The Uber-ization of Taxis

The transportation industry is a multi-trillion dollar industry that has seen its share of ups and downs over the years, and has been subject to a number of regulatory burdens with which to comply. According to an article by Select USA, spending in U.S. logistics and transportation in 2012 amassed a whopping $1.3 trillion, representing 8.5% of annual gross domestic product (GDP)¹ – quite frankly, music to the ears of potential investors! For decades, one of the main contributing sources to this industry has been the success of taxi cabs – that is, until recently! With the advent of technology and the constant search for the “next big thing,” the once sought-after taxi industry is now, unfortunately, a thing of the past. With the continual progress toward a more tech-savvy world, the question to ask is: How can technology help eliminate the barriers of commerce within the transportation industry? 

The answer is simple! Here are three main factors to consider:

Time

For many, taxis are used as a source of transportation when one is not readily available. In huge metropolitan cities, such as New York, it typically involves grasping the attention of the cab driver by a simple hand gesture to halt. In a city such as Los Angeles, where the number of cab drivers are dramatically less, as the need and use of public transportation is less, this process entails a different story: the need to contact a central station, check the availability of drivers, before committing to a ride. For many, time is of the essence, and this no longer seems to be a viable option.

This is where companies, such as Uber and Lyft, got it right, and it’s time that the taxi industry align its business model to that of its successful competitors. With a simple mobile application (hereafter referred to as an app), the user is able to select a driver and monitor both the departure and arrival time. The proposal with taxis is to be able to utilize technology to its utmost advantage. In essence, the idea would be to create an application to be sold to various taxi companies, where a) taxis implement them within their daily operations; b) users are able to access at no charge; and, c) are able to select a driver within their vicinity to make the best use of their time. 

Clearly not enough bang for your buck

Cost

To many, the cost of using a taxi service is reason enough to look for alternative options. According to a Forbes.com magazine, a simple ride to LAX may cost one passenger $11 with Uber, while three times higher ($35) with a cab service². The numbers do not lie! People want to be part of a the “cool revolution” – these are the times where technology dictates what the “hot” trends are, and what one must follow, while the concept itself may not necessarily be a novelty. With the development of the software, the idea would be to create an app for the user to download, which will link the end-user them with a nearby driver. The software will be programmed to find the easiest and quickest route to a destination, resulting in less mileage usage to the driver, and less money per mileage spent by the user. In essence, a win-win situation for both! 

                     

Resources

One of the main cons of the taxi system is its sheer lack of drivers. For instance, a user in Santa Monica, CA may call a dispatch station, only to find that its nearest center is in a nearby city, thus resulting in her waiting for an extended period of time for her ride. In a 2012 study conducted by the Bureau of Labor Statistics, the number of taxi drivers totaled near 230,000.³ How would technology help? For starters, if Uber’s model is used to their advantage, it will help increase the demand of passengers, thus allowing taxi companies to add more stations and more drivers. There is certainly value in numbers!

Uber drivers vs. taxi drivers
	Uber driver-partners (hourly earnings)	Taxi drivers and chauffeurs (hourly wages)
Boston	$19.06	$12.31
Chicago	$16.20	$11.87
Washington, D.C.	$17.79	$13.10
Los Angeles	$16.98	$11.73
New York	$30.35	$15.17
San Francisco	$23.52	$13.72
BSG Survey Uber Market	$19.04	$12.90
Source: Uber and the Occupational Employment Statistics Survey

C for Competition 

With the insurgence of technology, the taxi industry has a lot to accomplish to compete with its main competitors. Technology will help tremendously in offsetting a number of barriers that are currently present within the industry. It is imperative that companies develop and strategize their business model to not only successfully compete, but be one step ahead. By implementing the suggestions outlined above, the taxi business would strive toward creating a more attractive industry to operate within. 

For instance, the application may include a system that will warrant a patent, thus decreasing the threat of new entries;  relatively lower prices for taxis will deem substitutes unnecessary; and, the employment of more professional drivers will provide the industry its differential advantage - all for the benefit of taxis in this ever-evolving, technology-driven, world.

1. SelectUSA. (n.d.). Retrieved January 25, 2015, from http://selectusa.commerce.gov/industry-snapshots/logistics-and-transportation-industry-united-states
2. Diamandis, P. (2014, September 8). Uber vs. the Law (My Money's on Uber). Retrieved January 25, 2015, from http://www.forbes.com/sites/peterdiamandis/2014/09/08/uber-vs-the-law-my-moneys-on-uber/
3. Taxi Drivers and Chauffeurs. (2014, January 8). Retrieved January 25, 2015, from http://www.bls.gov/ooh/transportation-and-material-moving/taxi-drivers-and-chauffeurs.htm