Case Study : On-Demand Taxi Business

By | December 21, 2015

You need to understand the pain points, the transportation culture and the transportation systems that exist in every city and start making some educated guesses” Travis Kalanick, CEO Uber

The good old days have gone long back where you have to make calls for a taxi reservation and wait for hours for the arrival, waiting long in the streets expecting some taxi to pass by. The transportation system is so effective around the globe in major cities where the influence of a single large company has taken over – Uber. The Uber industry is now destructively disrupted by the single taxi company Uber whose business model has reached the heights where they are the highest valued venture with above 40 billion US dollars in the year 2014. Uber is known for its low cost services. Uber drivers are benefited three times than that of a cab driver. Also the spotlight falls on the regulated vehicles. These factors help the Uber to become the talk of the world and cannot go unnoticed by anyone about Uber.

Case Study on Uber Taxi Business

Do you know the business model of Uber?

Uber is not one global market but a market that consists of different local markets.

Basically a taxi market cannot be a single market. A taxi market comprises of variant segments which characterize the needs of the customers. According to the Institute of Transport Economics there are four segments like street hail, rank stand, pre-book, contract. Well the Street hail and pre-book is practiced by Uber in the business.

Street Hail – serves the customers who need taxi at the moment which are termed flaggable taxis. Its is insignificant that totally depends on the demand and supply of customers and taxis respectively. Also to be noted that when the taxis are undersupply then there is a good chance for bargaining power.

Pre-Book – serves the customers significantly by match making where the utilization of taxis is increased extremely matching the supply and demand. Drivers utilizations are more profitable by this method and customers are served at low costs. The equilibrium of demand and supply is maintained by the pre booking strategy where the customer books a taxi using a mobile phone to the supported system in the market.

Uber is not a taxi operator it’s a match maker who helps operators increase capacity utilization.

The success of Uber lies on the customers – returning customers. The strength of a taxi business is the customers more specifically the return customers who returns to them for service frequently. People find it more convenient, easier and less costly.

Unfortunately a number of taxi companies are disrupted by Uber like Lyft, HailO etc. Though the share of pre-scheduled rides differs hugely city by city, Uber tops the list in the services when compared to other service operators in the Uber industry.

When there is no other dude in the car, the cost of taking an Uber anywhere becomes more cheaper than owning a vehicle. So the magic there is, you basically bring the cost below the cost of ownership for everybody, and then car ownership goes away.” Travis Kalanick, CEO Uber

Lyft Analysis:

Lyft found in San Faransisco which is basically a peer to peer sharing mobile app which aids the drivers who owns a car themselves and who loves to drive for people around and make money out of it. The customers can book through the mobile app which the available drives in the specified location will accept the ride for the customer. By may 2015, Lyft made an investment of $150 million at a $2.5 billion valuation. Disastrously 60% of the revenue is drained on the marketing and user acquisition. Lyft has recorded $130 million revenue in 2014 and at the end of this year by an investment round Lyft projects $796 million.

HailO Analysis:

HailO is the well known taxi hailing service of London. HailO owns iOs and Android app for booking a black cab with just a click on the pick me up button. Controls over 1700 licensed black cabs drivers of London. The main rival of HailO is Uber in London. HailO is also available for the services in Manchester, Leeds, Liverpool, UK. The company features the integrated API with book a table to ease restaurant taxi bookings.

Pros’s And Con’s Of The Uber Industry:

Pro’s

  • Customers – The e-Hail app users can book a cab from spot at ease with the T Technology. Customers can rate the drivers after the ride which enables the safety concerns in the system. Now go cashless where the payments are done online which are integrated with the system.
  • Drivers – Drivers are privileged by the freedom and flexibility where they can drive their own car and drive when they feel like (i.e) not necessary to be a full time employee. Drivers also can give feedback if the passengers for a rude or disruptive passenger from refraining them to ride in the future.
  • Industry – Uber and the challengers have transformed the Uber industry between Yellow Cab Taxi and Black Car or Limousine service. Uber emerged with the benefits of both the Yellow Cab Taxi and Limousine service at low cost. With unlimited fleet of cars, best standard of service with verified drivers and cars goes with these companies.

Con’s

  • Customers – endures to pay by the Surge Pricing / Prime Timing Pricing which relies on the demand and supply. Privacy concern is an alarming problem as any citizen can enter to play the service provider role.
  • Drivers – Despite the privileges enjoyed by the drivers there is one major issue faced which is the low income. Major cause for low income is the factor that the service at low cost.
  • Industry – Even though the Uber, Lyft and other e-Hail services provide the best and cheapest services with much luxurious and limousine cars the stress is dumped on the drivers. Another weakness is that these kinds of business models can be easily imitated. No bonding between the company and customers in this unpredictable business model. Also there is a drop in taxi and black car prices.

The Uber industry can revolutionize in the suburban areas where the taxi services are unknown or non existents. Making it to the point, other than the taxi point to point service the add ons like dropping of patients to the hospitals, children to school and pets to vets can also be implemented. For a productive taxi business, the cheap cars can also be used. With increased number of taxi drivers the ETA can be reduced which enhances the business revenue in total. The point to be noted is the new legal regulations which when not considered seriously will lead to banning. A notable threat to Uber Industry are the self driving cars which eliminates Uber.