We’ve all had a chance to digest the shocking findings in the Competition and Markets Authority (CMA) report into Uber’s acquisition of Autocab that they can and may access Autocab’s customer data, and that companies may not get notice if/when they choose to do so. Given a taxi companies most valuable asset is their customer base and the related big data this potentially places taxi companies in a very vulnerable position.
What we’d like to do now is move the conversation on to Uber’s objective of scaling up across the UK through partner taxi companies and what the impact of taking Uber trips through Autocab will be and how this may map out in the coming years.
In their own stock market reports Uber have openly declared that they want to own and control the markets that they operate in. What does this mean for the taxi companies in the UK?
“Uber want to scale from 30 UK cities to 300 cities and they don’t want to do it one city at a time. By taking over AutoCab, Uber can access local companies and let them scale the market for them.” – Hassan Abod, Autocab, April 2021
At the moment the taxi companies have the power, that is Uber/Autocab desperately need them to take trips so that they can achieve the goal outlined above. Our view is that once Uber/Autocab have partner taxi companies accepting trips for them then there is no going back.
Our view on how things will pan out:
All will be rosy for partner taxi companies initially, they can add the cost of the 12.5% Uber commission on top of Uber based fares. As such the Uber trips will be priced higher than the same trip on the partner taxi companies local app. Therefore there’s no cost incentive for local passengers to use Uber as it will cost more (other than when there’s Uber based marketing promotions in place).
Visitors coming to town who open the Uber app will only see one option, “Local Cab” on the Uber app and have no price to compare it to. The short term result is the partner taxi company has more trips from Uber, their local business holds firm and they need more drivers to service the additional work. Financially in the near term this will mean the company is doing better.
However, once a partner taxi company starts taking Uber trips they are fully committed. There is no going back.
Where the challenge arises is when other firms or drivers start doing Uber work in your area, and they price below the price of the initial partner taxi firm. Now if the partner taxi company wants to maintain the Uber trips they’ve been used to servicing they have to reduce their pricing. They’ll need to do this to keep the new drivers they have on board.
Once prices on Uber move below that of the partner taxi companies then price sensitive passengers will move over to Uber (particularly when incentivised by local promotions). Once a partner taxi company is losing customers to Uber, having to offer discounted prices on Uber to get them into their cars, and pay a commission to Uber for that then they are in a race to the bottom and losing money relative to where they were pre-Uber and the valuation of their business is dropping (as a % of their business is coming from a single source, with a time limited contract).
Here are the key areas that taxi companies considering taking work from Uber through Autocab need to consider:
“Will Uber/Autocab give taxi companies exclusivity in their areas to service Uber trips? If so for how long? What happens when that expires? “
We wouldn’t be surprised if Uber/Autocab were to offer exclusivity for a limited period. The question is what will happen when that period expires, see below.
“Will Uber/Autocab guarantee them that other taxi companies and/or Uber will not also service their market directly and compete on price? Will taxi companies and drivers from outside your city be able to do cross border work and offer more competitive pricing in your area?“
Uber/Auocab are publicly stating that partner taxi companies don’t need to worry about the 12.5% commission as it can simply be added on top of tariffs. However this is completely worthless once others can compete on price as you’ll have to discount the trip to win any trips, and pay the commission, the race to the bottom is on.
Our understanding is that once competing drivers and taxi companies are in the same market for Uber trips, the standard Uber approach will apply where the trip goes to the company giving the lowest price. Now we have a race to the bottom on pricing to win Uber work. Also a taxi company’s passengers will begin using Uber as it costs less than the taxi company, leading to a reduction in value of the taxi business.
If Uber/Autocab tell you otherwise and won’t give a written guarantee then it’s a worthless commitment. Even if they will give you something in writing it’s only valid for the term of that contract. What happens when it expires?
“What happens when the partne taxi company’s contract with Uber expires: Will they have an automatic right to renewal? “
We expect not. If this is indeed the case then a segment of your business (the % of trips from Uber) can only be valued on the length of that contract. The more Uber trips you do the less valuable your company is to a prospective buyer as the valuation on that segment is only as good as the length of the contract with them.
“On contract renewal what happens if you or Uber/Autocab don’t want to renew? How much business do you lose? How many of your passengers have now moved across to using the Uber app as their ‘go to’ taxi app?“
See above, the partner taxi company’s valuation will be heavily reduced.
“If and when an Uber contract is renewed – Will commissions charged increase? Will they enter the market directly? Will they allow competing taxi companies to take Uber work too? “
We believe all of these scenarios are realistic. The race to the bottom is then in full swing.
Remember, while getting the Uber UK scale up project off the ground, the taxi company holds the upper hand. Once they’ve started taking Uber work and the Uber market machine we’ve all feared for years engages fully then taxi partner companies have lost their power (as can be seen for example with takeaway restaurants and delivery companies such as JustEat, UberEats etc where they grew to depend on them and the commission rates kept growing).
Uber Trip Financial Impact Model:
This model will allow taxi companies to establish what they have to gain or lose from taking Uber work from Autocab.
Simply add in the metrics of your business in terms of number of drivers, weekly rent charged (or commision rate), the average fare and the average number of trips per driver per week.
It allows you to add in increases in business from Uber (and the number of drivers will automatically increase in line with it). You can also model out what happens when Uber starts winning your customer base from you.
Our belief is that the ability to add the Uber commission on top of trips will be short lived and that ultimately those taxi companies that were traditional competitors will also end up competing for the same Uber work in a race to the bottom and towards becoming de facto Uber fleet managers.
So we’ve started the commission rate at 12.5%, we believe this will rise over time towards the 25% that they charge their own drivers and you can tweak the figures to see what that will look like. However if as a partner taxi company you believe you will be able to charge the 12.5% commission to the end user then simply mark down the commission field to 0.
You can also contact us below to speak to someone directly from Customer Success.