the driver was expected to follow to get to the destination following a close-to-optimal path. If the transportation provider was rude or provided poor service, then you could give them a bad rating, and poor service providers were be removed from the platform. Similarly bad customers that were drunk and misbehaved and did things like throw up in the vehicle would also receive a poor rating and might find themselves kicked off the platform after repeating that type of behavior.
This reputation system was completely missing from taxis and is one of the reasons why they were so dysfunctional in my opinion.
The vast majority of Uber’s growth and expansion was in the unregulated or lightly regulated area of arranging transportation ahead of time between passenger and driver. So long as the driver has a regular driver license in most cities, rides-for-hire that are arranged in advance not regulated, or are minimally regulated (though Uber/Lyft-targeted regulation have appeared in response to their presence).
[0] Various cities subsequently banned it or limited it after the fact, partially in response to political pressure from things like taxi unions, or other reasons; but the core business model was not originally illegal in typical cities.
[1] IMO, I don’t think it’s necessary for Uber to prevent high-end drivers from offering their professional business card when the trip is complete if they do so in a professional way. What Uber offers is the ability to get a ride at any place at any time; I don’t want to have a stack of business cards from private car services in my wallet that I dial one after the other to see if they are free to pick me up — with the same lack of visibility and accountability that taxis used to have.