Taxi Wars!

As mobile apps begin to transform the operational and financial foundations of the taxi business, fleet operators fight to preserve their tradition...
David RosenbaumMarch 13, 2013

Tiffany “Topcab” Mitchell, who co-owns and manages Top Cab & City Cab, Boston’s largest taxi fleet, with more than 500 cars, began getting phone calls almost every day last year from entrepreneurs pitching mobile apps for hailing cabs. Call it e-hailing.

Students from Harvard, MIT, and Babson wanted to show her their business plans. Hailo, a smartphone-based network for cab drivers, called Mitchell, as did Uber, which specializes in limousines and is expanding to taxis. But Mitchell doesn’t like limousines (“Black cars take money away from cab drivers”), and she didn’t like the use fees both Hailo and Uber charged passengers. “Our rates are only what’s on the meter,” she says. “Maybe that extra fee would cut into our driver’s tips.”

Then Pingup sales director Justin Taylor called, and Mitchell liked what she heard.

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“It’s not just a cab app,” she says. “Cab apps are boring. Life is more than a cab. You just need a cab to get where you’re going. With Pingup, you can text to call the cab and then text to make dinner reservations. You can call the cab and text to go to the hair stylist.”

And perhaps most importantly, Pingup’s e-hailing app didn’t replace Top Cab’s VeriFone radio-dispatch service. That’s how Top Cab makes its money, charging taxicab medallion owners $27 to $39 a week per cab to subscribe.

When someone downloads the Pingup app, and uses it to hail a cab, the text goes to Top Cab’s dispatchers, who then do their job pretty much the way they’ve always done it, with the added ability to communicate with the prospective passenger by text.

“I’ve been running the company for 13 years and we’ve always done the same thing, but since we began using Pingup seven months ago we’ve doubled where we were last year in terms of pickups. That’s massive growth. We always go up, but we’ve never doubled in one year,” says Mitchell.

Industry in Turmoil
The taxi industry is in an uproar. In San Francisco last year, cab drivers filed a class-action suit against Uber, charging that it dispatches “limousines or ‘Black Cars’ that are not licensed to act as taxicabs,” and also uses “illegal metering devices.” Uber gives drivers a smartphone to take hails from prospective passengers who have downloaded the Uber app. Uber sets the fare the customer will pay by using GPS to calculate time and distance, and automatically charges the passenger’s credit card, adding a fee-for-service on top of the calculated fare. It then e-mails a receipt to the user’s phone.

Last summer the Massachusetts Division of Standards, responding to a complaint by the City of Cambridge, found that Uber’s use of GPS to determine fares was not equivalent to taxi meters and odometers and therefore should be discontinued. This month New York’s pilot “e-hail program” was blocked by the courts in response to a complaint filed by a collection of livery operators. The halt will affect Uber and other mobile hailing-application businesses such as Hailo, Taxi Magic, Sidecar, and a host of others.

And on Tuesday, Boston Cab announced its intention to file suit against Uber, alleging it was operating as an unlicensed, unregulated taxi service.

Why all the angst?

Traditional cab fleets that charge drivers for the use of the company’s radio-dispatch systems are afraid they will be put out of business if the consumer can communicate directly with the driver. The companies are afraid of being digitally disintermediated. And local governments wonder how they can regulate unlicensed providers.

But there’s little doubt that the taxi industry is ripe for disruption.

The taxi industry is “highly fragmented, highly regionalized, highly and fundamentally inefficient,” says Hailo chief executive officer Jay Bregman, who says Hailo, which now operates in 10 cities, has raised more than $50 million in funding since it was founded in London in late 2010. “Taxi drivers spend 30% to 60% of their time empty while people can’t find a taxi.”

Bregman, who emphasizes that three of Hailo’s six founders were themselves cab drivers, argues that, unlike Uber, Hailo focuses on the driver experience. “We had drivers help design a product for drivers,” he says. Putting credit cards directly on the app, he says, allows drivers to make longer, more expensive runs while Hailo takes on “all credit-card risk for transactions.”

The drivers are paid by Hailo, not the passenger. “We guarantee payments to the driver” even, says Bregman, if the passenger skips out on the fare or fails to tip. Having the passenger’s credit card stored by a third party through the Hailo app “makes the end of the trip completely frictionless, eliminating hassles at the end of the journey,” Bregman says. And, he asserts, Hailo is “delivering 10% to 30% incremental business per driver per shift.”

Hailo, Bregman argues, differs from Uber in that Uber is “primarily a black-car, luxury service. It’s now offering taxi services, but the default is still black car. Cab drivers are nervous that they might be used as pawns to draw people onto the Uber network only to be upsold to the black=car side of the industry.”

But Hailo still disintermediates the traditional taxi dispatcher from the customer. That’s where Pingup comes in.

A Platform, Not an App
Boston-based technology start-up Pingup provides a messaging platform that allows consumers and businesses to communicate with each other by texting, the preferred medium of a new generation. According to a March Pew Internet Project report, 37% of all American teens now have a smartphone. And more than anything else, they use them to text.

Among teens, texting, another recent Pew report says, “far surpasses” every other form of communication, including phone calling, social-network messaging, and face-to-face socializing outside of school. Pingup is betting that texting will remain the primary mode of communication as these teens grow up, and also that texting increasingly will be adopted by older consumers.

In late November 2012, Pingup had $3.5 million in Series A funding wired into its account by Avalon Ventures. Added to its seed money, that meant Pingup had about $4 million in the bank to begin 2013. Prior to completing that Series A round, Pingup had focused on signing up bars and restaurants and hair salons. But according to Pingup CFO Bethe Palmer, the Series A money allowed her company to “do a deep dive into a new vertical, concentrate our resources, and move quickly to establish a beachhead.” The new vertical and beachhead? Taxis.

“We work with the dispatcher,” says Pingup chief executive officer Mark Slater. “That doesn’t disrupt the industry.” The other e-hailing apps, sales director Taylor argues, are “tollbooths, pay-for-service apps. We’re selling a communication facility, a platform, not a point solution,” the CEO says.

“Taking the human out of the transaction with automated hailing ignores reality,” he adds. “The dispatcher model works. It’s not broken. Our principle is that the customer doesn’t want to make a phone call. The customer wants to hail a cab through an app.”

App Inevitability
A mobile app can disrupt any industry “where a relationship can exist between buyer and seller within the app,” says Jeff Corbin, co-founder of TheIRapp, a mobile app designed to provide company information to investors and finance executives on the go. Apps, he says, can create “self-contained ecosystems” that he believes are an ideal way to conduct commerce.

And even though the Pingup app works with Top Cab’s dispatchers, some of their work is already being automated through GPS technology and auto-message responses sent to customers.

Right now, unlike Uber and Hailo, using Pingup to hail a cab doesn’t require a credit card. But Slater says that’s probably inevitable as his company grows. “We facilitate commercial conversations; it makes sense for us to facilitate payment,” he says.

Slater believes Top Cab can introduce people to Pingup. (Top Cab now carries the Pingup logo.) Mitchell hopes to use Pingup to drive Top Cab’s growth: her goal is 900 cars. She also has a demo for a proposed reality show, “Top Cab,” starring her, that’s being pitched to cable networks.

So far, the partnership seems to be working. But the very nature of apps — that self-contained ecosystem — may bring about the fundamental change in the nature of the taxi business so many fleet owners fear.