In its long history, the taxi industry has had to contend with many rapid developments. The transition from horse-drawn carriages to petrol-powered machines challenged the industry. So too did the advent of the now-widely adopted computer aided dispatch system in the 1980s – a system that itemises jobs and gives them to drivers, all while making a traditionally paper-based business easier to handle and more readily accountable. These events have shaped and challenged companies and drivers, but now mobile app development is taking the industry by storm and could change the business dynamic.
In the past two years, mobile applications have become a priority for taxi companies. There is now a palpable need for taxi companies to have a mobile app, and a good one at that. The more features, the better, and with aesthetics straight from Silicon Valley, this is an industry that is rapidly modernising; some say without regard to the damage it is doing to itself in the process.
The basic functionality of the apps is quite simple. Working on a peer-to-peer system, the app displays a live map of the location and with a touch of a button, will forward the customer’s request for pick-up to the nearest driver. All of this is displayed in real time, eliminating the mystery of when the taxi is going to arrive. The apps will give a price estimate and often accept credit cards, although the option of paying by cash is still available. An element of complication is added by an option – already present in some apps – for the customer to add a flat bid on top of the cost of the route to prioritise their job above others. This can punish the customer without access to the apps, who is left waiting on the street because a driver has elected to take a more promising fare.
Forced innovation
Such is the extent of this problem in Beijing and Shanghai, where heavy traffic already makes it difficult to hail a taxi, that city governments have elected to ban usage of the apps during rush hour and at other peak times. Customers who did not use the apps found themselves unable to hail a taxi because drivers would only accept the more lucrative jobs that the software offers them. Studies by internet data firm iResearch have shown the taxi app industry boom has particularly taken hold in China, where $43m was invested in the last two years. The main competitors in the Chinese markets are backed by giant internet firms Tencent and Alibaba. The companies have been spurring on the trend by offering rewards to both passengers and drivers for using the service. Supporters of the service in China argue that it will force the industry, which has been monopolised by the state for decades, to innovate.
[Hailo] recently reported it had completed five million jobs and had 14,000 drivers in London
Transport Minister Yang Chauntang spoke at the National People’s Congress about the taxi app industry, and appeared to show hitherto unseen support for the new technology. He said the government would “support and help to develop the taxi apps [and] instructional policy will be issued”. It is still unclear whether Beijing intends to make the apps market-regulated or government-regulated, however. Despite the growing political backdrop and the clampdown, the financial benefits of the apps have proven too appealing for some companies, who are still operating with them. Shanghai-based news portal EastDay reported that just days after the ban, companies still continued to use them during peak times. In China, illegal car rental service operators can be fined up to CNY 50,000 ($8,220).
This is a problem for the app developers, who will certainly strive to replicate their successes in the West in countries like China and India, but adoption there may be slower thanks to the more stringent government regulation.
The decision to clamp down on app usage is certainly bold, but the desire for regulation is not entirely unprecedented. In September last year, California became the first US state to regulate ride-sharing and taxi apps by requiring the companies that make them to have permits, insurance and, most critically, be responsible for the training and conduct of the drivers.
Driving business
The most controversial issue surrounding the apps, however, is their business model. Drivers can sign up to be part of an app’s services on the side while still working for another company. This means the technology is, in effect, superseding the need for the traditional dispatch company and the phone operators who manage incoming calls. Furthermore, the companies who develop the apps take a slice of the driver’s profits, both in what they charge for them to subscribe to the service and also a flat percentage from every completed job. For an industry that is traditionally based around drivers owning their own cars, paying a flat weekly rate to a dispatch office to be given jobs, and then keeping all the money from the jobs they complete in that week, many see the apps’ pricing model as unfair to the driver.
Many are also concerned that this model erodes the traditional, strong brand model the industry has been using for years. A good amount of taxi companies draw a large portion of their business from established trust and a strong identity in their local area. If customers using the apps regularly are picked up by drivers from a variety of different companies, some say they may be falsely led into believing that these companies have partnered with the app developer. For the smaller companies, this presents a big problem, as a decline in calls to a dispatch office could lead drivers to move elsewhere. The only way for smaller companies to compete is to develop their own app that keeps their brand intact and market it in their local area, but this does not abate the emerging trend towards a more decentralised model in the industry. This is a trend that puts at risk the companies that participate in it, and thus underlines why some see rampant app development as harmful; indeed, even reckless.
Hailo, the London-based developer of one taxi app, is seen as one of the market leaders and is available in 16 cities including New York, Toronto and Barcelona. Its service epitomises the rapid growth mobile commerce has enjoyed in the last few years. In an interview with The Telegraph, Hailo Founder and CEO Jay Bregman said that he believed apps like Hailo were the future, “we… know that this is how mobile commerce is going to realise its vision.” With three million downloads, the company is growing rapidly. If apps like Hailo have an obvious hook for customers, why are so many drivers signing up and casting aside the traditional dispatch model around which their industry is based?
The answer is relatively straightforward. Imagine a taxi driver in a company of 200 – not an unreasonable estimate for a medium sized dispatch office to handle. Every job the driver receives is allocated among 200 people based on a variety of factors, but normally it is given to whichever driver is closest to the pick-up, to minimise wait time for the customers. But now imagine the driver signs up to a mobile app with only a few of their colleagues and perhaps some drivers from other companies. Now he is one amongst 50, not 200, and even the prospect of a part of the transaction going to the app’s developer is not enough to dissuade them. In effect, apps allow drivers to jump the queue for jobs, at the expense of the drivers getting jobs by radio, or picking up customers in the street, who may not have the benefit of the app to inform them about who they are picking up.
Increased flexibility
Despite this, some drivers praise the apps for the flexibility they offer, and that they do not mind the extra charges the developers impose. One of Hailo’s founders, former black cab driver Russell Hall, told the BBC in 2013 that he foresaw the new model being extremely successful: “I’ve always believed it’s what’s been missing in any city in the world. What we’ve created in London will go to any city.” His prediction seems to hold weight, as more cities and more companies continue to support the growing trend. The company recently reported it had completed five million jobs and had 14,000 drivers in London – both significant milestones that show the potential strength of the taxi app industry.
While the future of the taxi industry is still uncertain, the argument surrounding mobile apps is polarising drivers and customers alike. Early contenders have been widely accepted in the cities where they are available, and have been financially successful. As a more comprehensive rollout of the apps begins, surely the app businesses will go from strength to strength. What remains to be seen is just how governments will react to the apps, and the decisions they make will have an effect on how quickly coverage grows. Despite this, supporters who claim that rapid innovation will continue to take place may just be right, making this new technology the latest radical advance in the industry.
