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Taxi, Ridesharing Apps Making It Easier for Some Harder for Others to Get a Ride

by Roger Lanctot | May 09, 2014

It wasn’t supposed to be this way.  Ride sharing services like Uber, Lyft and SideCar were supposed to make the process of hailing a cab easier, faster and more transparent – in spite of the objections of regulators and existing taxi and limousine operators.  But in China, they may be making it harder (for some) and more expensive (for all).

In the U.S., Uber, Lyft and SideCar are battling their way into the market city by city and airport by airport with varying results (Ridesharing Makes Friends in Some Jurisdictions, Enemies in Others -  In Europe, Brussels, Paris and Berlin have put roadblocks in the path of these offerings to preserve local taxi driver hegemony.

But in China, taxis are welcoming these services as they are helping to boost fares, although at the expense of the linguistically, technologically or chronologically challenged.  Two dominant app-based services have emerged in China, Kuaidi and Didi, thanks to a money burning competitive struggle between Tencent and Alibaba which has contributed to the early exit and failure of 40 competing companies.

Didi is supported in part by Tencent (known for popular QQ and Wechat services) and a total of 100M RMB in venture capital and Kuaidi (with major investor Alibaba) has a similar amount of support.  While fighting for shares of the taxi ride market - and paying drivers to participate - they are also vying for control of the mobile payments market.

At the very beginning, the maximum subsidy a taxi driver can get for a single deal is 100RMB, typically the taxi driver can get 10-20RMB for one order and the passenger can get 10RMB for one trip.  Now if the passenger use Didi and pays with Wechat, he or she can still get 3RMB and the taxi driver can get 5RMB.

In the end, the battle is ultimately between Wechat and Alipay with taxis and their customers caught in between.

In China, taxi drivers and their customers have rapidly adopted these applications.  So, rather than private citizens getting into the taxi driving business, taxi drivers are using the apps to find customers.  It is worth noting that in some U.S. metropolitan areas, such as Washington, DC, cab drivers have either fought the ridesharing services, quit driving taxis in order to dive entirely into the ridesharing business, or have chosen to split their time between driving a taxi and privately offering rideshares.  And some cab drivers have taken to using apps to find fares in the U.S. and elsewhere.

At the same time, some municipalities, such as New York City, have tried to limit the use of apps to hail cabs – something Paris is also attempting to do.  In Beijing, taxi drivers are supposed to only use one of the hailing applications.

But in China, taxi drivers have adopted the apps to find customers and now customers seek out taxi rides by bidding - offering commissions - for their rides.  In effect, cab drivers, many of whom are using both Kuaidi and Didi simultaneously, are using these apps to bid up the cost of rides.

This is great news for cab drivers considering that taxis are notoriously inexpensive in China - $30 for an hour-long ride to the airport.  But this is a mixed blessing for taxi customers.  A colleague and a friend acknowledged during a recent visit to Asia that using the new apps is essentially the only way to catch a cab for which it is assured that a premium fare will be paid.

The services practically guarantee a pick up from anywhere to anywhere, but they also practically guarantee that the passenger will pay a premium. In fact, the apps guarantee that the customer will have to bid for a ride – escalating the amount of the commission in 5RMB increments until a taxi agrees to the fee and the pickup.

Considering that it is often difficult to get a cab ride in some areas of some cities, the availability of the app is a very good thing.  The bad news is that the use of an app on a smartphone in the local language means hailing cabs in China has just been made more difficult for any potential customer that either lacks a smartphone or cannot read or write Mandarin – which means the poor, elderly and tourists will have a rough go of it.

It also means cab drivers may be more selective about when they work, focusing their driving around high opportunity hours when they are most likely to obtain high fares.

The problem is being attacked at the city level in China, not unlike the way it is being combatted outside the country.  Of course, since it is China, it means every new local rule or restriction brings with it differing degrees of cooperation from the cab drivers.

The net result is that cab drivers will start making a better living in China and foreigners will become more dependent than ever on hotel concierges and local acquaintances to arrange cab rides.  Chinese consumers – young and old – that use cabs and lack a smartphone will be compelled to get one.  And the first taxi app developer to offer an English language version will gain a significant competitive advantage.

It is an interesting trial run for a very specific taxi hailing app model and one that favors actual cab drivers over ridesharing amateurs.  Hopefully the unintended negative consequences will not prove fatal to the broader acceptance of the concept.

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