Automotive Disrupt – turmoil in transportation

Today’s most radical disruptive industry in my view is the automotive and transport industry. The traditional players such as cab services clash with mighty plays such as UBER and Lyft, in Europe start-ups such as Black Line, MyTaxi or are setting the pace for a turmoil in transportation.

UBER App used in NYC
UBER App used in NYC

And there is massive movement coming in from traditional players such as the automotive industry too: at the beginning of 2016 the US no. 2 Lyft and General Motors have announced that they are partnering to create self-driving cars and car rental hubs for Lyft drivers in the US. GM is investing 500m USD in Lyft, trying to re-invent itself.

Together with UBER the Lyft founders were keen of pitching themselves as job creators in the past. Now they need to brace themselves against criticism, that their valued drivers might not be in for the long run.

But back to the disruption first: German rental car giant SIXT has invested in a driver’s service called myDriver – this service is really popular in Germany’s capital as well as a similar service provided by Black Line, which claims to offer “the most reliable global professional driver service at the most competitive rates in 50 countries”.

And there is the downside of disruption through innovators too: American service Sidecar has given up at the end of 2015 as its funding and growth couldn’t keep up with the two big names in the US – reminding me a little of the former General Electric CEO Jack Welch saying: you’d better be no. 1 or no. 2 in your market or you’ll be out. Here we go, still true even 20 years later.

Real reasons for the push

So what are the real reasons for the big names to disrupt in an unprecedented way into a market that was more a service desert than anything else.

UBER driver drop off
UBER driver drop off

I guess the first answer is exactly the lack of a service mentality: I remember quite a few cab drivers not even leaving their vehicle to help place the luggage in the trunk. Certain cities in Europe were known for particularly bad service, Berlin being one of them. UBER claims to deliver an awesome service, so I used their black cab service in New York City recently and was impressed: all drivers were super-friendly, the cars clean on the in and outside, water bottles available in most cars. The UBER internal rating system for the driver certainly helped as I was able to provide instant feedback, I almost felt guilty for one driver, who received a 4star vote simply because he missed a one way turn. So the service element works.

Taxi - the way to ride?
Taxi – the way to ride?

With service improvements in mind I began to explore the financial reasons behind these new players: in Berlin the local cab service is called Taxizentrale and charges a flat 200€ per cab per year, usually paid for by the owner of the taxi. Believe it or not, this was the standard (with some increases over the years) for more than 50 years. That has changed:

Most other services charge in percentages: mytaxi is a highly successful cab service claims 45,000 taxis connected and was founded 2009. The service charges 7% of the fare from the cab owner, who splits this fare 50/50 with the cab driver. In 2014 German automotive giant Daimler Benz bought the company and claims its presence in 40 European cities, the service is reliable and its users trust the app with extremely high retention rates.

US giant UBER charges 7% too in Germany, however the deal is carried out with the owner, hence it is more attractive for the driver. In the US, my drivers told me they would have to give 40% to UBER, so the company seems to have various rates globally, I suspect that the 40% are for the black car services.

And finally there is, a service with a mere 60k cabs connected in various cities in Europe. With these guys you are able to track the cab’s approach in real time through GPS. Just like with UBER the costs for the ride can be calculated even before booking the taxi with the fare calculator.

So don’t wonder if you see a cab driver checking out three screens to pick up the best deal for the next trip – there is a financial motivation behind some of his moves.

In my coming post I will assess the troubles that some of these highly aggressive players ran into – as all disruption creates turmoil with existing players: “any time you’re disrupting an industry, people are going to try to take you down,” says Bill Marris, President Google Ventures. So there is trouble in the air for all these new kids on the block in the automotive and transport sector. I’ll keep you posted.