Next Monday, less than a year after entering Israel, taxi app Yango, owned by Nasdaq-listed Russian software company Yandex, will expand its operations in Israel to new cities, including Beersheva, Haifa, and the Krayot region north of Haifa. Yango currently operates in Tel Aviv and the surrounding area, Ashkelon, Ashdod, and Ben Gurion Airport. Yandex's market cap is $11.2 billion.
Entering Israel, where the market is dominated by local taxi app company Gett, required an exercise of creativity by the new competitor. Yango gave drivers registering for the app an exemption from commissions, an exemption that expired in September. Since then, the thousands of drivers registered with Yango have been paying either 5% of their total proceeds from Yango rides or a NIS 300 monthly fee and a 3% commission. According to this calculation, drivers pay NIS 1,000 a month. In comparison, Gett charges drivers NIS 1,300 for rides without restriction all over Israel and NIS 800 for rides without restriction outside the greater Tel Aviv region.
In recent months, Yango has shifted its competition with Gett to a different model in response to exceptional consumer awareness in the taxi sector. In this model, passengers know the prices of the ride in advance. "There's no reason for people who know in advance how much they will pay for a flight or any other product, while a taxi ride is like a dramatic film that depends on what route the driver takes in order to get NIS 10 more for the ride," Yango countrey manager Yaniv Alfi told "Globes."
Yango not only tells passengers the price of the ride in advance (based on an algorithm that uses distance and traffic congestion to calculate the price); it also offers passengers an option to wait for a driver in a place that will save them money, for example by crossing the street. The importance of service in Yango's system, which may sound like a cliched slogan, is a theme emphasized by Alfi throughout the conversation. He boasts, "We have changed behavioral patterns among drivers. When passengers know the price in advance, there is no need for negotiation with them after they get in the cab. The drivers are rewarded for accepting more rides in the middle of an existing ride, and their schedules get filled up."
Alfi is not being disingenuous. He is well aware of the situation in peak hours (at 5:00 PM, for example), when drivers turn off the apps in order to hunt for random rides in the street, or cancel resides on the way to a passenger whose ride is not profitable enough.
"Globes": If there is a supply of street rides at certain times, why should drivers subject themselves to the dictates of the app?
Alfi: "We're aware of the fact that at peak hours, when there are traffic jams, rides are no fun. But we tell the driver, 'You are on your shift, and it has to be worthwhile for you to work.' At peak hours, we therefore guarantee a minimum payment of NIS 50 per ride, and if the passenger pays less than that, we make up the difference. We want drivers to make our calculation of how much they earn on a shift, not how much they earn for each ride. A driver expects to earn at least NIS 800 on an eight-hour shift. Our model says that even if they get a NIS 35 ride instead of NIS 40, because the advance calculation of the payment is less than the price list, if the service is efficient, the driver will get 10 rides in two hours instead of five rides, so his average gross hourly take (not counting fuel and maintenance) will be NIS 100-120."
How expensive are taxi rides in Israel?
"Yandex operates in 18 countries. I can say that in comparison with Western Europe, prices in Israel are average-to-high. In comparison with Eastern Europe, the prices in Israel very expensive."
The level of service plunged and the number of chiselers soared
If Israelis are paying high prices, what will the tourists say? Yango recently entered the Ben Gurion Airport taxi jungle. Since exclusivity for a specific station on the airport premises was eliminated, chaos has prevailed there. Since drivers wait hours before entering the taxies line for rides carrying passengers who just landed, they do not hesitate to cancel a ride to a destination that is too close and does not pay enough. The level of service has plunged, and the number of chiselers has soared with the increase in the number of tourists visiting Israel.
"We're called on every today to send more taxis to Ben Gurion Airport. Here, too, our drivers' calculation is effective, because with us, drivers get a ride only after it's ordered on the app, including by tourists who know us from other countries. The rides aren't from the regular line of tax drivers; they begin at a different meeting point," Alfi explains.
So you support a tender to bring order into rides from Ben Gurion Airport.
"Regardless of a tender, there has to be order. The existing situation is better because it opened Ben Gurion Airport to all drivers. On the other hand, it has cause service to deteriorate. The plight of drivers who have been sitting in a car for 8-10 hours and have to keep themselves shaven and well dressed, and also to act pleasantly and give good service, should not be ignored. I am not making light of their dubious reputation, but it starts with there being no barriers. In order to be a taxi driver, it is necessary to get a license and pass a course, at the end of which a license to drive a cab is given. You can say that other than this, there's no selection."
Israel has 23,000 cab drivers in this difficult sector. There are two sides to taxi rides. It is enough to look at the map of traffic jams in Tel Aviv caused by work on the light rail to realize that the anger threshold in a cab is very easily exceeded. As if that were not enough, Minister of Transport Bezalel Smotrich dropped a bombshell a month ago by saying that he intended to consider Uber's reentry into Israel through private drivers for carpool rides.
Uber's previous attempt to set up shop in Israel ended in 2017 with an indictment being filed against the company for operating travel service without a license from the Ministry of Transportation. Six months after the indictment was filed, the tax drivers' lobby obtained a permanent injunction against Uber in Israel. Since then, Uber has been operating on a limited scale with ordinary taxis, not the usual Uber format of private drivers using their cars.
Alfi says, "We compete everywhere in the world with Uber or Lyft. We aren't afraid of competition. The market should be open to it. In other countries, this has led us to develop technology, so that we can give them a fight. Uber made headlines in cases of attacks against passengers, including murder (six passengers in Michigan, M.R.-C.). This is something to which we had to respond, and we installed panic buttons inside all of our taxis. You can overcome things if you can give the customer service commensurate with the price."
"When the service is good, people are willing to pay for it"
Most drivers also use Uber and Gett. That is surely not ideal for you.
"You can't stop the competitors in the market. Let all of the drivers do their own calculations about where it's worthwhile for them to work. In other markets, we have more than one player to deal with. The conclusion is that the better technology wins."
It is easier to compete when you also have financial support from Yandex.
"This support is important. Yandex is growing in the taxi segment everywhere in the world. The Yandex Taxi division's profits grew 58% in the past two quarters, while revenue in the taxi segment rose 89% in the third quarter of 2019 and accounted for 21% of Yandex's total activity. We couldn't have grown without developing markets or opening more regions."
Your competitors offer delivery services and other supplementary services, but you do not.
"We have food deliveries service around the world, Yandex Food, and deliveries using commercial vehicles. These aren't niche services; they are services with significant numbers. We're still new in Israel. We'll study the market and enter more spheres. We're looking at Walt, for example (food deliveries service), and learning that when service is good, people are willing to pay for it. If we have managed in less than a year to make several thousand drivers look differently at customer service and realize that there's no point in using illegitimate means to make money, we can apply this in other ways."
At the end of the month, public transportation on the Sabbath will be inaugurated in Tel Aviv. This is another blow to taxis providing an alternative for a Sabbath ride.
"You could say that scooters and bicycles compete with taxis, but I look at this differently. All options should be open to the public. I won't decide for you what the best option for a ride is at a given time. Buses on the Sabbath in Tel Aviv are fine by me. The prices match what the customer is willing to pay for getting from one place to another. Not every current Sabbath ride is a cab ride, and competition will improve the drivers. Cab drivers know that you have an option to take a bus, and will compete with that option. Competition is always good."
Yandex is also working in autonomous transportation. When will taxis enter this sector?
"It won't happen any time soon. In any case, Yango has more to do with the drivers and less to do with autonomous driving."
Published by Globes, Israel business news - en.globes.co.il - on November 14, 2019
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