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IN FOCUS |
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by Matthew W. Daus, Esq. |
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by Brook Taye |
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From New York City to the Australian Outback, in big and small cities, in developed and developing countries, technology enabled transportation companies are proliferating. We often receive inquiries from businesses and regulators from all over the world who are trying to understand the transportation app phenomenon. They are all trying to level the playing field through legislation and rules before illegal apps enable - literally everyone - in any country to evolve into an illegal taxi service.
The main antagonist in most international markets is Uber. Uber appears in many forms including UberPOP, usually referred to in the U.S. as UberX. In its quest to dominate the global transportation market, Uber has attempted to expand to all major countries in the world applying the same strategy it has used in much of the U.S.
Uber flaunts local regulations cutting its rates below what taxicabs charge. When the going gets tough and regulators respond with a serious measure against illegal Uber operations and in order to shield itself from lawsuits, the company either:
High level discussions among regulators, especially in developing economies that face a severe shortage of infrastructure and, as a result, suffer from pollution and traffic congestion, is directed to understanding the Uber market entry strategy and how to limit or stop its illegal operation. In cities where taxicab supply is abundant and drivers' incomes are staggeringly low, Uber is exacerbating the problem by increasing the vehicle pool and skimming the high end customers that drivers rely on for their income.
The answer to the Uber problem varies from jurisdictions to jurisdiction and depends on the quality and strength of the local for-hire vehicle industry. However, one thing that is becoming apparent is that, in many cities around the world, Uber's global expansion strategy is not working in the same easy manner that it did in the United States.
Uber does not take into account local laws and regulations and specific regional peculiarities that emanate from the unique culture, business etiquette, and the regulatory philosophies of other countries. As a result of the lack of planning and Uber's "cookie-cutter" approach, there are mounting lawsuits being filed against Uber. Local and regional competitors are reducing Uber's market share or precluding its gain. These challenges even force Uber to cuts its rates even more to keep its passengers.
In Europe, there was a rude awakening for Uber when cities started to observe a spike in illegal operation and the undoing of years of hard work. This hard work included the implementation of environmentally friendly transportation policies, such as dedicated bike lanes and the expansion of public transportation systems that helped reduce vehicle ownership and use.
The introduction of the UberPOP service in many European cities single handedly overwhelmed their small and narrow roads with thousands of un cars. These vehicles compete for fares, stealing street hails from licensed taxicabs that pay hundreds of thousands of Euros to obtain a taxi operating permit.
The French government, pressured by striking drivers that were dismayed by the ease to which Uber was recruiting anyone with a vehicle and a drivers' license to be part of the UberPOP service, started investigating the company. This lead to a lawsuit against Uber and its two local general managers.
The lawsuit alleges that the general managers are complicit in participating in an illegal taxi operation. The lawyers for different taxi union groups, associations and drivers seek over $100 million in damages. The trial is now concluded. The Paris court is expected to announce a verdict by June 2016.
The court could impose fines that may cost the company millions of dollars and even a complete ban from operating in France.1 Uber also faces strong competition from local and regional transportation apps that operate under the law and which are taking advantage of the growing appetite of passengers for app based transportation.
BlaBlaCar, a French startup that focuses on long distance carpooling, has been expanding in Europe since 2014 and successfully raised $200 million in a new round of funding. This increased the valuation of the company to over $1.5 billion. 2 Other apps, such as Chauffeur-Prive3 and LeCab 4 are well funded Parisian competition for Uber that provide their services with thousands of licensed vehicles and drivers in the country.
In London, Uber has been sued by the iconic black cab drivers and their unions, and by Uber's own drivers, for multiple failures by the company to abide by transportation regulations and alleged violations of workers' rights. The Uber drivers' lawsuit alleges that the company has underpaid them and that drivers should be classified as employees rather than independent contractors exposing a dark side of the company.5
The London taxi and private hire regulators have also introduced new proposed legislations that could potentially restrict the uncontrolled overflow of private hire vehicles into London. It is estimated to have increased by 50% since Uber entered the London market.6
Uber is also facing a growing challenge from local competitors that have been in the market for many years and which are now deploying their own localized apps includes black cab drivers that are partnering with apps such as Gett to accept electronic hails.
The Gett app, created by an Israeli-based company with over $220 million equity funding7 has gained ground in the black cab hailing market. It has enabled the black cab industry to win back passengers that demand the convenience and seamless process of app based transactions.
In Spain and most German cities, Uber has suspended its illegal operations as a result of a court order which also threatens the company with severe fines for non-compliance with the order. A Spanish court ruled that Uber drivers are illegal operators that "lack the administrative authorization to carry out the job". It classified the UberPOP service as "unfair competition." It imposed a fine of up to €100,000 for Uber and €40,000 for its drivers.8
As a result, passengers have now turned to legal taxi hailing apps like Hailo and mytaxi, as well as Cabify. In Germany, a court imposed a nationwide ban on Uber and its UberPOP service for violation of the passenger transport law indicating that drivers lack authorization to provide such services.
The ban included a fine of €250,000 for each violation by Uber that forced the company to suspend its operation in many German cities.9 Uber is also facing a significant market loss as a result of the proliferation of legal apps in Germany which includes mytaxi, a company that has raised over $13 million in seven rounds of funding.10
Other local and regional apps, such as Wundercar, BlaBlaCar, and Blacklane have strengthened their market share by introducing creative and localized for-hire vehicle services with car sharing component.
In Russia, the Russian Internet search engine giant - Yandex- has developed a taxi e-hailing app that started working well before Uber made it to the country. The company is connected with over 15,000 taxis compared to Uber's 3,000 taxis.11 As such, Uber's presence in the market, which is also being pressured by the Gett app's success, is more symbolic to the company's ambition of world domination in the transportation app sphere than a sound revenue generating strategy.12
Universal taxi apps and a new aggregator model are in the horizon which will necessitate Uber to adjust its business model to survive as a legal operator.
In most South American cities, Uber is being squeezed out of the market by the regional app, Easy Taxi, which is expanding into 30 countries with over a $77 million war chest 13 courtesy of a German investment group. Drivers and regulators in most cities of South America have shown a strong push-back to unregulated and illegal operation, with drivers often demonstrating their anger by closing down city streets.
To date, Uber's biggest challenge in the world has come from Southeast Asian countries that cracked down on illegal operation by Uber drivers and, as a result, there is now a proliferation of local and regional apps that are dominating the market.
In China, Didi Kuaidi, Uber's biggest rival, is the result of a merger of China's two biggest transportation app companies, Didi Dache and Kuaidi Dache with combined valuation of over $6 billion.14 The company announced that it booked 1.43 billion rides in 2015 alone which is 1.5 times more than what Uber managed to book since its inception in all its markets.15
According to many reports, Uber is losing $1 billion per year in China, unable to gain the momentum that is enjoyed by Didi Kuaidi. To add to its worries, Uber is also under investigation by various Chinese cities for running unlicensed operation putting its future in the country in jeopardy.16
In India, a case involving an Uber driver who raped a passenger and who was sentenced to life in prison 17 has delivered a major dent to Uber's strategy for the region. Although the full ban on Uber services is lifted now, the public relations damage suffered by Uber is evident in its loss of market share to a local app called OlaCabs.
OlaCabs has amassed a 70% market share and successfully raised another $1.6 billion from powerful investment firms in the region.18 The Chinese app, Didi Kuaidi, has also invested an estimated $50 million in OlaCabs to strengthen the company's position and create a synergy that will enable booking in various platforms.
In South Korea, Uber's illegal operation suffered its biggest blow when authorities passed legislation banning unlicensed drivers from providing taxi services in a nationwide prohibition.19 South Korean prosecutors have also indicted the founder of Uber, Travis Kalanick, for operating an illegal taxi service in the country forcing the company to suspend its illegal operation. 20
The glut of legal problems faced by Uber has allowed local taxi app, KakaoTaxi, backed by the $7 billion dollar tech company - Daum Kakao - to enter the market and expand its coverage to one-third of the country's taxi drivers, and provide over 2 million bookings in just two months since its establishment. 21
In Africa and the Middle East, Uber is facing stiff competition from local apps and growing opposition from taxi drivers and regulatory challenges. In Kenya and South Africa, Uber drivers faced a backlash that turned violent forcing regulators and the police to step in to mediate the problem. 22
Uber's drivers in South Africa are also protesting, angered by the company's decision to cut prices to stimulate demand at the expense of drivers.23 Competition from Easy Taxi is also forcing Uber to adapt to market realities, where Easy Taxi is gaining ground by introducing a better driver vetting system to lessen the impacts of driver related incidents in cities with record high crime.
In Dubai and Abu Dhabi, the Middle Eastern local app Careem is carving out a strong market share cognizant of the market peculiarities and customs of the region.24 Despite Uber's price cuts in Abu Dhabi and Dubai to a level that is unsustainable for the long run, competing apps are staying out of the price war that is pitting Uber against the local regulators that impose minimum fares for for-hire vehicle services.25
In Australia, Uber's legal wrangling consists of the company's failure to collect appropriate taxes and its expansion to the six states of the country with its UberX model which are deemed illegal in 3 of the states.
In Queensland, despite UberX being illegal, the company has been providing service and racking up over $1.7 million in fines to its drivers.26 Local taxi companies have also started challenging Uber's illegal operation in the courts and in the market place. The country's major taxi companies have now set up a new app called iHail that will enable passengers to utilize taxi booking service across multiple taxi firms.27
The current state of the transportation app market in the world indicates that Uber is being challenged by well funded apps that are better suited to respond to local demographic challenges and demand preferences. Uber's flagrant disregard of local laws and regulations and its anti-competitive price cutting strategies have angered regulators and even its own drivers.
Uber's global expansion strategies as a cheaper alternative to taxi are not sustainable. When considering the amount of money Uber is hemorrhaging It will be difficult for Uber to remain relevant under these conditions. 28
In 2014 alone, the company lost $237 million, up from $31.9 million in 2013, on international expansion.29 It seems competitors are aware of the unsustainability of Uber's pricing model and are focusing on cultivating their vehicle and driver pool. They are anticipating that when the true cost of taking an Uber ride is revealed, the company will lose most of its passengers as fast as it is managing to attract lawsuits all over the world.
The end game for Uber and the various competing apps will be determined by the result of the lawsuits and final determinations of the regulatory consultations that are taking place in many jurisdictions. However, one thing is very clear. Uber is not the only app on the block with the financing to take over the world. Other apps are learning and growing to meet not only the Uber challenge, but also the changing appetite of for-hire vehicle passengers.
While Uber continues to face progressing and proliferating litigation in the U.S. that may halt or modify its business model, well financed start-up competitors smell blood in the water and are about to launch in Uber's largest city - New York.
Aggregator app Karhoo has reportedly raised over $250 million and signed up more licensed for-hire vehicles in NYC than Uber overnight. They will help passengers locate the nearest vehicle or cheapest fare while maintaining many independent bases in the marketplace and promoting them and other apps. 30
Meanwhile, the founder of Viber has turned his sights to a new transportation technology app - Juno. This well financed entity seeks to attract drivers from Uber enticing drivers with stock ownership in the company and with a larger percentage of each fare.31
Also, in the traditional taxi app market, acquisitions and/or joint ventures or other business arrangements or alliances involving three of the leading taxi apps, may piggyback on the extensive infrastructure network of credit card and T-PEP units from New York City which is replicated around the country. This includes the Verifone's acquisition of Curb (formerly Taxi Magic) and its launch of Way2ride, along with the integration of Creative Mobile Technology's with Arro.
At the same time, cities such as Chicago and the District of Columbia are moving forward with universal apps to compete with Uber by placing all taxicabs on a platform to use one or a few apps. There is opposition and shifting in the marketplace, and even back in the U.S., it is far from over for Uber.
Coke has a Pepsi, and it is just a matter of time before a handful of other competitors will provide the yin to Uber's yang. Uber is Coke, and its special formula is being changed or is simply not to the tastes of certain markets. As such, one of the aforementioned apps may be its Pepsi, Doctor Pepper or a new brand with the same fizz, but without the flat aftertaste from the litigation and regulatory challenges around the world.
