Taxis and technology: In ever more cities, smartphone apps are reshaping the taxi market

Taxis and technology: In ever more cities, smartphone apps are reshaping the taxi market

Oct 19th 2013 | LONDON AND NEW YORK |From the print edition

SINCE last month the citizens of Johannesburg have been able to hail and pay for taxis through SnappCab, a local start-up. A tap on SnappCab’s smartphone app summons a cab; a driver accepts on his own phone; and the passenger sees the driver’s name and photo, so he knows whom to expect and when. At journey’s end, he can pay with another tap through a pre-loaded credit card, or in cash. The idea is simple: the app makes it easier to bring together drivers, whose cabs are often empty, and passengers. Time and fuel are saved. Money is made.In many other cities taxi apps have taken off rapidly. Hailo, founded in London by cabbies and techies three years ago, says 60% of the city’s black-cab drivers are now on its books. Several cabs are decked out in Hailo yellow. It has spread to 14 places, most recently Osaka in Japan. Uber began in 2009 in San Francisco, which has a shortage of taxis but a surfeit of geeks looking for problems to solve. Now it can find you a ride in 49 cities in 19 countries. GetTaxi, set up in Tel Aviv in 2010, has reached London, Moscow and New York. Local apps can be found in cities from São Paulo to Singapore. Besides SnappCab, Johannesburg has Uber and Zapacab (which also started in Cape Town earlier this year) plying for trade.

Apps have found willing backers. In August Uber raised a staggering $258m from a group of investors led by Google. Hailo has attracted $50m and GetTaxi $42m. But even with a full tank the journey is arduous. The road is strewn with regulatory obstacles. There are technical potholes too. Both SnappCab and Zapacab are supplying drivers with smartphones: cabbies in richer countries have their own.

The global companies have all chosen different routes. Wherever it goes, Hailo works only with taxis that may be hailed in the street. It starts by signing up cabbies, who have their own app on which they can record journeys and fares, and which alerts them to “bursts” of demand (as people leave a concert, say). The app for passengers comes later. Through the drivers’ app, says Jay Bregman, Hailo’s chief executive, new ideas can be tested. Cabbies will earn points for accepting “e-hails” when demand is at its peak and work is easy to find on the street; the highest scorers will have priority when work is scarce. Hailo may also test whether putting cross-streets, rather than just house numbers, makes drivers likelier to take a fare.

GetTaxi also works mainly with regular taxis, but it relies on business customers almost as much as on individuals. Shahar Waiser, its chief executive, says that about one-third of rides and a higher share of revenue come from big clients that include Goldman Sachs and Deloitte. In New York, however, it runs only with town cars (limousines), which cannot accept hails in the street, rather than the city’s yellow cabs.

Uber has chosen the route of competition rather than co-operation with local cabbies and taxi firms. Most of its business is with town cars and sport-utility vehicles. A cheaper range, uberX, competes directly with ordinary cabs. Parisians may plump for a two-wheeled uberMOTO. In a few cities, though, it has a cab service, uberTAXI, working with local operators.

Taxi operators have lobbied municipal regulators furiously to keep the invader out. Customers may purr about the ease of summoning a smart town car, especially where taxis are old, dirty or scarce. Yet the regulators are often sympathetic to the taxi companies’ pleas. However, a Californian regulator recently approved another upstart model, ride-sharing, exemplified by Lyft, a San Francisco firm: private drivers offer rides in their own cars in exchange for a “donation”. Local taxi groups have vowed to fight on.

Uber has had to battle in Washington, DC, where the local taxi commission tried in effect to stop it from using small, low-emission cars. In Houston, Miami and Portland Uber is being thwarted by regulators requiring it to charge minimum fares of up to $70 and to make bookings at least 30 or 60 minutes before a trip. Travis Kalanick, Uber’s founder, has promised to spend some of the $258m raised this summer on fighting off “protectionist, anti-competitive efforts” as well as on expanding into new markets.

A Bronx cheer for Uber

In New York regulators held up both Uber and Hailo for several months. Uber, which was already running town cars, started a taxi service in September 2012, but withdrew it the next month. The trouble was partly a shortage of signed-up cabbies—but also a rule banning drivers from using “electronic devices” (eg, smartphones) while at the wheel. Hailo, which said it had signed many more drivers, chose to wait for new rules.

After months of drafting, redrafting and court hearings, New York’s taxi commission allowed e-hailing, as a year-long trial, in June. The new rule demands that e-hails be accepted with one touch, and that cabbies can see only where a passenger is to be picked up, not where he wants to go, lest they pick just the juiciest fares. Since September 30th New Yorkers have also been able to pay through Hailo’s app.

E-hailing made a slow start. In the first four weeks only 17% of e-hails resulted in passengers taking the cabs they had requested on their phones, perhaps because when cabs are abundant it is easy to flag one down by hand. This, says GetTaxi’s Mr Waiser, is why he chose town cars over yellow cabs in New York.

Hailo’s Mr Bregman is more optimistic: something that was illegal until recently “takes a while to bed in”. Allan Fromberg of the taxi commission says that the low figure hides strong pockets in areas such as north Brooklyn, where cabs had been scarce because drivers worried they might not find a fare back to Manhattan. He expects the figure to rise.

Upheaval in the world’s taxi markets is only beginning. Mapping technology and crowdsourcing of traffic data are likely to erode such barriers to entry as needing detailed knowledge of a city’s streets. That may favour models that compete with conventional taxis. Even so, cabs still have plenty of rules to protect them. The road ahead is bound to be bumpy.

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (, the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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