Following a statutory investigation by the UK’s Competition and Markets Authority (CMA), Uber’s acquisition of Autocab, our largest competitor in the UK, has been approved.
Now that we know the outcome we can stop thinking about whether it is going to happen or not and focus on what we believe it means. I’ve been very vocal about where I see issues with Uber owning a Taxi or Private Hire (PH) company’s dispatch technology, that is based around two key areas:
- potential visibility of big data and the related implications this may entail
- control and ownership of customers (passengers)
I’ve never had an issue with Uber giving trips to the taxi and PH industry as an ‘arms length aggregator’. In this model as any other aggregator can, Uber would feed trips into partner Taxi/PH companies without having any undue level of control. Several times over the years I flagged on LinkedIn that I think it would be a natural evolution for a ridehail company. That is to remove the massive costs and legal and regulatory hassles of sourcing and maintaining a driver base by becoming a pure demand generator like Booking.com is for the hotel industry. Perhaps this is something we’ll see other global taxi companies such as Ola, DiDi or Bolt try as market entry and growth strategies, that will be up to them and the traditional taxi/PH companies.
The problem I see with Uber’s acquisition of Autocab is that Uber is now both the owner of a retail technology platform, and a seller on it. Theoretically in the future – as Amazon does with retailers on its platform – Uber can compete with Autocab’s own Taxi/PH customers for the same passengers. Imagine for a minute the scenario where Booking.com was to buy the reservation booking system of Marriott International, I don’t think they’d stick around and continue to use the same system, do you? I’m pretty sure many of the smaller independent hotels would up sticks and source another booking reservation system too.
Why would the Taxi/PH industry be any different? Perhaps FOMO, that is Fear of Missing Out. Missing out on a wave of new bookings driven by an international giant who has to date been the biggest potential threat to their business, or even worse that their local competitor may get the trips instead and get ahead of them.
That a Taxi/PH company would put local rivalries and the desire to get some inexpensive new passengers ahead of the future lifespan and sustainability of their business overall is frankly bewildering to me.
The value of a Taxi/PH business is in demand, that is the customer base, the ownership of it and ability to engage and develop and improve booking numbers through that base. The data involved in that base is the foundation of that value. Through that data Taxi/PH companies can establish which customers are most valuable, which locations and routes are most valuable, how and when drivers can earn the most. They can learn how to engage with customers, make them more sticky, improve services and offerings, understand how and when to roll out promotions and loyalty programs. Whoever owns that data in any given market can conquer it.
To date Taxi/PH companies have owned their demand, been able to control it and the big data behind it. They’ve been serviced by dispatch technology companies that have no potential conflict of interest in this area as their ownership has no supply verticals (as Uber do), and have no ambition to do so either. This has now changed with respect to Uber’s acquisition of Autocab.
Historically one of the biggest inhibitors to the Taxi/PH industry working together, becoming aligned, having strength in numbers and offering a true national offering is local and regional rivalries. Many Taxi/PH companies are so determined to better or beat their local competitor that they are missing the bigger picture around sustainability of their business and future relevance. Now there’s an added risk that many of Autocab’s customers may fall at the attraction of short term gain through Autocab/Uber at the cost of the fundamental value of the businesses they’ve taken years to build up. You have to ask yourself, what is your business worth?
iCabbi has had a surge in Autocab customers signing up since the original announcement of the Uber deal. Customers who saw the writing on the wall and decided to act decisively. We’ve also had many enquiries from Autocab customers that we can’t do business with as they’re tied into lengthy contracts, which is understandably distressing for them as their biggest competitor has bought the company that holds all of their data, the most valuable asset in their business.
Then we have spoken with a cohort of Autocab customers who are worried about changing dispatch technology provider as their competitor will get the Uber trips through Autocab instead of them. All I can say to that is what is paramount to a business above all else is to retain control of your business. In this scenario you have options in the years to come. Putting short term concerns and gains first potentially comes at the cost of long term sustainability. Do you want to build up the Uber brand in your region, undo all the years of work undertaken to make yourselves a central part of your community and become a slave to Uber trips and the Uber brand?
My view is that those Taxi/PH companies that end up becoming dependent on Autocab-driven Uber trips will have lost control in their business and the value they’ve built up in it over the years. This is because Uber will be the go to booking application for passengers, and the the big data relating to them will be available to Autocab’s owner Uber and with it ownership of the customer and the foundations behind that will have transferred.
Also despite some supportive words from Uber and Autocab saying otherwise, from what I’ve seen so far there’s nothing in contract form to say if these same companies do a fantastic job in helping build the Uber brand in their area that Uber won’t just set up their own drivers in their town and channel the trips through them. Perhaps this is covered in the terms of the deal or the revised service contracts that will be provided to customers. Have you seen these terms? If you haven’t, you should be concerned.
Below is a forecast that I drew up in another article, it’s something I still believe in. Time will tell if it’s correct or not.
- The deal has gone through. At this stage the taxi and private hire companies have a degree of power and can influence the terms of engagement with Uber/Autocab. The contract terms for servicing Uber trips will be solid and fair. Indeed the terms of the contract may well lean in favour of the taxi or private hire company accepting them. Rates will be good, terms of competition clear and reasonable and the contract will be 2-3 years in length. Companies that were initially uncomfortable with the prospect of working with Uber/Autocab will see other companies benefitting (locally such as competitors, or on a national scale) and will be lulled into partnerships or forced to as they see their competitors getting more trips.
- As Taxi/PH companies begin servicing Uber trips in areas they weren’t in previously, from a passenger perspective it looks like there is more choice. It’s more convenient for out of town passengers to use one app (Uber/iGo) wherever they go in the country. Cars will be clearly marked on the passenger app as being local taxi/private hire or Uber so they’ll feel they have more options and control. Pricing will be very competitive for the passenger as Uber push to make their brand the go to booking app for taxis and private hire in the UK (except for surge pricing).
- In the 2-3 year term of the initial contracts Uber and Autocab/iGo will become more closely integrated and aligned. Passengers will find themselves defaulting to the Uber app more and more often. This may not matter too much to the local private hire and taxi companies as their trip numbers may rise. They may also have the opportunity to build up Uber’s other verticals in their local area. However they will be Uber’s verticals, not the taxi or private hire companies (they’ll manage and service them). This will increase their reliance on Uber. Side by side with that, slowly but surely the % of Uber trips to self-sourced trips will change and the taxi and private hire company will depend on them (imagine a business where 50-75% of trips are coming from Uber).
- 2-3 years later, at the point that the initial contract the Taxi/PH company signed to service Uber trips through Autocab is due to expire and is up for renegotiation, Uber have achieved their initial objective of getting their brand and app used right across the UK. The partnering taxi or private hire company that serviced their trips may have more trips and revenue and seem more valuable, but in reality as they depend so much on one contract (Uber), their valuation is largely determined by this. It will be similar to taxi or private hire companies that base their business model around airport-based contracts, it’s valuable but they are extremely vulnerable when contracts are set for rebidding and their company valuation is largely determined by this work. Uber/Autocab now also have 2-3 years worth of big data that they can analyse and build future plans around. Uber/Autocab now hold the power in negotiation around rates and commissions they offer, how much work they’ll give, if/when they want to use competing taxi or private hire companies, or in the better performing markets they may decide to apply for a local license and do the work themselves. In that case the taxi or private hire company that was short sighted enough to initially work with them as the owner of their dispatch technology, let the fox into the hen house and has lost a large proportion of their customer base who are now using the Uber app as their default booking method. Some private hire and taxi companies begin to shut down as the competitive might of Uber squeezes them out.
- It is also at this point that passengers who were initially thrilled to have more booking options have been sucked in by the Uber marketing machine. The heavy discount model used to attract customers in other markets has proven to be too attractive for passengers not to engage. Over time as more and more local taxi and private hire taxi companies are squeezed out of business Uber begins to wield more control over pricing and the days of discounted trips are numbered. Passengers in many areas will end up with a single service provider in Uber and have to pay their increasing prices and operate within their restricted model (this may have repercussions for the elderly or vulnerable who can’t use certain vehicles or booking methods).
I don’t know for sure if this will happen but it’s a logical vision for me, in fairness I’m sure Autocab and Uber can draft a logical vision that promises riches and long holidays on palm beach laden islands.
What I do know is that by and large the UK Taxi/PH industry has outperformed the rest of the world in terms of managing to retain control of their industry against the heavily funded international newcomers. These same Taxi/PH companies focussed on their strengths, worked on their weaknesses and in many cases saw huge growth and many returning, satisfied passengers. This may be what made it so attractive and I believe with the same attitude and drive that these very same Taxi/PH companies can evolve and improve and defend their businesses against Autocab/Uber.
If I was an Autocab customer I’d do some very basic modelling. I’d work out what my business was worth today with the customer base I own (the intrinsic value is in the data behind that), I’d project how much business I’d expect to get from Uber in a 3 year time period. Over that time the ownership of the customer will transfer to Uber as they become the “go to” taxi booking app in your area. Then work out how much your business will be worth in 3 years if Uber do renew a service contract knowing that you no longer own the customer, or even worst what it will be worth if Uber don’t renew your service contract and you have to carry on in business without all of the passengers that you have gifted them.
I’d also suggest if you are a Taxi/PH company owner that is a customer of Autocab and have a niggling feeling that any of what I’ve said above may be correct that you should move technology providers. Don’t be sucked in at the promise of medium term trips at the potential cost of access to your big data, loss of customer ownership and the related demise of your business.
Whereas if you think the Uber deal is a positive, that it will be a complementary demand channel to all the hard work that you’ve put in over the years, then congratulations – you are with the right provider and I wish you the very best for future successes.
To find out more about what we do at iCabbi, visit us here or email marketing@icabbi.com