Who Will Challenge Uber’s Progress?

Last week Uber notched up an important victory in the London Courts, with a verdict that their Smart Phone App did not put Uber taxis in breach of the regulation that allows only Licenced Black Cabs to use fare metres. This was not a good result for Black Cab drivers, who have suffered a significant increase in competition thanks to Uber.

In the past barriers to entry to the London Cab market have been high, due to strict regulation and a limited number of licenced cabs. Drivers have to acquire “The Knowledge” a process that involves many months of learning and successive assessments, before being be vetted and acquiring a relatively expensive vehicle. Despite the difficult process, once established a black cab driver could look forward to secure self-employment.

Whist Black Cab fares aren’t cheap, customers can be confident in driver’s knowledge and the fare charging system. However, like any protected industry, London cabbies have been slow to innovate; the service is patchy once away from central London and south of the River Thames, cash is still the common form of payment and cabs still cruise the streets using a yellow light to indicate availability.

The Uber App changes the existing business model completely; getting a cab is easy, paying is simple and pricing is clear. Not only this, but the service is also much more widely available. Uber is delivering what consumers want and as a result causing significant disruption to the taxi market in London.

However, it’s not all good news for London. Lower entry barriers mean that there has been a huge increase in mini cabs in London, leading to complaints of increased congestion and pollution. An inexperienced driver with a GPS is not necessarily a safe pair of hands, but at least customers can review and share their experience quickly and with ease. For drivers, working with Uber is arguably no-where near as rewarding as i driving a black cab, but clearly the company are not short of drivers.

The interesting question is how the taxi market develops in the future. There are at least 10 taxi apps available for London, and some may yet manage to compete successfully with Uber. The cab industry is fragmented, with many independent drivers and small firms, as well as some bigger players, such as Addison Lee.

Although Black Cabs will no doubt continue to be around for a lot longer, their drivers are unlikely to be able to sustain their current level of income and working hours unless regulation bears down on their competition. In the short term, requirements for cleaner engines may well make things worse for them. The likely outcome would seem to be market consolidation driven by the most successful App, leaving only a few large and profitable players.

It seems that more competition and change is still yet to come. One of Uber’s biggest advantages is its global presence and scale economies. This global reach translates into spreading the costs of its software and infrastructure across many cabs, allowing it to invest in providing a solution that is finely tuned to consumer needs.

Another big advantage is the data that Uber is acquiring, covering routes, rides and customers through its App. Uber is already taking steps towards driverless cabs, a deep data resource has the potential to present only further advantage, as drivers are phased out and driverless cars become the social norm. Perhaps then it is no surprise that Uber has a valuation of over $50bn and backers hopeful of significant gains.

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