Taxi-hailing apps: A promise unfulfilled

Yango Photo: PR

Will the advent of Russia's Yango in Israel make taxis easier to find and their drivers more content?

Reports last week that Volkswagen is almost completely writing off its $380 million invest in Gett, which provides a taxi hailing app, left Israel's taxi drivers largely indifferent. The drama has been taking place over their heads for the past eight years, with apps coming and going, but their situation has only gotten worse: they are working more hours, with less to show for it, while expenses are ballooning. A possible change in Gett's activity, the recent entry into Israel of Yango, a new ride hailing app, or other applications still in the pipeline will not be of much use to them.

Actually, eight years after Gett began operating, and after experiencing several other apps, more and more drivers are coming to the conclusion that there is no substitute for a taxi station to which the driver is connected, and which has someone to whom everything that an app cannot understand can be explained. Many drivers believe that the technological tools may be helpful in providing service, but cannot replace the service.

When Gett (called GetTaxi at the time) was just starting out, things seemed different. The company promised drivers that joining it would get them more rides and increase their income. Drivers tired of paying high fees to taxi station organizers left conventional stations en masse. Passengers also liked the change: for the first time, they could order a taxi automatically without calling the taxi station, monitor the taxi's location in real time, and pay by credit card. The way we consume this service was probably changed forever.

It did not take long, however, before the drivers realized that because of the app's effectiveness, they got more rides and did more work, but did not really earn more. The subscription fee charged by Gett quickly neared the fees they had paid to the old-fashioned taxi stations. They faced sanctions against anyone who did not answer or canceled a ride because they preferred to take a fare off the street. In short, many of them felt as though they were in a slave market.

The result was something like a work slowdown, in which the drivers preferred taking passengers off the street to getting calls from Gett. Thus it happened that during peak times, passengers had trouble obtaining service from Gett. "Taxi drivers," one of them explained, "have rides maybe 30% of the time. The rest of the time, they go from one address to another and wait for rides. Drivers prefer picking up passengers in the street, because they have realized that they waste a lot of time running from place to place. The result is that the companies don't give future rides to drivers that don't respond when summoned, so the drivers, who are afraid of sanctions, waste their time running from one address to another so that they will get a future ride on which they may not even make a profit."

App without mediators

The next step in the evolution of tax apps was Rider. This company wanted to take advantage of the drivers' dissatisfaction with the new situation by promising to work with the taxi stations, not against them. The app entered the market with a big splash, recruiting the most famous taxi driver at the time, Liron "Tiltil" Orfali, a star on the Survivor reality program, as a presenter. Its appearance in the market aroused great expectations among the drivers disappointed by Gett's rapacious behavior.

A dispute between the entrepreneur, Sam Gerbi, and the owners led to Rider leaving the market after only two months. "We had over 15,000 riders a month," recalls Gerbi, an old warhorse in the taxi business and owner of Monitax, which provides cash register services for taxis. "We even got to 20,000 rides in the second month. We had great plans in the private sector for chance customers. We felt we were making progress. At one point, the projection was for 4,000 rides a day."

"Globes": Did you want to compete with Gett?

Gerbi: "We couldn't be like them, because we worked with taxi stations, but the response of the drivers who worked at the stations was great, because they could get rides from Rider during their spare time. I gave them work tools. They paid a fixed monthly amount, not per ride. If they didn't take rides, they didn't pay. We saw the business grow, but when we billed the owners, they gave us a slap in the face."

The owners, the British-Jewish Emmanuel family, refused to pay, claiming that the reports they received from their representative in Israel contradicted the ones they received from Gerbi. The case went to court, and Gerbi won. An attempt was made shortly afterwards to restart the app through other operators, but the attempt was short and unsuccessful.

Next in line, a year ago, was Raxi, a free app launched in cooperation with the Israel Taxi Drivers Organization. The entrepreneur, Avi Bar-Yehuda, announced "independence Day for taxi drivers. We'll end the payment by drivers of commissions to intermediaries."

If not commissions, what is the app's business model? According to Bar-Yehuda's explanation during the launch, the profit will come from advertisements and from other services that the company will provide in the future. "We really don't plan on staying in the taxi sector," he told "Globes" last week. "We're a social app that plans to do things and eliminate more intermediaries in the Israeli economy, and that's how we'll grow. There are many failings in this respect, one of which is the manipulation of the market. We say, 'The emperor has no clothes,' and that there's no need for intermediaries."

Bar-Yehuda is an entrepreneur with an impressive track record. He was the person behind the myVisit app for making appointments at government and public institutions and organizations, which he says brought about a revolution. He says it took 10 years for that to happen, and it will also take years for Raxi to achieve results, "but in the end, when you want to do something good for the market, it will work and make money." His model, he says, assumes a profit only after five years, so he has time. Furthermore, since the app is free, spending on personnel and advertising is much smaller.

Raxi also initially received enthusiastic support from the Israel Taxi Drivers Organization, but the organization abandoned it after a few months because they said that Bar-Yehuda was unwilling to invest in advertising.

Bar-Yehuda nevertheless believes that it is only a matter of time before drivers realize that this is the best way to do business: no intermediaries at all - no app owners or taxi stations taking a cut. He says that 5,000 drivers have already joined - a third of whom also work with Gett, a third with tax stations, and a third only with Raxi - and that there are 100,000 users, but the restrictions forced on drivers by competitors are preventing him from achieving a breakthrough.

"Until the minister of transport intervenes and forbids these companies to make capital out of the public right to drive a taxi - a right for which every driver now pays NIS 250,000 - this market won't be put in order," he says.

New kid in town

Meanwhile, in the past few weeks, a new player has entered the market: Yango, courtesy of Russian software giant Yandex (various reports link its owner to the Russian government and Russian President Vladimir Putin).

Yango says that it plans to work with the taxi stations, and Israel Taxi Organization heads Metzi Shavtai and Shay Dayan, who led the drivers' protest against Gett, have already shifted their support to the new star.

Other taxi drivers, however, are less enthusiastic. "That's what they say now," they argue, mentioning that the company created a joint company in Russia with shared transportation company Uber.

Israeli Taxi Drivers Association (not to be confused with the Israel Taxi Drivers Organization) chairperson Yehuda Bar-Or says that as a condition for working in cooperation with the taxi stations, he asked Yango for a document in which the company undertakes to work only with taxis - in other words, to exclude rides other than in taxis, such as the shared rides offered by Uber in other countries, which it is currently barred from offering in Israel - but has received no such undertaking.

"I really want to work with them," he says. "They also gave me a very attractive offer for stations, but the station managers held a general meeting last week, and after I explained the situation, it was decided that we won't join until a document is issued stating that Yango will work only with taxis, and won't try to introduce rides in private vehicles via the back door."

Yandex regional director for Israel Yaniv Alfi thinks that the example of cooperation between Yandex and Uber in Russia shows the company's power. "If Yandex overcame a large company like Uber and made it abandon its plan according to the format it wanted, this shows that Yandex is a very strong company," he says.

How is Yango different from other taxi companies?

Alfi: "Our business model is very different. In the end, the driver is a person. He has work hours and irritating passengers. It's not fun work, and we can't treat it as if it were."

I thought that the main difference between you and Gett was that you're not going against the taxi stations; you want to work with them.

"It doesn't necessarily have to be a taxi station. It can be a business partner capable of handling riders and drivers. But we do know and appreciate the added value of availability. An app is for the customer. We have one customer who is an end customer, the passenger, but there's another customer - the driver. If the company doesn't find a way to take the driver into account in its business model, it will pay the price. The driver will become embittered.

"For us, the end customer and the driver are at the same level. If a driver who works with me also works with a station, he has a commitment to the brand, and it's important to him for the passengers to be satisfied. A taxi station is a workplace for all intents and purposes. The drivers come to work in the morning and go home in the evening. With Yango's help, they can benefit from the advantages of a station, and also from the advantages of the app."

Why do you think that the companies that operated here failed?

"What's needed here is technological depth, and some of the companies that operated and are operating here don't have it. We need to provide an app that contains an infinite number of updates. This is an app that has to take into account the length of the ride, the cost of the ride, and many more variables. If you don't have the technological part, you can't make an app that will be attractive to both the driver and the end customer. If you don't have this information in-house, you have to buy it. Technology people don't come cheap. Buying know-how and developing it is far more expensive than static resources. You can't ignore this; there's a substantial technology element here."

Will the drivers return to the stations?

Gerbi is sure that, in any case, an app has to be combined with a station. He says, "In the end, the app didn't eliminate a single station. I hear customers say, 'I want to talk to somebody on the phone.' Most institutions work only by phone. It's hard for an app to deal with changes during a booking. Once there's a change, the app gets confused and you have to speak directly with the driver. The app company, which wants to get rid of the idea of ride coordination, becomes a type of ride coordinator.

"Say that you ordered a taxi on an app, and an available taxi passes you and offers you service. Say that you want to cancel the taxi you ordered through the app. Try to do it, and you'll go through seven levels of hell."

So what is the bottom line for you?

Gerbi: "It's hard for me to understand what Yango expects to gain here. It's such a small market, and you can't make the pie bigger. I've lived in Europe and the US. In Amsterdam, there's a taxi service that reached an agreement with the municipality, so that when you get off the train, you have the taxi service as part of the ticket price. In Israel, on the other hand, traveling by taxi is considered something for rich people."

From the taxi drivers' viewpoint, is their situation today better or worse than it was before the apps arrived?

"Their situation is worse. The cost of maintaining a taxi has risen insurance, repairs, and fuel. Everything is more expensive. They're afraid of a higher fares, because it will drive away passengers. The older drivers find it difficult to get used to apps, and their biggest fear was that Uber will enter Israel with shared rides.

"Taxi drivers once had enough money to replace their taxis every three years. Today, they need a bigger loan for this, because they don't take home enough money. They get no discounts from anyone, and insurance prices are crazy. It has really become a slave market."

Bar-Or, who himself owns a taxi station, says that the drivers are starting to return to the stations. "Today, stations charge NIS 500-800 in ride coordination fees, which is less than Gett, so drivers are starting to come back. In the end, the market is very clear: it's the same drivers and the same passengers. I believe that in the end, all of them will return to their home - to their station. The apps only give technology tools; they can't replace the stations."

Some, however, feel differently. Daniel Atiah, a taxi driver for 13 years, left a taxi station in the greater Tel Aviv area to work for Gett. Since then, he says, his volume of work has increased ten-fold. "I worked at a good station and got 3-4 rides a day," he says. "The drivers at the station relied on getting customers from the street. They get a certain number of rides from the station, and maybe also rides as a result of agreements with companies; all the rest is from the street.

"Drivers for a station often do a ride and return to the station, so it's obvious that they won't get many rides. You often see a line of taxis at a station waiting for the same ride. I don't come to a job; I come to work. With Gett, I take a ride from Tel Aviv to Herzliya, and immediately look for a ride from Herzliya to Tel Aviv. You haven't got that at a station." He says that he works with Gett eight hours a day, earns very well, "and I only wish I were strong enough to do all of the work I get from them."

Alfi from Yango also believes that it is not a question of whether or not there is room for apps in ride services, and mentions the obvious advantages that led to this revolution. "Customers today prefer a transparent experience, meaning that they know when the tax is coming, without depending on telephones, getting rates known in advance, and a regular invoice at the end of the ride. It makes things much simpler, and I don't think anyone thinks that it's possible to turn the clock back. It's true that there's a problem everywhere with availability, and we'll solve it."

How?

Alfi: "If I, as a driver, work with a station, I have more to lose. When the driver works with a station and gets a call from Yango, he has more commitment (than an independent driver unconnected to any station). Drivers aren't so concerned about the commission; the issue is transparency. They don't like people doing deals behind their backs."

Drivers I spoke with talk about being fed up and disappointed with the earlier apps, which promised improvement, but didn't really deliver.

"There may be a little disappointment here. In the end, the aim was also to create more accessibility to this market of taxis and rides, but mainly to enlarge the pie. Today, if you try to find a taxi in Tel Aviv between 7:00 AM and 9:30 AM, or between 5:00 PM and 7:30 PM, you have no chance, because drivers are starting to calculate where it is more worthwhile for them and where it isn't. So customers also say that it's better to go to the street. If we work the right way to give service to more customers, this will be solved."

Bar-On, on the other hand, is far less optimistic: "They said that the apps would bring more work, and they didn't. There are 22,000 taxis, with or without apps. People who are used to traveling by taxi will continue to do so, and those who don't travel or don't get reimbursement from work won't travel. We worked 12 hours before the apps, and today, with all the apps and with all the stories, a taxi driver has to work 12 hours.

"Even the Ministry of Transport is setting a new rate, because they realize that we're working at a low price. Today, 30% of our expenses are for fuel, and half of our revenue goes for expenses. A taxi driver today takes home NIS 30 an hour, whether he works at a small station or a large one, and whether or not he works with Gett. In the end, they all earn the same. Today, the public loses and the taxi drivers lose. For almost five hours a day, I drive an empty taxi."

So how do you explain that despite it all, more apps are coming onto the market all the time?

"There are always more suckers. Unless they change the system, improve public transportation, and include the drivers in it, new drivers and new passengers won't come."

Published by Globes, Israel business news - en.globes.co.il - on January 10, 2019

© Copyright of Globes Publisher Itonut (1983) Ltd. 2019

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Yango Photo: PR
Yango Photo: PR
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