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Change Management for Taxis: an Uber-Proof Business Model

December 4, 2015

 

Ask the most powerful taxi mogul in America how taxi medallion prices are doing in New York City, Chicago or Philly and you'll probably hear a few expletives in his response.  Not surprising, given Uber's efficacious gains in market share across 67 countries in its few short years of existence. Simply put, Uber has wreaked global havoc on the traditional taxi driving industry. 


The most recent victim filed for chapter 11 bankruptcy protection in San Francisco. The Yellow Cab Cooperative Inc., was the largest taxi cab company in the city. The fact that Uber and other “rideshare” companies are headquartered in San Francisco made this a particularly poignant victory for Uber Technologies Inc.

 

Pamela Martinez, Yellow Cab’s president wrote in a letter to shareholders: “We are in the midst of serious financial setbacks. Some are due to business challenges beyond our control and others are of our own making.”

 

Martinez recognizes the liability for business failure and admits that something could have been done. But what? In light of the indisputable transformation that is occurring in the taxi world, the billion dollar question becomes: how can traditional taxi companies compete with such a highly competitive rival like Uber?

 

Many believe that Uber’s technology-driven delivery model has transformed the industry and there is no looking back. The notion that the traditional taxi cab model has outlived its purpose and must evolve or die is a popular one. Think about it. Twenty years ago we sent letters in the mail, paid bills at the bank and if we needed to book a vacation to get away from it all – we met with a travel agent.

 

At the same time many argue that it’s only a matter of time before more stringent regulation and controls around commercial insurance, income taxes and licensing will increase costs to the Uber model and once again level the playing field. Regardless of the outcome, the business answer will always boil down to strategic value proposition and the fundamental consumer question that every competitive business must answer: what do you do and why should I choose you?

 

Undoubtedly Uber has drawn the scorn of taxi drivers around the world, and has been the target of taxi driver led protests in New York City, Paris, London, Toronto, Sao Paulo, Rome and Brussels. But there is one taxi driver in Toronto, Canada who is not feeling the Uber pinch at all. In fact, his business is growing and Uber has virtually no impact on his revenues or profitability. His business model reads like a Harvard Business Review case study:

 

You are one (1) driver for the largest taxi brokerage in North America.  You are not hired by the brokerage as a driver.  Instead, you own your vehicle, plate and pay for your own insurance and licensing to operate a taxi cab.  The fees that you pay to the brokerage are for its dispatching service and marketing.  Develop the most effective business model and market strategy to maximize revenue and profitability.

 

The result?  He broke the mold:

 

  • Coverage by virtually every form of mainstream media

  • His taxi has its own #hashtag

  • Elimination of the need for dispatch (in fact, it is rumored that the brokerage now pays the driver because of his mammoth social media presence) 

  • Global customers book weeks in advance

  • Most customers are willing to wait longer than usual

  • Average tip amount exceeds 35% of the average fare

  • The cost (above and beyond what his peers pay) is about $2 per day

 

Akberali Batada is the owner and operator of Toronto’s Cosmic Cab. Step inside Mr. Batada’s car and be prepared for an experience like no other.  Here’s how one Toronto reporter describes the Cosmic Cab experience:

 

My initial clue was the pastel neon halo of the roof ornament, already glowing in the last light of dusk. When I opened the door and stepped in, I found myself enwrapped in a delightful sparkling nest of wonders and delights, topped by the word "welcome" spelled out in brilliantly illuminated red letters.
 
Jewel-like, lit-up embellishments and a glittering mirror ball on the roof reflected the red glow of the welcome sign. To my right, I found a rack of glossy film and fashion magazines. To my left was a treasure trove of children's toys. In front of me, in the gap between the front seats, was a sort of display case featuring a topsy-turvy exhibit of iconic action figures: Superman and Wonder Woman, Dr. Evil and his Mini-Me rubbing shoulders with Elvis and Betty Boop. Above them all, a pair of video screens was broadcasting a mad succession of Bollywood production numbers.
 
As the car glided through the urban twilight in its soft neon glory, I could have been convinced that Cosmic Cab was a personal illusion, but I've encountered it since then, plying the streets just like any ordinary taxi. It is the inspired brainchild of 25-year veteran cabbie Akber Batada, who came to Toronto in 1981 from Mumbai, where he once worked in the shrimp and lobster export business.

 

Batada originally came to Canada just for a visit, but he decided he liked Toronto and made a spontaneous decision to emigrate, partly to raise his two young children here. To smooth his entry into the country, he bought a pair of Tropical Delight mall outlets, but after two years he gave up the food business.
 
"It was too many hours, too much work and no family life," he says. Instead, in 1984, Batada took up cab driving at the suggestion of a brother-in-law. However, Cosmic Cab was not born until about five years ago.
 
"Something came up in my mind at two or three in the morning—you could say a dream—two months before Christmas time. I put [in] some Santas and colourful paper and some Christmas music," says Batada. The reaction from passengers was delight.
 
He added new decorations for St. Patrick's Day in March, and chanced to pick up then Mayor David Miller on the street. "He said: 'What a wonderful, colourful St. Patrick's Day cab you have! My grandmother would love that; all cabs should have that.'"
 
From that point on there was no looking back, and Batada's fares loved it. "Every customer who comes into my car, they have a big smile," he says. "Even people who come from New York, L.A., Hong Kong and Japan, they take pictures and videos."
 
The dual video screens are especially popular, and Batada changes them on demand to suit the clientele: "I have Greek, Egyptian, Bob Marley, Elvis, Nora Jones, Bollywood, karaoke," he says. "For the children, I have nice cartoons." Then there are those little practical amenities that any cab could copy: on-board Wi-Fi, makeup mirrors, a changing selection of magazines (which are donated to a nursing home at the end of every month) and even a phone charger [for any smartphone].”

 

Fast forward to 2016 - when the writer of this article picked up his first Cosmic Cab ride and heard the proverbial [business] angels sing. What do you do and why should I choose you?

 

Mr. Batada’s Cosmic Cab drives passengers from one destination to another just like any other cab, but he really sets himself apart from the competition and earns an ardent and devoted customer base with his delivery model.

 

One ride at a time.

 

For me, it was on a snowy January day.  I had spent the past few hours tobogganing in Toronto’s east side with my 2 year old.  We flagged down the nearest cab which happened to be the Cosmic Cab.  We weren’t going far and really just needed a ride, but the availability of certain special items like tissues, water, a children’s toy guitar (my son rocked a few karaoke tunes before passing out); the selection of current magazines (even my doctor can’t get this right) combined with Mr. Batada’s passion for customer delight is what really made this a positive experience.

 

Batada claims to be “happy making other people happy” and although I personally appreciate a more minimalist approach to vehicle décor, in the Cosmic Cab it serves a purpose; and the ends justify the means.  I too, genuinely found myself to be a little happier exiting the cab than entering.

 

By contrast, Uber creates a win-win situation via connecting passengers that are happy to pay cheaper fares, and drivers who seem to love the flexible income model.  And the whole thing is conveniently orchestrated by smartphone.  And so, one taxi model competes on increased value, the other competes on price, and both make their customers happy.  So what is the point? 

 

The point is that in 2016 all businesses are vulnerable to technology-driven disruption.  It has been proven that an innovative and technologically savvy start-up that doesn’t even exist today can dissolve historically impenetrable barriers to market entry and eclipse competition that has stood for decades.

 

Today, a successful business model needs to be agile in order to compete and stay relevant to its customers. It needs to be able to change.

 

Many chime in on the Uber vs. taxi debate by empathizing with the losses of traditional taxi business owners.  For example, in the space of two years Toronto’s taxi licenses plunged in price from a high of $360,000 in mid-2012 to below $100,000 in mid-2014.  Granted there are other factors at play, but the Uber impact is undeniably pervasive and global.

 

At the same time there are those who find it difficult to empathize with taxi business owners who are losing money.  How are their losses any different from any other business that is failing or fails due to competitive pressures?  Did the travel agents protest against travel sites like ExpediaTravelocity or Hotwire?  What about retailers who are losing market share to online shopping?  If a business bankrupts for whatever reason – who is to blame?

 

Although it is doubtful that free water bottles and phone chargers could have saved San Francisco’s Yellow Cab, clearly there is a market for customers who seek an improved experience with greater value than that offered by the traditional taxi industry. 

 

It will be interesting to see how the Uber vs. taxi saga plays out.  Regardless of industry, there is a lesson to be learned from Mr. Batada's ability to identify competitive advantage, manage change and transform his business.

 

 

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