Justin jenk theory and practice taxi wars uber_ raktas_case study_march 2015

Justin jenk theory and practice taxi wars uber_ raktas_case study_march 2015

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  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
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  1 © JustinJenk.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
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  2 © JustinJenk.com. Unauthorised reproduction and use prohibited 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.
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  3 © JustinJenk.com. Unauthorised reproduction and use prohibited Demand: travel time is better with taxis/ridesharing Source: App-based on-demand ride servoices- L Reyle, ”Washington Post”
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  4 © JustinJenk.com. Unauthorised reproduction and use prohibited Demand/Supply: waiting time, a critical KBF that mobile apps meet Source: App-based on-demand ride servoices- L Reyle, ”Washington Post”
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  5 © JustinJenk.com. Unauthorised reproduction and use prohibited 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”
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  6 © JustinJenk.com. Unauthorised reproduction and use prohibited 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
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  7 © JustinJenk.com. Unauthorised reproduction and use prohibited 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
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  8 © JustinJenk.com. Unauthorised reproduction and use prohibited 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$120mn • Sharing • Cash flow • Bank loans • Cash flow • Bank loans
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  9 © JustinJenk.com. Unauthorised reproduction and use prohibited Comparison of US taxi fares: Uber, even with its surge, is cheaper (Uber’s surges have seen its rates climb to 8x advertised levels during peak demand periods. However even when factored in, Uber remains cheaper on a motion and time basis) Source: www..BusinessInsider.com; S. Silverstein
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  10 © JustinJenk.com. Unauthorised reproduction and use prohibited Revenues US$ 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
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  11 © JustinJenk.com. Unauthorised reproduction and use prohibited 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
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  12 © JustinJenk.com. Unauthorised reproduction and use prohibited 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.
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  13 © JustinJenk.com. Unauthorised reproduction and use prohibited 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:
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  14 © JustinJenk.com. Unauthorised reproduction and use prohibited 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.