In the future, every car is going to be part of the future personal transportation service. If there’s a vehicle with available empty seats going to same direction than you are, the chances are that you’ll get onboard with that car. Things are changing – the younger generation no longer sees owning a BMW as something cool, but however, getting from place A to B with just a few clicks on your iPhone is something they want. There are already several startups offering services to get you from A to B but they are struggling with various problems, and to be honest, the current services are not yet truly disruptive either. Yet based on the initial success of these services one may be assured that there is also a true revolution in the personal transportation coming up. Strong resistance from the traditional taxi companies and taxi associations is only one proof of that. This blog post is the first one in series of blog posts discussing the evolution in the personal transportation market.
This currently ongoing change in the mind setting of people no longer valuing owning a car so much means there is a huge opportunity fulfilling the need to get around. And where there is an opportunity, there are startups aiming to give the best solution for the problem. Currently there are two principal ideas on the market to solve this problem: using professional drivers with a nice black cars or not using professional drivers but letting anybody in your neighborhood take you there with his own car.
Drivers want to earn more, not less
In some of the black car services the pricing depends on supply and demand of trips that particular moment (i.e. “Surge Pricing”). It’s a good model in the sense that it enables the drivers to earn more, even after possibly a heavy middle-man commission. An opportunity to earn more is a good reason for many drivers to join the service. However, the increasing competition means increased pressure to lower prices in the hope that the additional trip volume will cover the difference. Just lowering the prices is not a cure, however, and it inevitably means that the profit of both the driver and the middle-man alike are going to be far from what they are now. Nobody wins in the price war.
Startups solving the problem with community-driver approach are betting on the fact that people want to freelance to drive people around in their own car. This peer-to-peer transportation is now legal in California, and more than a million rides have been taken with these services. Some of these services are operating in a way in the gray area in regard to the business model as the passenger is expected to “donate” money in the end of the ride, not to “pay”. Also these companies with community-driver approach are testing the peak-pricing to offer drivers an opportunity to earn more. But if prices go up, the demand goes down.
Given the price pressure caused by the community-driver approach to the black car services, one of the companies in this business has expanded into this community-driver model as well. The rumors whisper that there may be some aggressive recruiting going on from the competing services. Lack of enough drivers seems to be one of the bottlenecks for the expansion.
The current “new” taxi services are not that disruptive yet
Right now these services are a replacement for a regular taxi rides, but not yet a replacement for high-volume personal transportation services such as commuting. So it’s no surprise that the taxi associations are fighting heavily against all of these new models of the personal transportation. But the real volume (and needs of this younger generation) also calls for modern, new kind of solutions for commuting. Let’s admit it, ordering your own black car for your daily commuting is never going to be a mainstream means of transportation. It’s simply just too expensive. Nor relying on community-drivers as that may not be reliable enough, you should always be sure you get a ride to work (and back). And proper public transportation is not everywhere so this is still maybe one of the directions to go.
Let’s get back to my initial point on every vehicle becoming part of the personal transportation service. If we take a step back and take a look of these services from a bit further away, all we see is cars with one driver and one or more passenger traveling from place A to B. It’s not that disruptive yet, actually. And in order to increase the usage, the price should go down but that would mean there would be even less drivers (and that’s a bottleneck already now) as drivers want to earn more money rather than less money (ugh, not surprising). Using community drivers is currently not a solution either as that to a certain degree decreases the degree of certainty actually getting a car at all.
So what’s the solution? Read more about that in my next post.