Taxis bring a violin to a gun fight with Uber

Today Swan Taxis “fired the first salvo” in the fight against Uber in this article which was part resume, part press release.  But from a business model and strategy perspective, Swan Taxis who have an amazing 90% market share are not even bringing a knife to the gun fight with Uber. They are bringing a violin hoping for sympathy from a public which has long been tired of the inefficient model. And the reason the model is broken is not Swan Taxis, the Government, drivers or even the passive plate investors. It is the industry legacy. Because legacy is the enemy of good strategy.

Drivers

For many years drivers have faced verbal & physical abuse, complaints about availability, cleanliness and their ability to navigate to even the most prominent locations. Yet most drivers live on the poverty line and lease the taxi from plate owners, having to pay fixed fees of around $1,500 per month or in other states a split of revenue.

What they can do?

The drivers have a strong incentive to buy a car, move to Uber and avoid the Government legislated fees.

Plate owners

taxi queue

Taxi Queue

The middlemen in the industry buy taxi plates and lease them to drivers. They have invested into a Government legislated scheme, and expect a return on that investment. The second hand cost of taxi plates on the grey market has increased from $217k in 2008 to $294k in 2015 offering a return around 5%. Because plate owners see the taxi as a passive investment, and drivers see it as a low paying job, there is little incentive for either party to give the customer what they need; clean, well maintained taxis. When Garrett Camp and Travis Kalanick founded Uber in May 2010 it was because they were stranded and couldn’t find a taxi, a regular problem in San Francisco. They recognised a major need could be solved by finding a way to get users from A to B with the least overhead and most direct connection to user rated, willing drivers.

What can they do?

The plate owners can lobby the government to legislate (further) against Uber. Unfortunately this is likely not in the customers best interests and the high prices paid for a taxi is partly to blame for the high fees paid to plate owners. Despite the high number of adverts for investors wanting taxi plates and a restricted government regime, it seems unlikely that plate owners won’t ultimately suffer losses with the continued global rise of Uber.

 

Government

The Government uses regulated taxis to fill the gaps within the public transport system and provide revenue. Of the approximate 1,200 private plates with an estimated value of $294k each, and a total value of circa $352m the Government can not afford to buy back all plates. However because it has created a Government protected investment, there is an expectation from investors that they will be protected by legislation from Uber. Today there are 502 rideshares listed in WA on the classified website Gumtree. The law states that it is illegal to charge a passenger without a taxi licence and these rideshares are often awful close to that law from a technical perspective.

What can they do?

It seems unlikely the Government will be able to prevent the growth of Uber and similar ride sharing companies. The success as mentioned earlier is simply because it meets the need of the client within a broken model. As they can’t afford to reimburse licence holders it is most likely they will allow market forces to devalue the price of grey market taxi plates as less people use the service. Unfortunately this means taxi drivers will earn even less and significant numbers of investors will lost their money.

Swan Taxis

Finding themselves in the unfortunate position of defending a legacy industry with the new kid on the block offering fast response, clean cars, user rated drivers and UberX fares approximately half the cost, Swan Taxis have very little option but to defend the status quo. They are married to the middlemen (plate owners) and obtain their value from the system remaining as it is. Their current tactic is effectively technology (a new “sleeker, sexier” app) and they are fighting a Silicon Valley tech company with $5.9 Billion in its war chest and a $48 Billion valuation. The other tactic they are using? Selling uniforms are the Vic Park depot to try and encourage the 50% of drivers who don’t wear a uniform. Sometimes indeed truth is stranger than fiction.

The problem is they are fighting using tactics when Uber has a killer strategy.

What can they do?

Even if the new app turns out better than Uber’s and they are able to get 100% of taxi drivers to wear a uniform, cars are clean, drivers are friendly and they actually arrive within a reasonable time (10 minutes), UberX is still half the price. The reality of todays economy is that every company is now a tech company. The only question is who in the industry will use tech best to win by giving the customer what they need. Uber are a tech company who operate an app. Swan Taxis are a transport logistics company. The core competencies are vastly different and the Uber strategy and core competencies simply aligns better with the customers need. The only chance I can see that Swan Taxis can retain at least 50% of their market share is to immediately and dramatically change who they are. This must include divorcing plates holders to bring pricing closer to Uber’s, and removing all components of the business which do not directly add value to the customer.

It’s not impossible, but the legacy of the taxi industry makes it highly unlikely that the incumbent monopoly player will innovate its way with a new strategy to beat Uber. This is because legacy is the enemy of  a good strategy and the taxi industry has a bloated, dysfunctional legacy which hasn’t given the customer what they need in a long time.

 

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