Opinion: Taxi industry spinning its wheels, Telfer prof says

Uber and its brawl with the taxi industry and the government seems to be a pulsating topic of discussion among news outlets and on social media these days. 

By Umar Ruhi

There are strong opinions on both sides, and I’m not quite certain whether this column presents a balanced perspective on the situation either – I make no claims to that effect.

What I would like to do is to present a case that would hopefully motivate the taxi industry to move more quickly to keep pace with emergent changes, of which Uber is just the beginning.

Events over the past couple of years have demonstrated the taxi industry’s emphasis on protesting Uber’s foray in the marketplace or invoking legislative action against the company.

However, it has been slow to respond to the new competition by way of innovation or improving its service offerings.

Digital dispatch services such as Uber are simple software applications that efficiently allow passengers to get rides by helping them locate nearby drivers, conveniently order services and arrange for payments, all through their mobile devices.

There’s nothing complex or proprietary about this technology and no discernible reason why taxi companies can’t follow suit.

Despite the functional simplicity of its mobile application, Uber has managed to achieve significant first-mover advantage by virtue of its core value proposition to customers, based on the elements of convenience (a user-friendly interface and ubiquitous access), location-based features (nearest drivers, trip routes, et cetera), useful information (driver ratings, trip fare calculators and the like) and payment functionality (the ability to pay with credit card through the mobile app).

As such, it adheres well to the so-called “CLIP” – communications, locatability, information and payment processing – framework for designing effective mobile applications.

One could argue that the slow response of the taxi industry can probably be attributed to the fact that the industry has enjoyed a long-standing position of protection in a coercive monopoly-style market structure. The industry is heavily regulated, the barriers to entry have been high (through the high cost of taxi plates or medallions), the customers’ bargaining power has been low (due to lack of options) and the threat of substitutes has been insignificant – that is, until Uber came along to shake up the taxi business.

As a digital service, Uber represents the touted benefits of the “sharing economy” in that it facilitates the use of underutilized resources – in this case, idle automobiles. Along the way it has challenged the taxi industry by exposing its inefficiencies on both the supply and demand ends of the spectrum. Whether it’s potential drivers unable to obtain plates due to high cost or poor standards for customer service and low satisfaction levels due to long wait times and high prices, there are plenty of shortcomings that the industry has not been able to address in a long time.

The solution in my mind is to adopt a middle-of-the-road approach whereby the industry and the government need to adapt to the current times in order to meet the needs and preferences of today’s customers.

Existing regulations need to change; they were originally designed to serve narrow interests, and they have outlived their usefulness. The industry needs to adopt less regulation all around, which will benefit current taxi companies and drivers as well. Consequently, any new regulations for companies such as Uber should ensure consumer protection while not being so restrictive as to impede competition or drive the competition out of business.

Towards achieving such a system, a participatory approach should be used by involving cab drivers in the process. They are the best source of information about the opportunities and the challenges of the cab industry. This is a great way to channel their frustration with Uber to formulate new solutions for the industry as a whole.

Protecting the status quo is no longer a viable option. The customers have spoken, and Uber and other similar services are bound to keep gaining traction since they are well-liked and are fast becoming the transportation option of choice for many people. In addition to addressing these downstream supply chain issues, the industry also needs to take a good look at challenges that lie upstream in its supply chain – today and in the near future.

Today it’s Uber and new drivers who want to offer services through it, but tomorrow things could get even more challenging. It’s only a matter time (a few more years?) before driverless cars are on the road, and we can probably expect to see automatic vehicle dispatch services integrated with these cars.

Could Google or Apple be the next competitors for the taxicab industry?

Worrisome prospects. It’s high time to innovate or be rendered obsolete.

 

Umar Ruhi is an assistant professor at the University of Ottawa’s Telfer School of Management. His teaching and research interests include e-business, social media and mobile commerce.