Paul Wallbank – Brilliant Communications

Tag: taxis

  • Disruption comes at a high price

    Disruption comes at a high price

    Not so long ago, lending for taxi medallions was a safe bet. Now it’s pretty risky, as US lender Capital One revealed in a presentation last week.

    Bloomberg reports the lender believes over eighty percent of its taxi loans are at risk of default.

    In New York, medallion values have halved while in San Francisco taxi companies are going out of business. As a result Capital One’s loans that looked good a few years ago are now risky.

    That problem is global. As I wrote two years ago for The Australian, the Aussie taxi industry has been tipped upside down by Uber and a cast of smaller competitors.

    How the taxi companies failed to adapt is interesting. In most cities they were protected by a nest of laws and regulations that were ostensibly to protect passengers and drivers but actually acted to create high barriers that benefited license owners.

    In most cities, certainly in New York and Sydney, taxis were dirty and unreliable – drivers were treated poorly and passengers were taken for granted – which made alternatives attractive even before the cheaper UberX and Lyft services arrived.

    The protection also made the taxi companies slow to adopt new technologies. There was no reason why Australia’s Cabcharge or San Francisco’s Yellow Cab Company couldn’t have developed a smartphone app to order taxis, track progress and improve business expense reporting – that they didn’t speaks volumes about their inefficiency and complacency.

    Being complacent was understandable though as regulators were tame and kept competitors out. Customers had nowhere else to go.

    When customers did get the chance, they voted with their wallets and now its the bank accounts of taxi owners and their lenders who are hurting.

    That Capital One is feeling the effects of that change is telling – when genuine disruption happens there’s a range of businesses, people and stakeholders affected. We should never underestimate that.

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  • How the taxi industry lost its advantages

    How the taxi industry lost its advantages

    In San Francisco, the Yellow Cab Company is filing for bankruptcy in the face of mounting insurance costs and competition from services like Uber and Lyft.

    For most of the Twentieth Century, having a government controlled market was good for cab companies and those owning the rights to own taxis. In most places though it wasn’t good for drivers and passengers however as wages fell along with the quality the service.

    In most cities, the taxi operators didn’t care as their industry was protected and customers didn’t have much choice. The problem was compounded by supine regulators who saw protecting the interests of industry incumbents as taking precedence over making sure operators provided a safe, reliable service.

    With the arrival of Uber, this changed and passengers started voting with their wallets. Interestingly, despite Uber X and Uber Pool being illegal in most place, regulators and their political masters found public opinion was firmly against the taxi companies and owners who’d exploited them for so long.

    To the horror of the taxi operators, they found the community and the market had shifted against them leaving them exposed to changes they had never expected. Now operators like San Francisco’s Yellow Cabs are paying the price for not focusing on providing a decent service.

    For other industries, particularly those which have some sort of barrier to entry through government regulation, the taxi industry’s woes are an important lesson – focusing on service is the key to staying in business, not relying on keeping competitors out.

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  • Adapting to a new economy

    Adapting to a new economy

    Taxis have gotten their ass kicked” says Hansu Kim, owner of San Francisco’s oldest taxi company.

    Kim’s company, DeSoto, is changing the name it has held since the 1930s to Flywheel in an agreement with the taxi hailing app of the same name. The San Francisco Chronical describes how DeSoto and the city’s other taxi companies are finding times tough now Uber and other services have moved into what was a safe, regulated business.

    DeSoto’s move is a sign of the times as older business models evolve; moving to an app based hailing service improves the experience for everybody in the cab industry and radically changes the economics of getting a ride across town.

    The main reason for Uber’s success is being able to identify both drivers and passengers which improved confidence in the system. In turn, this changes riders expectations and taxi’s fare structures.

    For companies competing with Flywheel the question will be do they participate in this service or do they create their own app. For the industry in general it makes sense to share the infrastructure but for uses it may well be in their interest to have competing apps with different levels of service.

    As the levels of car ownership continue to fall, how taxi hailing and car hire apps evolve will drive the development of our cities through this century. DeSoto and Flywheel’s experiment is the start of many as older businesses adapt to a changing economy.

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  • Fighting a loss making business

    Fighting a loss making business

    Having deep pockets is a great help in business as the online cab war in San Francisco shows.

    As competition heats up on the streets of San Francisco, Uber is trying to put Lyft out of business by offering fares below what they pay drivers.

    This has been the long term tactic of Amazon; raise a lot of money and then run your main line of business at a loss.

    Amazon have shown you can do this for a long time if investors stay patient. Fighting it is difficult if you don’t have deep pockets yourself.

    In the long term though you can’t see this being good for customers, although in the meantime San Franciscans can enjoy cheap taxis.

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  • Uber’s New Year’s test

    Uber’s New Year’s test

    Update: It appears Uber passed the New Year’s Eve test without problems. There were almost no complaints at all.

    New Years Eve 2011 was a tough night for customers of the Uber hire car booking service in New York City when fares surged as partygoers headed home.

    This year, Uber hopes to overcome problems by making sure customers are aware with big warnings of prices and even a sobriety test so users can confirm they know what they are doing when they agree to catch a cab.

    Uber’s dynamic pricing matches supply with demand, which means a more reliable service but also opens the company to allegations of price gouging during busy periods.

    Those allegations are exactly what happened in New York last year and in 2012 Uber’s risks of bad publicity are far higher as the service is now international with operations in cities like London, Paris and Sydney.

    Sydney will be the first city to encounter the effects of surge pricing and big risks lie in the Harbour City as Sydneysiders are used to fixed cab fares and enjoy a good whinge when things don’t work in their favour.

    Over a million people are expected on the shores of Sydney Harbour to watch the New Year’s Eve fireworks which means cabs and hire cars are at a premium.

    If Sydney has the triple fares expected in New York then Uber’s fare from Circular Quay to Bondi Beach will be around $150. This compares to the standard cab fare of around $30.

    Those markups will be exploited by the incumbent taxi companies and booking networks. We can expect a wave of stories over the next few days from tame journalists regurgitating the incumbents’ media releases.

    How Uber’s Australian management deals with this will be worth watching. One hopes they are prepared a tough week and don’t enjoy the festivities too far past midnight.

    Another problem for Uber is going to be Sydney’s mobile data networks which are horribly unreliable during peak periods. It may well be that Uber’s customers and drivers never get a fare anyway.

    Last year I was near the Habour Bridge and didn’t have a Vodafone signal from 8pm onwards. I’ll be comparing the performance of all three Aussie networks from the same place tonight.

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