BY MATT DAUS AND BROOK TAYE
From New York City to the Outback, in cities big and small, in developed and developing countries alike, technology-enabled transportation is proliferating. We often receive inquiries from businesses and regulators all over the world that are trying to both understand the transportation app phenomenon and level the playing field through legislation and regulation before literally anyone in any country can start an illegal taxi service.
The main antagonist in most international markets is, of course, Uber: The TNC has attempted to expand to all major countries in the world by sidestepping local regulations and cutting its prices below those of taxicabs—like it has in much of the U.S. When regulators respond with a serious measure against illegal Uber operations, the company either closes down completely (usually removing its UberX service that enables anyone with a vehicle to be an illegal taxi) or moves its facility to a more accommodating neighboring country. The high-level discussion among regulators, especially in developing economies that face a severe shortage of infrastructure and, as a result, suffer from pollution and traffic congestion, is to understand the Uber market-entry strategy and how to limit or stop its illegal operation. In cities where taxicab supply is abundant and drivers’ incomes are staggeringly low, Uber is exacerbating the problem by increasing the vehicle pool and skimming the high-end customers that those taxi drivers rely on.
The answer to the Uber problem varies among jurisdictions and depends on the strength of the local for-hire vehicle industry. However, it is becoming increasingly apparent that, in many cities around the world, Uber’s global expansion strategy is not working as well as it did in the U.S. Uber does not take into account other countries’ laws, regulations, cultures, and regulatory philosophies. Its “cookie-cutter” approach resulted in mounting lawsuits, and local and regional competitors are reducing Uber’s market share or precluding its gain, even forcing the company to slash its price further to retain passengers.
In Europe, there was a rude awakening for Uber when cities observed a spike in illegal operations that undid years of work, such as the implementation of environmentally friendly transportation policies like dedicated bike lanes and the expansion of public transportation systems. The introduction of UberPOP in many European cities single-handedly overwhelmed their narrow roads, with thousands of cars vying for fares and stealing street hails from licensed taxicabs that pay hundreds of thousands of Euros to obtain a taxi-operating permit.
The French government, pressured by striking drivers who were dismayed by how easily Uber recruited anyone with a vehicle and a driver’s license to be part of the UberPOP service, started investigating the company—leading to a lawsuit against Uber and its two local general managers. The lawsuit alleges that the general managers are complicit in participating in an illegal taxi operation; lawyers representing taxi union groups, associations, and drivers seek more than $100 million in damages. The trial is now concluded and the Paris court is expected to announce a verdict this June. Potential fines may cost the company millions—and a complete ban from operating in France.
Uber also faces strong competition from local and regional transportation apps that operate lawfully to capitalize on the growing appetite for app-based transportation. BlaBlaCar, a French startup that focuses on long-distance carpooling, has been expanding in Europe since 2014 and raised $200 million in a new round of funding, which increased the company’s valuation to more than $1.5 billion. Other apps, such as Chauffeur-Privé and LeCab, are well-funded Parisian competition for Uber that provide their services with thousands of licensed vehicles and drivers in the country.
In London, black cab drivers, their unions, and even Uber drivers sued Uber over not only multiple regulatory failures but also violations of workers’ rights. The Uber drivers’ lawsuit exposes how the company allegedly underpaid its drivers, who are asking to be classified as employees rather than independent contractors. The London taxi and private-hire regulators have also proposed legislation that could restrict the uncontrolled overflow of private-hire vehicles into London, which is estimated to have increased 50 percent since Uber entered the market. Local TNC competitors who have been in the market for years are now deploying their own apps, including black cab drivers who are partnering with the likes of Gett to accept electronic hails. The Gett app, created by an Israeli-based company with over $220 million equity funding, has gained ground in the black cab hailing market, enabling that industry to win back passengers who want the convenience and seamless process of app-based transactions.
In Spain and most Germany cities, Uber has suspended operations as a result of a court order, which also threatens the company with severe fines for noncompliance. A Spanish court ruled that Uber drivers are illegal operators that “lack the administrative authorization to carry out the job,” and classified UberPOP as “unfair competition,” imposing a fine of up to €100,000 for Uber and €40,000 for its drivers; passengers turned to legal taxi-hailing apps like Hailo, mytaxi, and Cabify. In Germany, a court imposed a nationwide ban on Uber and UberPOP for violating the passenger transport law, indicating that drivers lack authorization to provide such services. The ban included a fine of €250,000 for each violation, forcing the company to suspend operation in many German cities. Uber also faces a significant market loss resulting from the proliferation of legal apps in Germany, like Wundercar, mytaxi, BlaBlaCar, and Blacklane.
In Russia, Internet search engine giant Yandex developed a taxi e-hailing app that launched long before Uber came to the country. Yandex is connected with over 15,000 taxis, as compared to Uber’s 3,000. As such, Uber’s presence in the market is more symbolic of the company’s global ambition than representative of a sound revenue-generating strategy.
In Canada, many cities face similar problems of Uber’s illegal operation and heavy spending. Regulators are responding by changing their rules to make things fair for both the incumbent industry and new market entrants. Universal taxi apps and a new aggregator model are on the horizon, which will force Uber to adjust its business model.
The main antagonist in most international markets is, of course, Uber: The TNC has attempted to expand to all major countries in the world by sidestepping local regulations and cutting its prices below those of taxicabs."
In many South American cities, Uber is being squeezed out of the market by regional app Easy Taxi, which is expanding into 30 countries with over $77 million in funds, courtesy of a German investment group. Drivers and regulators have shown a strong pushback to unregulated and illegal operation, with drivers often demonstrating their anger by closing down city streets.
Uber’s biggest challenge has come from Southeast Asian countries cracking down on illegal operation by TNC drivers; there is now a proliferation of apps dominating the market. In China, Didi Kuaidi—Uber’s biggest rival—resulted from a merger of China’s two biggest transportation app companies, Didi Dache and Kuaidi Dache, with a combined valuation of over $6 billion. The company announced that it booked 1.43 billion rides in 2015 alone, 1.5 times more than what Uber managed to book since its inception in all markets. According to reports, Uber is losing $1 billion per year in China, unable to gain momentum like Didi Kuaidi. Various Chinese cities are also investigating Uber for running unlicensed operations.
In India, a case involving an Uber driver who raped a passenger and was sentenced to life in prison has delivered a major blow to Uber’s regional strategy. The PR damage is evident as Uber has lost to OlaCabs, which has amassed a 70 percent market share and successfully raised another $1.6 billion. Didi Kuaidi has also invested an estimated $50 million in OlaCabs to strengthen the company’s position and help enable booking on various platforms.
In South Korea, Uber’s illegal operation suffered its biggest blow when authorities banned unlicensed drivers from providing taxi services in a nationwide prohibition. South Korean prosecutors have also indicted Uber CEO Travis Kalanick for operating an illegal taxi service, forcing the company to suspend operation. This glut of legal problems has allowed local taxi app KakaoTaxi, backed by $7 billion tech company Daum Kakao, to enter the market, expand coverage to one-third of the country’s taxi drivers, and provide over 2 million bookings in just two months.
In Africa and the Middle East, Uber faces stiff competition from local apps and growing opposition from taxi drivers and regulatory challenges. In Kenya and South Africa, Uber drivers faced a backlash that turned violent, forcing regulators and the police to step in to mediate the problem. Uber’s drivers in South Africa are also protesting, angered by the company’s decision to cut prices to stimulate demand at the expense of drivers. Competition from Easy Taxi is also forcing Uber to adapt to market realities, where Easy Taxi is gaining ground by introducing a better driver vetting system to reduce the number of driver-related incidents in cities with record-high crime. In Dubai and Abu Dhabi, Middle Eastern local app Careem is carving out a strong market share cognizant of the market peculiarities and customs of the region. Despite Uber’s price cuts in Abu Dhabi and Dubai to a level that is unsustainable for the long run, competing apps are staying out of a price war pitting Uber against local regulators imposing minimum fares on for-hire vehicle services.
Uber’s flagrant disregard of local laws and regulations and its anti-competitive price cutting strategies have angered regulators and even its own drivers."
Uber’s legal wrangling in Australia consists of the company’s failure to collect appropriate taxes and its expansion to the six states of the country with its UberX model, which has been deemed illegal in three states. In Queensland, despite UberX being illegal, the company has been providing service and racking up over $1.7 million in fines for its drivers. Local taxi companies have also started challenging Uber’s illegal operation in the courts and in the market place. The country’s major taxi companies have now set up iHail, allowing passengers to utilize a taxi-booking service across multiple taxi firms.
The current state of the transportation app market in the world indicates that Uber is being challenged by other well-funded apps better suited to respond to local demographic challenges and demand preferences. Uber’s flagrant disregard of local laws and regulations and its anti-competitive price-cutting strategies have angered regulators and even its own drivers. These global expansion strategies are not viable (or necessarily profitable) when considering the amount of money Uber is hemorrhaging to remain relevant as a cheaper alternative to taxis. In 2014 alone, the company lost $237 million—up from $31.9 million in 2013—on international expansion. It seems competitors are aware of the unsustainability of Uber’s pricing model and are focusing on cultivating their vehicle and driver pool in anticipation that when the true cost of taking an Uber ride is revealed, the company will lose most of its passengers as fast as it is managing to attract lawsuits all over the world. The end game for Uber and the various competing apps will be determined by the result of the lawsuits and final determinations of the regulatory consultations that are taking place in many jurisdictions. However, one thing is very clear: Uber is not the only app on the block with the financing to take over the ground transportation world. Other apps are learning and growing not only to meet the Uber challenge, but also the changing appetite of for-hire vehicle passengers. The disrupters are being disrupted.
While Uber continues to face progressing and proliferating litigation in the U.S. that may halt or modify its business model, well-financed start-up competitors smell blood in the water and are about to launch in Uber’s largest city: New York. Aggregator app Karhoo has reportedly raised over $250 million and signed-up more licensed for-hire vehicles in NYC than Uber overnight, and will help passengers locate the nearest vehicle or cheapest fare, while maintaining the many independent bases in the marketplace and promoting them and other apps. Meanwhile, the founder of Viber has now turned his sights to a new transportation technology app, Juno, where this well-financed entity seeks to attract drivers from Uber by enticing drivers with stock ownership in the company and with a larger percentage of each fare. Also, in the traditional taxi app market, acquisitions and/or joint ventures, business arrangements, or alliances involving three of the leading taxi apps (e.g., Verifone’s acquisition of Curb—formerly Taxi Magic—and its launch of Way2ride, along with integration with Creative Mobile Technology’s involvement with Arro) may piggyback on the extensive infrastructure network of credit card and T-PEP units from New York City being replicated around the country. At the same time, cities like Chicago and the District of Columbia are moving forward with universal apps to compete with Uber by placing all taxicabs on a platform to use one or a few apps.
There is opposition shifting the marketplace, and even in the U.S., it is far from over for Uber. Coke has a Pepsi, and it is just a matter of time before a handful of other competitors will provide the yin to Uber’s yang. Uber is Coke, and its special formula is being changed or is simply not to the tastes of certain markets. As such, one of the aforementioned apps may be its Pepsi, Dr. Pepper, or a new brand with the same fizz, but without the flat aftertaste from the litigation and regulatory challenges around the world. [CD0516]
Matt Daus is a partner with the law firm Windels Marx, president of IATR, and a leading authority on ridesharing apps. He can be reached at mdaus@windelsmarx.com.
Brook Taye is a regulatory analyst and economist with Windels Marx. He can be reached at btaye@windelsmarx.com.