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Cab wars: the unstoppable rise of Uber

Cab wars: the unstoppable rise of Uber

Cab wars: the unstoppable rise of Uber

A couple of years ago, few people had uttered the words “Shall we get an Uber?”. Now it’s the phrase on everyone looking to get from A to B’s lips. But can anyone now stop it, asks Jon Axworthy

Paris, in the depths of winter. Snow lays thick on the ground, leaving two men – Travis Kalanick and Garrett Camp – stranded and desperate for the warmth and convenience of a cab. The Americans weren’t tourists, they were two start-up multimillionaires and the only thing they needed more badly than a cab was a revolutionary business idea.

And, suddenly, they had one.

The entrepreneurs returned to San Francisco and two years later launched UberCab, an app-enabled, push-the-button taxi service. Just over five years on, the rechristened Uber now operates in 300 cities and has a reported valuation of $50bn, making it the most valuable start-up in the world. The company claims 20 per cent of a driver’s earnings and revealed it has 162,000 drivers in the US alone, with numbers doubling every six months. This is probably why it’s forecast to generate $10bn by December.

Of course, it’s not hard to get a cab in Paris these days, as the city that inspired Uber became its first expansion location in 2011.

The French capital quickly became one of its most successful markets outside the US, alongwith London, whose streets Uber invaded in June 2012.

And to call it an invasion is no understatement, because to impact on the global licensed taxi business, the company has had to plan its strategy with military precision and carry it out with ruthless efficiency. This is ‘disruptive innovation’ at its finest, where a business finds a unique way to unsettle an existing market. 

Tactical manoeuvres

Whether that market is the 13,250 licensed cabs in New York, or the 24,000 on the streets of London, what they have in common is fixed supply and demand, determining the price of your journey.

“Uber lands on a city and quickly sets up an operation around the licensed taxis that are already there,” reveals Bill Harris, an Uber driver in Los Angeles. “Our flexible supply and demand means much cheaper rates, so you just eat the established industry alive.” 

This aggressive business model worked well for the company as it expanded rapidly out of California, with only a handful of US cities registering lawsuits against unlicensed Uber drivers, who they said were operating illegally. However, the model didn’t legislate for the more established European taxi industries. Protests at the company’s incursions were staged on London’s most high-profile streets in April and June 2014, and again in May this year; with massed ranks of black cabs bringing traffic to a standstill.

In mainland Europe, Parisian cabbies blockaded roads and burned cars. The anger spilled over into violence when it was reported that Uber drivers had been lured to isolated spots and assaulted. 

Such flashpoints have certainly made EU governments sit up and take note of what’s happening on their cities’ streets, and Uber has been hit by court injunctions in France, Germany, Spain, Belgium and the Netherlands.

To cope with the controversy, the company has maintained Kalanick’s obsession with transparency, going out of its way to ensure people always know what it’s up to. This has applied to everything from net revenue to its ‘surge pricing’, which increases fares during peak times. Kalanick even posted a video of himself, explaining the best time for people to ride on New Year’s Eve to avoid the surge.

This culture of transparency extends to Uber’s newly commissioned 420,000sqft San Francisco HQ, where massive glass panels clad two high-rise buildings, connected by three glass walkways. The public can look in
to see how they work.

The building serves as a statement of intent: that Uber isn’t going anywhere and its growth is unprecedented. Astonishingly, there was a period where the company’s service was becoming available in a new city every day. 

Rival businesses

Uber secured global footholds by targeting cities with vibrant nightlife and inclement weather: two of the main ingredients needed for high taxi demand.
But Uber’s rise has not been entirely unchallenged.  London alone has seen the rise of the homegrown Hailo, along with Russian start-up Wheely – but neither have been able to halt Uber’s charge.

“The word-of-mouth marketing of Uber has been key,” says Ross Sleight, chief strategy officer at app developer Somo. “Because it comes with influence attached, it is highly persuasive and doesn’t feel like marketing to customers.”

Ultimately, though, Uber seems to be winning because of what many have, politely, called Kalanick’s “bold” business acumen.

Kalanick himself has referred to the attitude as, “principled confrontation”. 

And, currently, his gaze is focused on Asia, where many of the incumbent taxi industries are fiercely resisting Uber’s presence. This doesn’t worry Alex Czarnecki, a senior ‘Launcher’ at Uber, whose job is to follow the company’s “launch playbook”, the blueprint for how they take on new markets: “Each Uber city starts the same way, whether it’s Shanghai or Kuala Lumpur. I will team up with three local founders, an operations manager, a marketing manager and a general manager, who crafts our local business and policy strategy. As soon as all three members of the city team are on board – and we’re currently hiring in more than 200 cities – the Launcher heads to the next city.”

Crucially, Kalanick’s goal for any Uber launch is to get big, quickly, so that competitors and governments think twice before trying to take them on, or legislate against them. He learned this hard lesson early on, when he dropped out of UCLA to found the search engine Scour, only to have lawsuits brought against it for copyright infringement, killing the venture stone dead.

He has talked of the latest challenges to his business, from ride-sharing app Lyft in the US, to the burning tyres of protest in Europe as “disruptions”, that Uber is an inevitability and, no matter what is thrown in its way, normal service will be resumed. 

“We’ve had cities that took longer to reach, but after a few months it’s the fit for drivers, riders and policy-makers which determines a city’s trajectory,” continues Czarnecki. “To find that fit, we identify each city’s transportation pain points, for example convenience or safety, and adapt to help solve them.”

Right now, Seoul is one of the company’s biggest headaches and the major “pain point” is the fact that ‘for hire’ transportation is legal, as long as the passenger is not Korean. Earlier this year, Uber was forced to suspend its UberX service in the city because they couldn’t find a way around the problem, although they have vowed to return.  

In China, there are two entrenched taxi-booking apps (Kalanick refers to them as “clones”) that managed to launch before Uber could get there. And each is backed by one of the country’s two biggest internet companies. 

But Kalanick, doesn’t seem daunted by being late to the party. In 2013, he held a two-week summit in Beijing for his top executives, where they thrashed out a plan that left nothing to chance: reliable payment methods, licences and map data. Kalanick is the start-up kid with the odds stacked against him once more, and it’s clearly a challenge that he relishes. After all, he’s been here before, and there are 50 billion reasons to think that he’ll succeed again.

The case for the London cabbie

The humble Hackney Carriage driver has had it rough of late. Choking London traffic, abused by the Mayor and now Uber. What is a cabbie to do? 

“It took me four years to get my badge,” says Ian Beetlestone, who’s been a London taxi driver for two and a half years. “I covered 20,000 miles on a scooter, memorising hundreds of runs, locating thousands of streets. It was the hardest thing I’ve ever done.”

This is what it takes to learn the 25,000 streets, 20,000 landmarks and 320 routes within a six-mile radius of Charing Cross that make up The Knowledge – the topographical test that every London cabbie must pass to get a licence.

However, recent figures from Transport For London show the number of would-be drivers studying The Knowledge fell from 3,326 in 2012, to 2,159 in 2013. Coincidentally, 2012 is the year Uber launched in the city, and the London taxi has been on a collision course with the Uber cab ever since.

Tech war

The root of the problem lies with the drivers’ differing boxes of tech; the smartphone with the Uber app vs the taximeter. Passing The Knowledge earns drivers the right to one in their black cabs, and it means they should always know the quickest route to the destination, without a satnav.

“We can start driving as soon as you get in,” says Beetlestone, “there’s no faffing around on a satnav and our eyes are always on the road. London is no place to be driving distracted.”

A recent survey by road safety charity Brake found one in seven drivers admit making risky manoeuvres to correct satnav errors, while one in 14 have narrowly avoided a crash from being distracted by their GPS.

According to Travis Kalanick, there are 15,000 Uber drivers in London, and rising, so its streets might get more dangerous. This has even prompted Boris Johnson to propose a mini version of The Knowledge for Uber drivers. 

The taximeter might be good for safety, but it’s also the reason why Londoners would often rather push the Uber button than hail a cab. Many think there’s a good reason black cab drivers call passengers ‘fares’ – walking pound signs with a waving hand. Beetlestone doesn’t see it that way: “That marvellous feeling of sticking your arm out and hailing a cab is a quintessential part of city living. It makes you feel like Don Draper.”

The surge

What many customers don’t realise is that the taximeter tariffs are not as discriminatory as Uber’s “surge pricing”, which not only pushes prices up at peak times, but also during big events, or even when it’s raining. During last week’s Tube strike, Uber rides cost up to three times the usual rate. Uber claims this affects less than 10 per cent of all trips, and most of the time UberX is still 40 per cent cheaper than a local taxi.

People’s perception of the new cabs was represented in Uber’s recent YouGov Value score of +7, recording whether people think the service is good value. This was in spite of a Buzz score of -7, which polls based on whether people have heard something positive or negative about a brand in the last two weeks. It suggests that no matter how much bad press Uber gets, its customers still think the service is good value.

“Uber is here to stay, so black-cab drivers must respond in kind,” says Christian Wolmar, a transport analyst running for London mayor. “They need to develop their own app and improve their service in the London suburbs, or more and more of their business will be eroded.” 

However, classic cabbies can rely on some passenger groups: “I’d say 50 per cent of my passengers are tourists,” reveals Beetlestone. These are the cabbies’ aces in the hole. They want a Hackney Carriage because it’s a mobile monument, as iconic as Big Ben. And, according to the latest figures from the Office For National Statistics, more tourists are now visiting London than ever, more than 46,000 a day; all looking for a famous black cab.

So it seems the yellow lights are in no danger of going out along the city’s famous streets, but in the ratruns and backstreets of the boroughs, the battle has only just begun.

(Image: Rex)