What Is Uber and Why Is It Threatening Traditional Taxi Services?
The London taxi driver is an institution, with their distinctive, black LTI taxis, and the drivers who can take you to anywhere in the sprawling mass of England’s capital city without even glancing at a GPS system.
It’s hard to imagine London without its taxis. But last month, they went on strike, blockading the city and rendering some parts of central London utterly impassable in a move that was set to cost the London economy almost £125m ($212 USD).
Why? Because Uber has landed , and it’s fundamentally changing inner-city transit. And some might say, not entirely for the better.
But What’s That Uber Thing?
Let’s be very clear about something. Uber isn’t a taxi service. No, you wouldn’t catch Travis Kalanick – the founder of Uber – saying that. They would likely describe the service as one that connects passengers with willing drivers. Admittedly, the line between that and traditional taxi services is one that is incredibly blurred.
The way it works is pretty simple. A passenger calls for a car with a smartphone running the Uber app. An Uber driver then is called to the passenger’s location, who then takes the passenger to their destination. No cash is exchanged – payment is taken automatically from the passenger’s debit card – and no tip is required.
If demand starts to outstrip supply – such as after a sports event, or on New Years Day, or even after extreme weather – the price starts to spike precipitously. This is called ‘surge pricing’, with the cost of a ride often being multiplied by a factor of 9. This means that the affordability of Uber can vary greatly.
It’s also worth noting that Uber isn’t a novel or unique concept. Sino-British startup Texxi launched a similar service in 2006, prior to the launch of the iPhone. Recently, Uber has seen competition from the likes of Lyft and Sidecar, although these companies haven’t enjoyed anything like the same success of Uber.
What Does It Take To Become A Taxi Driver?
Firstly, a disclaimer. I’m going to talk about the Uber/Taxi conflict with an emphasis on London, and the UK taxi industry at large. However, what I write about the taxi industry will be mostly relevant across the developed world.
But first, have you ever thought about what it takes to become a taxi driver? It’s a long, laborious and expensive process. Before you even think of picking up a passenger, you’ll need a full, clean driving license. It’ll also help if you have no prior criminal convictions, although not essential.
The first step involves getting a roadworthy, reliable car. With a few minor exceptions, a majority of taxi drivers own their cars outright, whilst some hire the car from the taxi company they affiliate themselves with.
The second step involves getting insurance, which is ludicrously expensive. According to the 2013 Insuretaxi Taxi Driver Survey, the majority of taxi drivers spend more than £1000 per year on insurance, with 10% of those surveyed saying that they spend more than £3000 per year.
Finally, a taxi driver needs to be registered with a local authority. This alone can be quite expensive, with annual fees usually around the £200 mark. If a driver chooses to work with a taxi company, they will also have to pay a yearly rental for a taxi meter and radio, which often costs around £500.
All things considered, being a taxi driver is expensive. According to the previously mentioned Taxi Driver survey, the average take-home pay for a taxi driver is around £300 and £500 per week. This gives us an average monthly salary of between £15,600 and £26,000 per annum.
It’s not much better outside of the UK. In 2011, the New York Taxi and Limousine sold two taxi licenses at auction for $705,000 with the average price of becoming a licensed driver having tripled since 2002. By 2013, the costs of becoming a licensed taxi driver in New York had surged to $1,000,000.
Let’s compare that to Uber.
You don’t need special Taxi driver insurance. You don’t need to be registered with a local authority. The upfront costs are comparatively minimal.
Furthermore, the costs of operating as an Uber driver is entirely proportional to the amount of work you do. There are no monthly fees, nor are there any membership dues to be paid. Uber just take a small commission from the driver’s earnings.
This – perhaps rightfully – has irritated traditional taxi drivers, who see Uber as circumventing the regulation that ensures that only qualified, safe drivers carry passengers.
It also means that taxi drivers are directly competing for a limited pool of business with those who have circumvented the long, expensive and laborious process of becoming a taxi driver.
The Uber Experience
Perhaps the biggest threat to the traditional taxi doesn’t come from the massive surge in competition, but from the fact that the Uber experience is actually pretty good.
All you need is a smartphone and the Uber app. Press a button, and a car will pick you up. You don’t even need to go to an ATM – it just charges your credit card.
Compare that to a traditional taxi firm. Unless you hail a cab from the street, you need to call a dispatch office. If you’re in a foreign country where you don’t speak the language, this can be immeasurably challenging.
Then you need to be able to articulate where you are located. If you’re in an unfamiliar place, this can be difficult.
And let’s not forget that, you need to have cash to hand. Many taxis do not accept credit cards, and the ones that do generally charge a hefty surcharge.
Simply put, Uber has created an automated, consistent process for booking rides. This process works in every city served by the ride-sharing titan, is cash-free and requires no language skills. For consumers, this is an incredibly enticing proposition.
What Does Uber Mean For The Traditional Taxi Industry
Uber has already won the ridesharing race. The LED signs that identify cars operated by the company have spread to Europe, South Africa, Australia and even the industrial powerhouses of China. They’re everywhere, and they’re not going away.
For the drivers of taxis, Uber presents a great opportunity to break from the bureaucracy of taxi companies and local authorities, and to greatly reduce the cost of doing business. This means more money in the pockets of drivers.
For local authorities and the taxi firms that are entrenched in most cities, they present a very real and present threat. Uber is poaching both customers and drivers, and will continue to do so until Uber is stopped legislatively, or with the incumbents offering a service that rivals Uber in experience. In the defense of the Taxi industry, they’ve wised onto this and have collaborated to work on applications that compete with Uber, such as MyTaxi, which we have previously reviewed .
For the consumer, Uber offers a consistent and beautiful taxi service, although one not without its issues. Uber drivers have been implicated in a number of major scandals, including an attempted kidnapping, and a tragic hit-and-run incident that left a young girl dead. Despite the safeguards that Uber have put in place, they don’t quite compare to the checks that traditional taxi drivers have to go through. There are even mobile apps that make it easy to report unprofessional cab drivers.
For more, check out our look at whether Uber or Lyft is cheaper .
Photo Credits: Angry businessman boxer Via Shutterstock, London anti-Uber taxi protest (David Holt), Uber Bogota (Alexander Torrenegra), Taxi? (Beverley Goodwin), Taxi, Taxi! (David Morys), Uber (acanyi)
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