Ride-share changes the game

Game-changing innovation in car hires

By Roopen Roy Jun 11 2014

Tags: Op-ed


DIAL A CAB: An Uber Japan employee holds an Apple iPhone 5s showing a map on the Uber application for a photograph during a demonstration in Tokyo, Japan

After the horse carriages went out of business, private automobiles and cabs have been dominating the roads in the west. But today, an innovation has arrived which is about to turn the existing service delivery model of the taxicab business on its head. It is also triggering a rethink on whether it makes sense to own multiple personal automobiles.

During my recent stay in Seattle, I used Lyft (www.lyft.com), a transportation network company, for the first time. After Lyft, I used its more well-known forerunner Uber (www.uber.com) and then used them inter-changeably. Here is how the business model works. Both ‘ride-share’ companies have a GPS-based app which you can download on your smartphone. If you are at a restaurant, at home or at a street corner, you tap the app on your smartphone to request a ride. The app identifies the nearest driver. It tells you the name of the driver and shows his and his car’s photograph. It also tells you approximately how many minutes away your driver is. You can actually see the car approaching you on your phone’s map until the car arrives.

When you have finished the trip, the app automatically charges your saved credit card. You do not have to carry cash, or worry about whether the cab driver has change making it easy and convenient. The receipt for the ride comes to your e-mailbox. The driver works whatever hours he or she wants to. Layers of middlepersons are eliminated and overheads slashed.

Uber is better known internationally. It was set up in San Francisco with $ 300 million of venture funds. It has spread in many cities including Bangalore and Hyderabad in India. Uber typically uses classier cars. It offers different types of vehicles including black ‘town cars’ and SUVs. Businessmen and professionals extensively use this service.

But both Uber and Lyft are facing severe pushbacks. A recent report claims that “Uber has been banned in Ann Arbor, investigated in San Francisco, outlawed in Brussels and protested in Milan. Soon it faces a 10,000 cab roadblock in London.” The traditional taxicab companies are crying foul. They are filing lawsuits and petitioning the governments to stop both Uber and Lyft. Despite the groundswell of support from customers, the taxicab companies are succeeding in placing hurdles.

In the state of Virginia, the department of motor vehicles (DMV), which has 8.2 million residents, has fined both Uber and Lyft more than $35,000, alleging that they were operating without proper permits under Virginia’s passenger carrier laws, which the state says applies to “any business that receives compensation to provide or facilitate transportation”.

However, Uber has fought back. It contends forcefully that its business is based on ride-sharing and it is doing nothing but simply “connecting riders to drivers”. The state of Virginia has issued “cease and desist” letters to both Uber and Lyft. While going to the court against the action of the regulator, the two companies have also appealed to their satisfied customer bases.

Uber, for instance, has issued the following statement: “Uber has been providing Virginians with safe, affordable and reliable transportation options for months and has continued to work in good faith with the DMV to create a regulatory framework for ridesharing. We look forward to continuing to work with the Virginia DMV to find a permanent home for ridesharing.” The message is loud and clear. The firm is prepared to adapt and modify, but they are not prepared to ride into the sunset in silence.

Lyft’s statement is more curt and defiant and it says that it is already in compliance and expects a two-way movement on the policy front. Their statement says, “We’ve reviewed state transportation codes and believe we are following the applicable rules. We’ll continue normal operations as we work to make policy progress.”

Some of the taxicab operators may be fuming but others are breaking ranks and joining rideshares. I engaged in conversation with several Lyft and Uber drivers in Seattle. A number of them told me that they were former taxicab drivers. They switched because they preferred the freedom, flexibility and informality of the operating model. Despite the din and noise, markets are signalling the survival of a business model that the smart-phone ecology has spawned.

The co-founder and CEO of Uber, Travis Kalanick announced only last week that investors are pouring another $1.2 billion into Uber in a funding round that values the five-year-old company at $17 billion. The savvy investors are putting their money where their mouth is. Smart money believes that Uber and similar ride share companies will not vanish because of the action of angry taxicab drivers. On the contrary, the brick companies — in this case the taxicab companies — may embrace the new technology and the ride share companies may accept some regulation creating a new click-and brick universe.

The argument of the rideshare companies goes far beyond being a cheaper, faster, better alternative to the taxi. It has a compelling argument against owning highly underutilised assets, that is, buying an expensive car to drive to work and keeping it in a high-priced parking lot for nine hours.

Kalanick doesn’t just want to give you a ride when you don’t have your car. He wants you to forget your car. “Our vision is to offer a way for people to get around cities without having to drive a car,” Kalanick told Bloomberg Businessweek. “If you can make it economical for people to get out of their cars, or sell their cars, and turn transportation into a service, it’s a pretty big deal.” Hear, hear.

(The writer is managing director of Deloitte Consulting, India. These are his personal views)