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
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.
- SelectUSA. (n.d.). Retrieved January 25, 2015, from http://selectusa.commerce.gov/industry-snapshots/logistics-and-transportation-industry-united-states
- 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/
- 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
Group 1 response to the Uber-nization of Taxis (1 of 2)
ReplyDeleteLyft and Uber aren’t an option in any of the areas that we live, but the concept is very interesting and these companies certainly seem to be growing. According to the L.A. Times, Uber can be found in over 150 cities in the United States and even at the international level. The much smaller Lyft is found is approximately 50 cities; however, revenues and rider counts are growing at a rate of 500% per year. (Lein, 2015a) That is an incredible rate! You mentioned the drastic difference in costs between using Uber and a traditional cab. While these low costs are enticing consumers to use these services, there are some concerns about what it will do to the transportation industry. Bob Sullivan’s article in Daily Finance says that with companies like Uber, there are no barriers to entry for a transportation driver. Anyone can earn extra income, without many of the pesky rules and regulations associated with other transportation services. Without these barriers, transportation providers can eventually flood the market until there is no profit for the drivers. Low profits can potentially mean improperly maintained vehicles, unsafe vehicles, and ultimately an unreliable service (Sullivan, 2015).
Although Uber and Lyft prices are typically lower than that of traditional taxis, this is not always the case. Uber uses the power of supply and demand to their advantage by applying cost multipliers to their fees based on home many people in the area are in need of a ride. This typically occurs after events like concerts and football games when there is an unusually large number of people in a small area looking for a ride. I have heard of them charging as high as 10 times their normal prices in situations like this. If the traditional taxi companies do not come up with a better competitive strategy, it will continue to give Uber and Lyft the power to charge these outrageous prices in times of high demand. There are reports of Uber drivers cancelling rides once they realize late night “drunken” surge prices have begun, and as Sullivan wrote, “drivers themselves could collude to create surge pricing in certain areas simply by making side agreements to stay out of each other's way.” (Sullivan, 2015) Additionally, what stops the app from knowing who you are, where you are, where you belong, and when it can upcharge you because you have to buy on autopilot out of unfamiliarity? If you live in one of the 150 cities Uber supports, and you take a vacation to New York City and use Uber, what stops the app from charging you a premium rate compared to the local man standing on the street corner next to you? The Uber app uses dynamic pricing on those most vulnerable, much the same as price gouging after a natural disaster. (Sullivan, 2015)
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ReplyDeleteGroup 1 response to Uber-Nization of Taxis (2 of 2)
ReplyDeleteYesterday, in San Francisco’s federal court, U.S. District Judge Edward Chen heard arguments in the case of Uber’s drivers suing Uber to be classified as employees instead of independent contractors. The drivers feel they should be considered employees on the grounds they are an integral part of Uber’s business, Uber possess the right to retain or terminate the drivers without notice, and Uber directs and controls the drivers’ work. If Judge Chen rules in favor of the drivers and classifies them as employees of Uber, they will be entitled to a minimum wage, reimbursement for expenses, overtime, and other benefits. Uber’s expenses will sky rocket, and they will not be able to keep their low fares. (Lein, 2015b) Taxi companies and limousine are not even trying to compete with the pricing; their strategy consists of trying to get regulators to ban these types of ride sharing services (Wolfers, 2013). This is not a wise strategy because if they fail at getting these regulations passed, they will have no way of competing with these new transportation companies without an all-out price war. Also, even if they successfully get companies like Uber banned, they still have done nothing to provide a better customer experience or help protect against other new low cost entrants.
We agree with you in the idea that the taxi industry must improve their technology in order to continue to be competitive in the public transportation market, but the likes of Uber and Lyft could spell the end of public transportation companies. For years taxi companies have had no significant competition in their niche of public transportation. Instead of using this time to improve their business and processes, they just continued to use the same system and technology they have been using for years. This lack of growth allowed the entry of new competitors into the market and now the taxi companies are suffering. The main cause of this suffering is due to their extremely outdated technology. Why anyone would chose to call a taxi dispatcher and then have no idea how much longer it will take to get their taxi when they could use a simple app which allows them to select the closest driver and monitor their progress? If taxi companies do not change soon they may lose a spot in the market altogether.
Lein, T. (2015a, January 27). Lyft says it's growing 500% a year in ride count and revenue. Los Angeles Times. Retrieved January 31, 2015, from http://www.latimes.com/business/la-fi-lyft-branding-20150127-story.htm
Lein, T. (2015b, January 30). Uber and Lyft drivers could be categorized as employees, judge says. Los Angeles Times. Retrieved January 31, 2015, from http://www.latimes.com/business/technology/la-fi-tn-uber-lyft-independent-contractors-20150130-story.html
Sullivan, B. (2015, January 31). Uber Is a Danger to Itself, Its Customers, Mass Transit. Daily Finance. Retrieved January 31, 2015, from http://www.dailyfinance.com/2015/01/31/uber-endangers-itself-customers-mass-transit/
Wolfers, J. (2014, September 30). Uber Improves Life, Economists Agree. The New York Times. Retrieved January 31, 2014, from http://www.nytimes.com/2014/10/01/upshot/uber-improves-life-economists-agree.html?_r=0&abt=0002&abg=0