Justin jenk theory and practice taxi wars uber_ raktas_case study_march 2015

Taxi wars – Uber and mobile
app new entrants
Theory and Practice - case study series
Oxford, March 2015
Reflections on strategies of mobile app-led and
incumbents in the regulated taxi industry
www.justinjenk.com
www.raktas.ee
© Justin Jenk.com.
Unauthorised reproduction and use prohibited

1 © Justin Jenk.com. Unauthorised reproduction and use prohibited
Summary: taxi app wars ongoing, but at least one leader - Uber
This document provides a synthetic assessment of the strategies and action of the leading players in the mobile app
taxi/rideshare/hailing segment, part of the larger taxi industry – city based and regulated. The contents of this thought
paper reflect the work Raktas has provided to relevant decision-makers in the industry.
• The actions of the ‘new entrants’ based on a mobile app business system is a text book example of applying disruption
to create value in a regulated and ossified industry (such as with airlines, utilities, telecoms/mobile phones, etc).
• Successful entrants have completed redesigned the whole business system from a user’s perspective to improve cost-
quality-time aspects by using technology and digital practices to challenge entrenched regulated behaviors
• The regulated taxi markets are being forced to change as a result.
• With regard to performance. Historically incumbents have generated viable returns but with no growth. New entrants
bring the promise of increased volumes and revenues for their businesses; but as yet have not recorded sustainable
margins nor returns. Valuations for the successful players are “rich”.
• The process (“war”) is ongoing and while there are some clear winners amongst the new entrants (eg Uber, Lyft) a
sustainable industry position has not been reached as yet.
• This development in the taxi industry provides some excellent examples of:
– Interaction of Innovation and Regulation
– Disruptive strategies
– Digital best practice
– Base for proving Nobel Laureate Coase’s social utility at minimal transaction costs (“the Coase Theorem”)
Table of Contents:
p2: Industry setting
pp3-6: Demand aspects and Key Buying Factors (KBFs)
pp7-12: Comparison of strategies and Best practice
pp13-14: Implications & Conclusions

Setting: the industry for taxi services- ripe for change
• The mobile app for taxi booking or ridesharing is an emerging, disruptive approach in the highly regulated and entrenched
taxi industry, resistant to change. Through management of the taxi value chain (improved booking, responsiveness,
availability and payment) these mobile app companies manage virtual fleets.
• The taxi industry is a monopolistic, highly regulated and ossified one. Licensed taxis (operated by owner-operators)
provide metered fares at set rates. Regulations are organized around individual urban markets and subject to local
ordinances, practices and politics.
• Current practice being challenged. Often licensed taxis are hailed from the street and fares paid in cash (ie London has
23,000 licensed black cabs, New York City 40,000 medallion yellow cabs.) These fleets are a supplement by radio-taxis and
chauffered services (allowing for increased capacity, but requiring booking). Payment methods and fares remain
confused.
• The taxi industry is characterized by poor behaviours. Entrenched players provide: poor infrastructure, inefficient
booking, pre/post journey delays, poor capacity-supply/demand management, poor service & fulfillment, questionable
vehicle quality, (in)experienced drivers, poor CX , high/monopolistic fares, payment confusion, in difficult working
conditions.
• To date changes by incumbents have been bolt-ons to existing analogue businesses (eg credit card payments, telephone
and computer bookings) but in a haphazard manner.
• Some cities have tried to manage the capacity imbalances (eg: Stockholm with unrestricted pricing; London by increasing
the min-cab/radio fleets and seeking to coordinate fleet capacity within its overall public transport authority-TfL;
Washington DC with temporary ordinance changes).
• While journey times are invariably similar passenger KBFs are clear: the ability to secure a taxi, waiting times for pickup,
journey quality, fares and payment add important quality and time improvement aspects.
• Mobile app-led new entrants have used disruptive strategies are based on challenging established regulations and
practices, through redesign of the value offering to enhance consumer utility and value, by applying technology and
digital communication practices to improved service levels, margins and engage consumer support to force changes to
regulation and industry behaviors. Incumbents have largely relied on legal redress rather than change.
• The two mobile app leaders are: Uber (rapidly scaling an productive commercial model) and; Lyft (leveraging the
emerging trend of open-source and sharing to provide a rideshare). Other new entrants are challenged with incumbents
are struggling to redesign existing pre-digital businesses.

Demand: travel time is better with taxis/ridesharing
Source: App-based on-demand ride servoices- L Reyle, ”Washington Post”

Demand/Supply: waiting time, a critical KBF that mobile apps meet
Source: App-based on-demand ride servoices- L Reyle, ”Washington Post”

KBFs: mobile taxi/hailing/rideshare apps meet these better
Source: ”Washington Post”, Respsodent survey (n=313) ”What 2 factors are most importnat to you when choosing a taxi or public transport alternative”

Comparison of players: strategy & hard elements
Me-toos Incumbents
Strategy Lifestyle:
Stylish and Improved
taxi experience
through quality
assured process and
independent drivers
Selected cities (130)
Targets aspirant
sector
Trade:
Facilitates
finding a
licensed taxi
and paying the
licensed fare
10 cities
Social:
Open
source/Sharing
through
cooperating
drivers
60 cities
Serve
neighbour-
hood/local
market
Serve defined
local market
Structure Centralized core
Service company
connecting riders and
drivers and facilitating
payment
Franchised local
operations
Centralized
core
Local
partnerships
Centralized core
Central admin
to coordinate
network
Small
local/micro
companies
Owner
operators and
small
local/micro
companies
Systems App based redesign
& management of the
taxi experience at
variable fares taking
the rider’s
perspective and KBF
with pull through
communications
App that
facilitates
participating
licensed drivers
to connect
drivers & riders
at standard
metered fares
App based
rideshare
through us e of
network of
drivers willing to
carry
passengers at
pre-agreed fares
Availability
through a
phone call
and lower
price point
than
licensed/m
etered cabs
Licensed
under current
regulations.
Set industry
prices and
base practices
Mobile app taxis
meet and exceed
clearly defined
KBFs for taxi
consumers
• Key segments
• Productive
processes and
structure
• Proactive in
service
provision and
pricing
Clear winner

Comparison of players: organization & soft elements
Me-toos Incumbents
Style • “Darth Vader”
• Design & control
of a WOW
experience
• Surprise&Delight
• Aggressive
• “Wholsaler”
• Facilitator to
find a taxi
• “BFF”:
• Appeals to
social and
civic minded
• Neighbour
hood
supplier
• The best (as
licensed)
Skills • Better margin
player
• Best business
processes
• Best practices
Digital
Communications
• Centralized
core
• Local
partnerships
• Centralized
core
• Networking
• Bookings • Professional
owner-
operators
• Adhere to
established
legal/regulat
ory code
Shared
Values
• Consumer centric
• Own the critical
delivery moments
• Challenger to
established
structures
• What is good
for the taxi
driver is best
• Sharing • Beat
licensed
incumbent
s
• Pride in
being
Licensed
Staff • 70-300 FTEs
• Tech savvy, yuppie
franchisees
• Vetted drivers
• 3rd CEO in 2
years
• London HQ
• Licenced cab
• Engaged
citizens
• Low skilled • Skilled
Mobile app taxis
Better provision
and promotion of :
• seamless 24/7
taxi service
• empowers
riders and
exceeds
expectations
and KBFs
(quality, time)
• competitive/re
asonable prices
• best practice
digital
communication
/branding/mar
keting/promoti
on
Clear winner

Comparison of players: performance – growth and potential
Me-toos Incumbents
Metrics • Started 2010
• Fasted growing digital
company (ever)
• Largest volume and
revenues increases
• 5 cities established,
125 being entered
• Off the self systems
• Started 2012
• 10 cities
• Change in
systems (Sage to
NetSuite)
• Started 2011
• 60 cities
• Fast growing
volume and
revenues
• Developed with
regulated
umbrella
• May seek value-
add service as
upscale
chauffeured
services
(Addison-Lee
• Long
established in
each city
• Owner-
operators
• No growth
• Fares set by
regulators
P&L • 80:20 rule
• Gross revenues on
target for US$10bn
• Targeted net revenues
US$2bn
• Strong revenues
growth, negative
margins
• Better position for
margins
• Centralized core
• Local
partnerships
• Gross revenues
UK£81m
• Net revenues ,
UK£7m ,loss
UK£21.5m
• Share of gross
revenue
• Net revenues
US$2.7m
• Small fleets
• Annual
revenues vary
US$300k+
• Return>Cost of
capital
• US$500 per day
revenues
• Annual
revenues of
US$80-130K
• Returns provide
above average
income
Funding • Multiple series funding
• US$ last round
US$3.7bn
• Google Ventures
• Post Money US$ 40 bn
valuation
• Multiple series
funding
• US$120mn
• Sharing • Cash flow
• Bank loans
• Cash flow
• Bank loans

Comparison of US taxi fares: Uber, even with its surge, is cheaper
(Uber’s surges have seen its rates climb to 8x advertised levels during
peak demand periods. However even when factored in, Uber remains
cheaper on a motion and time basis)
Source: www..BusinessInsider.com; S. Silverstein

Revenues US$ 27.4 m US$ 2.2m
Users-Riders 1,200,000 170,000
‘Margin’ 4.76% 0.45%
New Riders a month 6,700 1,200
(User behaviour based on 3.8 m credit card holders in the US of which
96,000 have used either Uber of Lyft services, May 2013-April 2014)
Comparison of mobile app taxi players in US: Uber dominates
Source: www.fortune.com, www.futureadvisor.com

TLC cabs
Number of taxis 14,088 13,587
Implied share
(40,000 total registered taxis)
35% 34%
Daily rides 29,333 440,000
Rides/taxi/day 2 32
Driver hours/week 40 140
(Uber in just 4 years now has an equal share of market with important implications for
future market dynamics (pricing) and its business model of connected single, owner-
operators contrasts vs the Medallion owning taxi companies with multiple drivers with
implications to costs, investments and returns)
Local taxi market analysis – NYC: Uber well established
Source: Taxi and Limousine Commission, http://www.telegraph.co.uk/technology/news/11485026/Uber-overtakes-New-Yorks-iconic-yellow-cabs.html

Better practices: some new/borrowed, but impeccable implementation
• Business based on digital app service to provide seamless, reliable and pleasant service (easy booking, rapid response,
comfortable journey, easy payment), with smartphone as the core platform.
• Best in class mobile app (always in Top 5 of travel app downloads, 2 button intuitive, instant).
• Asset light
– Invest in middleware to adapt ‘off-the shelf’ solutions to provide key: booking, location, payment systems
– Driver selection
– No ownership of fleets.
• Variable or surge pricing (to reflect supply & demand).
• Vetting of drivers and poaching from competitors (ie UBER offers US$500-1,000 rewards).
• Excellent litigation and legal skills. Careful selection of new city markets to enter and rapidly grow.
• Quickly building scale (for efficiencies) and to challenge regulatory environment to lead critical core market segments
(Uber is always 5-10x larger than other new entrants). Minimum fleets of 20 vehicle to start a service in any city.
• Diversification to provide segment coverage and ancillary revenue streams (ie Uber’s and lower priced UberX, Uber
delivery, Hailo’s Business).
• Aggressive marketing (“astronomic spending levels”, trial through free rides, loyalty programmes, reward referrals,
matching pricing, WOW factor from ‘surprise & delight’, events, etc).
• Digital communications (driver and passenger ratings, targeted high-profile events, WoW factor, word-of-mouth).
• Volume and revenue growth are basis for “rich valuations” for intrinsic as well as user databases.

Implications: value to being created through successful change
• Precedent examples of regulated inefficiencies (ie, airlines, public utilities, telecommunications, etc) provide the opportunity
for commercial change in the taxi industry through disruptive strategies.
• Uber is winning the war, but it is not over.
• Best practice characterized my using technology and digital methods to create and communicate a business that netter meets
user-KBFs:
– Total redesign of user experience based on technology to reduce time-lags and payment frictions
– Use UX/CX to pull through demand, challenging existing monopolies and forcing change
– Use off the shelf systems but link to create seamless CX
– Target and key user occasion/benefits-KBFs
– Variable pricing
– Use of best practice digital communications and marketing techniques
– Scale proven system in supportive city markets
• Legal challenges remain at several levels:
– Passengers/Riders/Users are legally exposed to safety and insurance issues (as subject to the driver’s coverage)
– Incumbents may win legal cases to enforce existing regulatory framework (London, Toronto, Miami)
– Municipalities may change regulations that remove disruptors advantage (Cleveland),
• Prices falling: fares for consumers are lower; medallions/permits for licensed are falling
• Competitive intensity will leave any future market with a combination of: a clear mobile app as well as for rideshare providers,
reduced number of regulated incumbents, niche positions for cost-driven, me-too fleets.
• Key Success factors for Disruptive strategies are met on at least 2 (of 3) points:
1. Clear margin advantage (combination of growth in revenues and containment of costs & investment) – Uber?
2. Sustainable business and operations advantage – Uber, Lyft
3. Asymmetry of exit decision: will exits occur to allow for industry consolidation? – Uncertain as yet
• As a business model longer-term rideshare (Lyft), as a concept, may pose real challenge to classical commercial operations (eg
Uber).
• On current trajectories valuations for Uber and Lyft seem “rich” but may not be extreme.
• This industry provides an excellent example of Nobel Prize Laureate Coase’s “Theorem” providing social utility with minimal
transaction cost.
Source: http://mpra.ub.uni-muenchen.de/id/eprint/63206:

Conclusions:
• The “war” is ongoing.
• Currently, Uber is best placed to win.
• Regulators’ actions can accelerate/decelerate the pace as well as scope of change, which will affect
the prospects of the mobile app-based new entrants.
• Taxi industry consolidation is underway (licensed fleets will be trimmed, current incumbents and
‘me-too’s will be most adversely affected, some mobile app companies will gain relevant share of
target segments/markets.
• Any new entrant must match Uber/Lyft standards and should only enter in new markets
• Incumbents need to overhaul their complete system to compete.
• There are many lessons to be derived for companies from the: ongoing development of the taxi
industry, digital business development and precedent deregulated industry examples (eg airlines,
public utilities, telecommunications).
about
Raktas: www.raktas.ee
Raktas is a specialist firm that offers growth and restructuring solutions to build businesses as well as transform companies and
financial institutions; usually with an implementation component. Services are directed at decision-makers that believe their
organizations are facing complex situations and resource constrained.
Justin Jenk: www.justinjenk.com
Justin Jenk is a business professional with extensive, practical experience from a successful career as a manager, advisor, investor and
board member. He has an established track-record of delivering value-added solutions. He is a graduate of Oxford and Harvard.

Justin jenk theory and practice taxi wars uber_ raktas_case study_march 2015

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