Third-party booking apps such as Uber, GrabTaxi, EasyTaxi and Hail-O have taken the taxi market by storm, making a high-profile entry this year by dangling rewards to cabbies and passengers as they build up their presence.

Before the entry of mobile booking apps, taxi operators were the sole custodians of the “matchmaking” service between cabbies and passengers. They also provide a fleet management service — procuring and servicing vehicles, as well as leasing the taxis to drivers. Other responsibilities include administrative support such as screening drivers, coordinating insurance policies and handling accident claims.

As far as the Land Transport Authority (LTA) is concerned, taxi operators play an important role in ensuring Quality of Service (QoS) and Taxi Availability (TA) standards are met.

Although no comprehensive figures exist, we can speculate that the economies of scale taxi operators enjoy account for their profits as vehicle providers. Operating the booking hotline could be seen as an unavoidable part of the business to support cabbies’ revenues, though the new third-party apps threaten to undermine this aspect. Operators must now react to the new entrant to their regime.

Here, we consider the following questions: Why are the apps (possibly) more effective? What dimension do they add to the industry?

Let us begin by looking briefly at how these apps work:

• Drivers register with the app provider and download the app on their smartphones, paying an administrative fee to the company on some occasions. This allows the service provider to track the location of a pool of taxis using GPS.
• Passengers sign up for an account that is sometimes paired with a credit card for payment, to request bookings.
• When a reservation request is made, the app locates available taxis within a radius. Drivers bid for the job, as is the case with traditional call centres (with the exception of Hail-O, which offers the job to the nearest driver who can then accept or reject it).
• Upon confirmation, a booking fee is charged (GrabTaxi pegs its rates to those charged by operator-run call centres. The driver retains most of the booking surcharge, with the app provider earning a commission. Hail-O, for example, charges cab drivers a levy of 50 cents per booking). Payment of the cab fare can be made entirely with the app, making it easier for passengers.

Advantage apps?

Besides promising convenience and speed by having computer systems allocate cabs rather than call centres, another advantage these apps possess over conventional booking systems is they allow passengers to track the real-time location of the cab and contact the driver if needed. Drivers can also call their passengers through the app. With systems operated by the cab companies, passengers only receive an SMS with the cab registration number and make/model. The streamlined communication provided by the apps companies has been popular with customers, and cab companies have recently started to provide passengers with cab drivers’ mobile numbers as well.

Other than the transactional convenience, advantages include more operational efficiency as a result of the reduced time cabbies spend looking for passengers. While spending less time and mileage cruising without passengers may be good from the environmental perspective, there could be implications on taxi availability if most drivers choose to wait for a job to pop up (and receive the booking fee) rather than ply the roads.

Motivations of third-party app providers

Why are the four app companies so keen in jumping into the taxi market? They all want a slice of the booking revenue, hence their motivation is to make as many successful pairings between cabbies and passengers as possible — congruent with the primary objective of a booking service. Passengers who are willing to pay a slight premium get their cabs, cabbies get customers, and the app company earns a cut (a win-win-win situation).

Currently, there is no performance guarantee in terms of ensuring passengers are successfully matched with cabs, with the short window for assigning cabs designed to allow passengers to fall back on alternatives if a cab cannot be successfully allocated. Regulation by the LTA would probably appease in-house call centres directly affected by the competition, though the technology employed by these apps should ensure that they are equal to the challenge. For the app companies, this could add a layer of complexity (and costs) to their operations by having to implement audit systems.

Implications on the industry

Theoretically, with third-party apps, it may also be possible for drivers to use their own vehicles should they be willing to handle ownership responsibilities (such as vehicle financing, maintenance and other administrative tasks), provided they have the right insurance coverage.

Does this make operators redundant? Probably not, but it certainly forces them to price vehicle rentals more competitively. One consideration that we should bear in mind relates to the usage pattern of taxis if they are owned privately. Drivers might expect to have greater autonomy to use it to chauffeur family members and run personal errands, given that they decide for themselves how much income is required to recover their costs. This could make it harder to ensure taxi availability during peak periods, unless there are rewards to do so (or disincentives for not doing so).

It must also be said that despite the prevalent usage of smartphone, the older generation might not embrace these apps due to unfamiliarity with technology. Furthermore, these apps rely on a large mass of drivers to be effective — with four players in a small market, saturation may undermine promised benefits. As these apps run on 3G/4G, service reliability hinges on mobile network quality. There is no backup system in the event of a disruption.

At the present moment, third-party apps are not subject to any form of regulatory control, though this is set to change in the coming months. Related concerns include insurance and service quality. Uber, GrabTaxi, EasyTaxi and Hail-O are start-up companies that do not own vehicles. As a result, they might not be able to monitor whether drivers who register with them actually have the right form of insurance to ferry passengers (except for vehicles bearing registration plates with “SH” prefixes). Waiting time (from the moment a taxi is allocated to the moment it reaches the passenger) is also not monitored, unlike conventional call centres which have to ensure a percentage of taxis arrive within 10 minutes of confirmation.

Even though app companies offer bonuses to drivers once they have surpassed a target number of fulfilled bookings (e.g., GrabTaxi offered a bonus of $188 for 40 completed jobs or more per week in April when establishing its presence), such incentives may not be pitched at a sufficient level for supply to match demand across the market.

Summing up, the question of regulating the third-party service providers beckons. To what extent should controls be imposed? Should we leave them alone as an alternative for consumers who could choose to use traditional, in-house booking systems if they prefer to have the security blanket of regulation? The authorities will have to mull over this new development.

Leonard Chew has recently completed his Masters in Transport and City Planning at the University College London with a dissertation about car-sharing.

Top photo from Flickr