The Taxi Tradition

Taxi history in New York City is pretty fascinating.  The story begins around 1890 when ‘horseless-carriages’ began appearing on the city streets.  By the 1930’s taxi licenses and medallions to identify taxis were implemented, which allowed the local government to monitor the supply of taxis and ensure better driver wages.  In the 1960’s a mandate was issued that all taxis are painted yellow to distinguish them from private car services.  Since then, continued increases in the cost of purchasing a medallion has led to fewer people owning a cab, instead opting to lease.

Car-sharing Disrupts the Market

In the last 15 years 2 disruptive business models have emerged that threaten the hundred-plus year taxi tradition.  The first disruptive model, car-sharing, began in 1999 with the formation of Zipcar by 2 moms with very little funding.  In this model, a fleet of cars are strategically positioned around a city.  As a Zipcar member, the person pays a small 1-time fee, an annual fee and an hourly (or daily) rental fee.  In return, he is able to he takes a membership card to the closest car and start driving.  Gas and insurance are included with the membership.  According to their website, there are many compelling reasons to use Zipcar including saving money, convenience for grocery shopping, needing to move a big purchase (e.g. a new couch), wanting to take a weekend road trip, or just wanting to be nice to the planet.  While disruptive, the taxi industry did not seem enraged by car-sharing services as they seemed to be more of a challenge to the tradition of car ownership then that of hiring others to drive you around.

Ride Sharing Presents Further Disruption

On the other hand, new ride-sharing options are in direct competition with tradition taxi services. Ride-sharing means there are multiple riders in the car.
The term used to be synonymous with carpools and vanpools formed to save money and time (by utilizing high occupancy highway lanes).  Traditionally most ride-shares were formally organized but in some places, like Washington DC, casual ride-sharing called “slugging” (reminiscent of hitchhiking) has taken root.  Most notably, are the growing  presence of 2 companies, Uber and Lyft, that have turned ride-sharing into a more sophisticated offering powered by mobile applications, real time data, and 360 driver/passenger reviews.

While similar in many respects there are some notable differences between each company’s go-to-market approaches.  Uber, founded in 2009 and already launched in seventy cities around the globe, has a website focusing on passenger recruitment.  There are aspirational black and white photographs and they offer 5 tiers of car services ranging from uberX for everyday use to LUX for, as the name implies, a luxurious ride.   Two of the 5 tiers, TAXI and BLACK, respectively employ licensed taxi drivers and chauffeurs.  The most basic Uber offering, uberX, directly competes with the Lyft model, where casual drivers earn extra cash by giving rides to others.

In contrast to the Uber website focus (on passenger recruitment) Lyft’s website is all about driver recruitment. At Lyft drivers normally receive 80% of the fares, though recent promotions have increased that percentage.  By working an average of 5 hours per week a Lyft driver would earn enough for a typical car payment. Lyft protects drivers by bumping up their liability insurance and rating the quality of passengers.  The point of entry is low, drivers need a car (2000 model year or younger), must be 23 years old, and have a smartphone.  Since Lyft drivers use their own cars, passengers identify their ride by a pink mustache attached to the front of the car.  However, in a recently announced premium option, the mustache will be silver and much more subtle; the car
will be a Ford Explorer with leather interior. This premium option is intended to compete with the higher end UBER SUV offering.

So why are taxi drivers so upset?

Taxi drivers are upset by lack of regulation for ride-sharing companies as well as the devaluation of million-dollar operating permits.  Protests against Uber have popped up in Seattle,Paris and other cities.  Regulators in Tampa,New Orleans, and elsewhere have gone so far as to ban these ride-sharing services altogether.  Other places, like Chicago, have instituted local regulations which aim to level the playing field (against traditional taxi and car services); however, many think the regulations still leave incumbents at a pricing disadvantage as surge pricing, charging an increased rate during peak times, is still allowed for ridesharing companies but not for taxis.  In Sydney the debate is ongoing, with the Taxi Council calling ridesharing as posing an unacceptable risk to the public whereas at least one government official stresses the desire to provide constituents with choices on how to get around. 

So while there is plenty of opportunity for both entrepreneurs in the ride sharing market to compete with traditional service providers…there are also some significant issues to resolve…change brings those opportunities!

Please join us in Orlando at SapphireNOW on June 2-4, 2014 or in Leipzig at the 2014 International Automotive forum to engage with other customers and SAP in discussing the potential opportunities for transportation and other services enabled by the connected vehicle and the connected world!

Follow me on Twitter: @MandyBayArea

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