When it was announced that Uber, the San Francisco-based company, was valued at $18.2 billion (₹1,06,200 crore) by its small group of investors (it is not listed), a lot of people were surprised. How could a company that provides a mobile phone application which is primarily an interface between a customer and a taxi driver be more valuable than, say, Avis and Hertz, two car rental companies combined?

Corporate valuations are a combination of hard estimates and dreams and we will set that aside for now. A more interesting story is that Uber is a simple idea that uses technology to try and disrupt an established way of doing things. The classic way to hail a taxi is to gesticulate wildly at one going by to attract the driver’s attention. The other options are to call for a taxi or book one in advance. Both options are not free of problems, in terms of cost and getting a taxi when you need one.

Tough to crack Taxis are also an extremely localised business service that is heavily regulated and unionised in many cities around the world. Entry barriers are high. For instance, getting medallions (or licences) in New York is very expensive since they are not freely available. The few who have cornered medallions are the taxi world’s equivalent of slumlords; owners charge a hefty fee from drivers who take their vehicles on rent.

Local administrations regulate which taxi can operate where. In the UAE, for instance, a special fee is charged every time you go from Dubai to neighbouring Sharjah. In London, it takes two years of memorising routes and directions to be able to pass the test that would allow you to drive the iconic black hackney cab. Taxi unions are also notorious for negotiating rates with the local government.

As anyone who has ever used a taxi knows, the system has plenty of room for improvement. Often, there are either not enough taxis driving by to hail or, when you call and ask for one, you are not sure if it will arrive.

Minding this gap Uber stepped into this space by designing an app that can be installed in most smartphones. If your city has Uber in operation (and they say they operate in over 125 cities around the world), you (with prior registration) can tap the app and place your request for a cab. The nearest driver will respond, identify your location through the GPS technology and you can follow its arrival. Rather than work with companies, Uber has signed on individual taxi drivers.

As they describe on their website, this is a P2P, or person-to-person operation. There is no cash involved between you and the taxi driver for you are charged on your card and the company pays the driver directly. You can even go to their website and check what the estimated fare for a particular ride will be by entering the relevant addresses.

Established taxi operators are not too happy with the coming of Uber to their towns, so the company must be doing something right. Boston taxis protested by honking their horns, London cab drivers protested outside the prime minister’s residence. Uber is facing opposition in several towns from regulators too, on grounds of licensing, safety, metering and other issues.

Uber is really no different from any other taxi service, except that it has harnessed technology very efficiently in making access to taxis simple and convenient — and its customers are willing to pay a premium for that. In times of demand, the price could go even higher, with a surge pricing model. The investors seem to think this is disruptive enough, and it’s their money.

Where the potential for true disruption exists is with non-taxi ride-sharing services provided by companies such as Sidecar. They are still small and struggling with regulatory issues, and not yet mainstream. They are the homestays of the taxi world, making use of unused assets to satisfy demand but still catering to demand on the periphery.

(The writer is a professor, and dean of the Jindal Global Business School, Sonipat, Delhi NCR)

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