The battle to win the hearts, minds (and the pockets) of modern commuters when it comes to their preferred taxi booking service seems no closer to ending, so what does the future hold for the UK taxi market? Jonathan Kettle, founder of Taxicode provides his views on what will happen next in what he describes as the ‘great taxi war’.
When the swords are drawn, who will break first?
Do you know something, the irony is that the first victims of Uber’s rapid expansion won’t be taxis or minicabs; it will be Hailo or Gett, or maybe even both. Looking at the information available in the public arena it would seem that Hailo and Gett’s UK loses have increased somewhat [1] [2] and this could potentially indicate that they are starting to get in real trouble. As for any business that reaches a stalemate position, it’s going to get much hard for them to raise new funds at this stage in the game. They both need to drastically cut costs and find new areas for growth to have any chance of surviving long term. We may even see Gett deciding to just to pull out the London Market altogether if it can’t bring costs under control and reverse a possible stalling in growth.
Beware the sheep in wolf’s clothing
Recently, it was reported that Uber has offered zero commission to London’s black cab drivers for a year[3]. This may sound great on the outside, but in reality I have a sneaking suspicion this isn’t as sweet a deal as it first may seem. Uber has regularly been reported in the press for giving with one hand to only take away at a later date with another[4]. When minicab drivers first started driving for Uber in London, the fares were much higher and the commission was only 10%. It’s now nearer 25%[5] and the fares have plummeted, leaving many drivers struggling to make a living. Unfortunately driving for a provider like Uber is a bit like being on a treadmill – once you get on it, it’s hard to get off. Uber would undeniably keep many black cab drivers in work but their working conditions and levels of pay would fundamentally change forever.
The aggregators
You may have heard that Kabbee recently tried to raise money via Crowdcube but sadly fell short, leaving it in a potentially difficult situation[6]. I predict Minicabster will also try to raise additional funds again this year. This would suggest that both companies may be struggling for growth and finding it hard to expand outside London. Minicabit successfully raised over £1m and is targeting £100m in revenue. My personal opinion is that the company has misunderstood its growth in 2015 and what caused it. Making projections on a similar growth level may turn out to be a major issue for them in the year ahead. 2016 is going to be much harder for them. On the flipside.
New market entrants
Karhoo is set to join the party[7], although a much delayed launch could suggest they have some major technical obstacles that need to be overcome – but this is potentially a good thing; the more innovative the solution, the better it can be for consumers and harder to copy by competitors. In my opinion, Karhoo’s main difficulty will be persuading customers to switch from someone like Uber.
Assuming the technology works well, it will come down to two things: price and availability. Just having one won’t be enough. Having Addison Lee on board will give them availability but not price. We have to hope that the other minicab companies on the network are able to collectively offer both availability and price to compete with Uber. My gut feeling is that the larger minicab companies won’t want to drop their prices as low as Uber. This will probably result in heavily publicised incentive schemes to promote using the service. This is something which all tech companies have done heavily, only to find a large percentage of customers switch back to the cheaper provider once the incentive has ended. Either way, I’m looking forward to seeing a new player in the market and I’m keen to see what they have developed. It’s important Karhoo is successful to help keep the market balanced.
The worst thing that can happen is for Uber to be allowed to become a new monopoly in the taxi and minicab market. Consumers benefit from competition and I feel we need at least five big players in the market to keep things healthy and competitive.
My predictions for 2016
- Prices will continue to fall – Uber will likely become even cheaper, cutting rates again to around £1 per mile or maybe even 90p. The problem they have is the more drivers they have the more work they need – they will try and eat into every possible piece of the pie they can get their hands on.
- Bang or Bust – One or two players will pull out, go bust or more than likely merge with another company. I can see Hailo becoming part of Gett and Minicabster becoming part of Kabbee.
- New congestion charges – TFL will take some form of action against the number of minicabs that are now causing massive congestion in the capital. The obvious answer is to cap Uber, but Uber are far too cosy with the politicians for this to happen. Instead TFL will look at it as a money making opportunity and introduce a daily congestion charge for minicabs. They will say the money used will go towards infrastructure improvements.
- Brand expansion – Addison Lee will make a big price cut and will work to create a UK wide brand. Addison Lee needs to think about the long term 5-10 year plan. In order for it to compete with Uber, it needs to become national and global, and less expensive. I expect to see Addison Lee make some big moves this year to ensure they secure the long term future of the business.
- Stalemate for Black Cabs – For the black cabs, there will be no real change. The black cab trade will continue to stagnate in numbers, its business levels remaining relatively similar. Too many of them taking cash only continues to be a big issue for me – it puts a lot of people off using them and reduces the market of potential customers. Black cab prices are also fixed by TFL, meaning they simply cannot charge less even if they wanted to (however some are willing to negotiate a fixed fee up front). I believe changes are afoot to make all black cabs in London take card without a surcharge – a change which is long overdue.
It can often be quite easy to see what is likely to happen. I’ve been in the market long enough to see problems before they arise and have watched the paths of many competitors enough to know what steps they are likely to take next. The more challenging outlook is that of what should happen (in an ideal world).
I believe the market could be radically improved if the following steps were taken:
- Uber needs a cap on drivers.
- Black cab drivers all need to take card payments.
- TFL should cut the black cab rates to help them to become more competitive on price.
- Minicab and dispatch companies should get together and create a free open platform for sharing drivers and integrating with other platforms and apps.
- Addison Lee needs to expand outside London and offer a lower cost service.
- To keep the market healthy and to protect drivers the government need to impose some new controls on how companies operate, what drivers get paid and how tax is paid.
It is clear that the battle for the taxi market is no closer to ending, but the potential for new market entrants, the likelihood of big brands reaching the peak of their growth life cycle and the increasing pressure on TFL to protect the legacy of the London Black Cab means that the next 18 months are likely to be an interesting watch and certain to include some twists and turns along to way
