Tuesday, September 25, 2012

Disruptive Innovation: how mobile alters the cab business

I was in Manhattan back in 2007 to build up Magnolia Americas. One of the first things I did when I got there was to buy the new iPhone (even before I had an apartment or an office). I met a lot of cool people and had to move around in taxies quite a bit, and naturally some day in Brooklyn (there are generally no cabs in Brooklyn) I thought about an App to order a cab or limousine. I am used to toying around new ideas and take them apart, build business plans around them etc, so I took it as a nice intellectual challenge but not more.

Fast forward to 2012, and these kind of Apps have arrived big time. We have recently switched to a new taxi company in Basel, and with it came an app that allows me to order a taxi and see where it is and how long it takes to get to wherever I am – the kind of app I imagined back in 2007. Naturally I started to ask the cab drivers how the business model around their enterprise works and how these apps change their life.

So let me step back a bit. About a year ago I did a workshop with the CMS Experts Europe Group of Janus Boye about Disruptive Innovation. It has become a bit of a hobby of mine to look for disruptive technologies. So naturally I was interested in the disruptive nature of the taxi app.

First, taxis usually work in two modes – you either hitch one driving by, or you order one to pick you up. In New York or London demand for taxis is high, so if you are a cab driver, it suffices to drive around a block and you will have a new guest. There is little incentive for them to go through a call center to be dispatched to a client. In London for instance, most cab drivers will not be connected to a call center (one friendly cabby estimated that  20% of London cabbies are enrolled in such a scheme there).

A call center however is useful in smaller places. Cities like Basel. A cab driver pays a monthly fee for the call center, and the call center dispatches taxies to clients. In Germany a cab driver pays e.g. 450 € (580 USD) per month to the call center in order to get a supply of clients. In Basel, the fee is nearly twice s much at 1000 CHF (1070 USD). The taxi drivers have little alternatives to the call center services to get business here.

Now enter the app. The app connects the client (me) with the cab driver circumventing intermediaries like the call center. I haven't researched their fee structures in detail, but from what I hear, for instance in Germany the cab driver pays about 1$ in fees per ride initiated through the app to the app provider. While this might not seem like a big money saver, its main value for the taxi drivers is that the fee is per ride.

In Germany, if you take a three week holiday, you still pay the monthly 580USD for the call center. If you only work part time, same thing. The call center, in other words, doesn't care if you work or not. The app however does.

And the taxi drivers seem to love the new way of doing business. First, if they just stop on the road and pick up a passenger, they will not have to pay anybody anything. Same for all sick times, vacations or other times they don't work. However, if they need to rely on a third party to get a guest, they just wait until the next request on their mobile comes in and pay 1$ for it. This is a great value proposition for them, and naturally in Germany, cab drivers are using the app pretty much everywhere. The call centers don't like it, but what can they do?

Well, in Switzerland, they simply forbid the use of the app independent of the call center. In other words, the app I use goes to the call center, they notify the taxi driver and dispatch her to me.

Is this the right approach? Will it save the taxi call centers long term? What should they do? Is there anything they actually can do?

The mobile and the taxi app are disruptive to the business of the call center. The "disruptive" part  means that it change the nature of how things get done. Unless you change as well, you will not survive. I understand that the Swiss taxi center tries to use their dominance to stem the tide, but I believe resistance is futile. Their dispatch service simply is no longer needed.

Let me end with a little story on Kodak and Fujifilm. Both companies at their heyday were quite comparable, one quintessential American, one Japanese film maker. Kodak actually invented the digital camera! Today, Kodak is dead (what a shame), Fujifilm is striving. Why?

They both new at about the same time that change was inevitable. The digital camera would be disruptive for their film business. Surprisingly, Kodak failed to act decisively and forcefully, whereas Fujifilm did. Let's skip an analysis of what Kodak did wrong (lot's of things for sure) in their demise. What did Fujifilm do? They basically said: film as we know it is dead. How can we apply our considerable knowledge, processes, relationships and intellectual property elsewhere? And they did come up with two interesting business ideas that they followed through with – one in cosmetics (turns out the human skin and film have similar needs and characteristics) and one in flat panel displays, where Fujifilm has developed a film that increases the viewing angle of the display which is market leading.

My advice to call centers: assume dispatching taxis to clients is a dead business proposition. What can you provide that will still be useful? Then act fast and decisively.

These days when I need a cab I simply download an app and press a button. Life has become much easier for this weary traveller. Where did you recently see the disruptive nature of mobile at work?

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