Saturday, October 31, 2015

Uber vs Taxis

In the last few weeks, I've taken taxis and Uber cars, in Toronto, Ottawa and Montreal. I love the technology-enhanced Uber experience and I thoroughly dislike oligopoly-protected taxis.

I like Uber because:

  • credit card prepayment eliminates the need for cash -  leap out of the car as soon as it stops, a great benefit when time-pressed
  • the email receipt means you can't lose those expense-report receipts. It's also interesting to see how the fare broke down between base fare, distance charge and time charge.
  • a map shows the car coming so you know the car will arrive as promised
  • the driver rating system allows me to decline a driver with a low rating. So far, drivers have been unfailingly polite and the cars immaculate. Having depended on TripAdvisor's crowd-rating system for a great trip in France, I have a lot of confidence in the wisdom of crowds.
  • the fare estimate before you hop into the cab 
  • you can easily split fares, although I haven't used this yet
  • the drivers use Waze to choose best route based on real-time traffic info
  • it's cheaper: I estimate for my recent rides about 30% lower fares. Surge pricing (in effect where demand exceeds supply) does raise prices, to get more cars on the roads
Meanwhile, let me count the reasons I hate cabs. I've ridden taxis without springs. I've been subjected to noisy cabs - the staccato of a dispatcher or the driver's favourite radio station or both. I've endured the  seat belt alarm as the driver never put on his seat belt. On a ride to the Montreal airport, the cabbie spoke almost continuously on his phone. I've been subjected to aggressive cabbie protestors on the way to the Ottawa airport - thankfully they weren't totally blocking traffic that day. I've had a cabbie 'forget' to turn on the meter and then suggest an unrealistic price for the ride.  I've had my credit card refused in Montreal. I've been charged a $1.50 surcharge for using my credit card in Ottawa - a surcharge for heaven's sake, when credit card convenience is a key feature of Uber. And, of course, I've paid consistently more than when using Uber. And that's just in a few weeks.

The Inevitability of Disruption

Most industries have not survived disruption. There's an air of inevitability when incumbents are attacked. When Amazon came along, I continued to patronize book stores. I love book stores and felt very sympathetic to their plight. Yet the siren song of convenience did lure me to buy online, even while suffering great pangs of guilt. And others flocked to Amazon without my ambivalence. 

Taxis are very vulnerable right now. And I for one feel zero - and I mean zero - sympathy for the taxi industry. They have delivered poor service while hiding behind a sick regulatory environment. An industry that convinces politicians that a cab that delivers someone to the airport is not then allowed to pick up a fare - increasing congestion, carbon emissions and generating sublime economic irrationality - does not have the best interest of the consumer at heart. They are wielding their shady business practices for the sole protection of their own pocketbooks. Arguments that these firms paid a lot for their taxi licenses do not move me - so did book store owners invest a lot in their businesses, and they didn't get any help. 

I do feel sympathy for the drivers, who work as feudal serfs for the oligopoly and earn too little to realistically aspire to be Uber drivers because they can't afford a car. Ultimately both cabbies and Uber drivers are at risk of irrelevance in a world of driverless cars. Guess who's got the perfect app to underpin driverless car pick-ups.

Having missed the opportunity to revolutionize the taxi business by developing an app like Uber, they are trying to respond to Uber. Their main efforts have been protests, blockades, and lobbying. Municipal councils are trying to help by imposing rules such as in Montreal: cabbies must open the door for all passengers (just what I need when I'm in a hurry, the cabbie to get out, walk around the car and open the door for me!), must wear a uniform (as if I care how they're dressed), and must accept credit cards. In Toronto, taxis are requesting permission to reduce the base fare. None of this will keep consumers happy, although reactionary regulatory moves might still kill Uber.

It's hard for an incumbent to respond to disruption but the taxi companies are making a complete botch of it. I hope regulators find a way to allow Uber to delight consumers, while working out a reasonable regulatory framework.

For those interested, I've compiled some past responses to disruption, including both successful and unsuccessful approaches.

Responses to Disruption

Since Clay Christensen wrote The Innovator's Dilemma in 1997, it's been clear why incumbents struggle when disruptive innovation assails their industry. Many companies - in fact, whole industries - have succumbed to new disruptive business models. Such business models are often enabled by technology, they usually devastate margins, and they empower a new entrant to address the low end of an existing market, or an entirely new market. Research has shown that failure to address disruption is the single greatest cause of the demise of companies.

Incumbents struggle to come to terms with disruption because it attacks their existing business model and profits. Lowering prices, adapting to lower profit margins, shifting their focus to new customers or embracing a new business model - these are all unattractive to incumbents. Stolidly sticking to an existing business model has proved the death of companies, as dramatically demonstrated by Kodak and Blockbuster. Newspapers have badly botched their response to disruption: they recognized the digital threat way too late, and then they doubled down on the most vulnerable part of their business model, news.

But there are other approaches which have yielded varying degrees of success. Some companies wield the law or regulation.  The music companies' initial response to music downloading was to sue early users of Napster. That didn't stop online music; it's not even clear it delayed it much. Sometimes, such tactics can work: broadcast companies unleashed a regulatory blockade to successfully block Aereo's innovative video distribution technology and send it into Chapter 11 bankruptcy (later bought by TiVo). Taxi companies are working hard to maintain the protection of regulation.

When digital photography disrupted the Fuji shifted out of the film business but exploited their competencies in new chemical markets. Other companies cede the low end of the market, and continue their move upmarket to become a smaller but successful company addressing that niche market.

Another tactic has been to create an autonomous business unit operating with a new business model. IBM famously set up its PC unit in Florida, far from the constrictive confines of its headquarters in Armonk and achieved domination of the PC market for decades. By releasing such units from the shackles of the existing business model companies can liberate such subsidiaries to succeed in the disrupted industry.

Another approach is to move aggressively to a new business model within the existing company. Netflix launched streaming even though it damaged their old profit recipe and antagonized some customers. Their stunning success in streaming (36% of US TV households subscribe to Netflix of 40% that subscribe to streaming) shows how smart that aggressive and early move was. Philips has moved from incandescent bulbs to LEDs. Both companies clearly understood disruption and had read Christensen and have disproved the earlier conviction that the only path to success is through an autonomous company.

No matter how an incumbent responds, facing disruption is unbelievably challenging, and there are more failures than successes.