‘Disruption’ has become a highly accepted concept in business and management, an event one can only expect to happen at some point in time, whether in production, marketing, distribution and retail, or in other functions of business. Disruptive innovation, mostly technological and digital, can be helpful in fixing market weaknesses due to lack of progress in methods and processes applied by ‘legacy’ companies; operational inefficiencies; and insufficient competition in a market. A disruptive innovator may also succeed by capturing consumer needs hidden or left ignored by existing complacent competitors. But disruptive innovation is not a magical cure; actually, it tends to be quite a radical form of cure. Innovations of this kind have the potential to destabilise a market, create disorder and confusion, and cause dysfunction if the transformation is spiralling out of control, a matter of real concern to all parties involved.
Disruptive innovations have been introduced in various industries or categories of products and services. It often occurs when a technological company imports a method or a tool developed in the hi-tech community into a specific product or service category, whose agents (e.g., providers, customers) are mostly unaccustomed and unready for. Yet the innovation can hit roots if it meets a large enough group of innovative or tech-orientated consumers who welcome the new solution (e.g., a way of acquiring or using a service). Thereafter, incumbent competitors find themselves obligated to adopt, if capable, similar or comparable methods or tools in their own operations. High-profile examples include: (a) Uber that expanded the concept of taxi-rides and ridesharing; (b) Airbnb that disrupted the field of hospitality and short-term lodging (‘home-sharing’ vs. hotels and guest houses); (c) Netflix that altered the habits of television viewing. Also, companies in a new sector of financial technology (‘fintech’) offer digital tools (mobile app-based) for consumers to manage their banking accounts, budgets and investments, challenging ‘legacy’ banks and financial service providers.
Certain technological innovations turn out, however, to be disruptive across-the-board. For instance, online social media networks and digital marketing methods (reliant on Big Data and analytic techniques) have been influencing dramatically how companies approach customers and interact with them in many product and service categories (beyond technological goods or information and communication technology services). Furthermore, developments in artificial intelligence (AI) and robotics promise to introduce even more significant changes, from manufacturing to marketing and retail, and in the functioning of various products (e.g., smart home appliances and devices, the ‘upcoming’ driverless car).
Much damage may be caused if the innovative alternative solution is incomplete or the planning of its implementation is flawed. Overall, everyone should be prepared for a turbulent period of resistance, adjustment and adaptation that may extend until the ‘new-way-of-doing-things’ is assimilated in the market, or rejected. The story of an episode regarding taxi transportation at the international airport near Tel-Aviv exposes how wrongful introduction of a disruptive innovation in this service domain can lead to blunder and service failure. Mistakes made because of flawed planning in a highly sensitive process of market transformation may turn the disruption into a mess-up instead of improvement of the service.
The management of the Israel Airport Authority (IAA) launched earlier this year (2017) a new bid for taxi service operators to ride passengers into and from Tel-Aviv (Ben-Gurion) International Airport. In the end of May the 10-year permit of the primary taxi company licensed to provide service in terminals at the airport expired; the IAA wanted to open the service to competition in expectation that it will lead to fare reduction and perhaps other improvements (e.g., availability, time keeping of taxi journeys).
The competition is concentrated in fact on picking-up passengers from the airport; if prohibited, taxi cars will have to return empty after dropping off their former passengers at the flight departure terminal. A primary taxi company was given the advantage.
Note: Shuttle or minibus service providers are allowed in addition to take passengers to more distant cities like Jerusalem and Haifa.
Only two companies responded and participated in the bid: the incumbent service provider (“Hadar-Lod”) and the mobile app company Gett that mediates taxi service. The veteran taxi company has been riding passengers to and from the airport for 40 years. It has definitely developed proficiency in riding air travellers over the years but there were also misgivings about its practices, linked to its status as mostly an exclusive taxi service for individual passengers (alone, family and friends). A few years ago the Ministry of Transport intervened by publishing and issuing a calculator of recommended fares to help passengers ensure they pay fair prices.
Gett (originally GetTaxi, founded in 2010) is managing a network connecting subscribed taxi drivers with passengers through its mobile app. The company is now operating in over 100 cities in four countries (Israel, United States, United Kingdom, Russia). The location-based app facilitates matching between a passenger and a driver, from service ordering, through journey planning and pricing, and concluding with payment via Gett. Unlike Uber, Gett is working only with professional licensed taxi drivers and is not involved in supporting informal ridesharing journeys by unauthorised drivers (e.g., UberPop). The app of Gett is focused on benefits of convenience of ordering (no street hailing, no phone call), efficiency of matching through the network, and of course promising a lower journey cost.
Still, the company hires its subscribed taxi drivers but is not their employer — they divide the fare income between them to the will of Gett. The company is commending itself on its website for higher pay to drivers, in-app tips and 24/7 live support, motivated by the idea that if Gett treats drivers better, they will reciprocate by treating their riders better. However, the arrangement has repeatedly emerged as a source of friction. Gett has changed its name, removing ‘Taxi’ from the title, to allow for extending its brand into a variety of delivery services (e.g., food, parcels) to domestic and business clients.
Taxi cars of member drivers in Gett’s network are marked by a label with its logo on the car’s side. Taxi drivers that belong also to a traditional local taxi company (‘station’) may carry its small flag on top of the taxi. However, in recent months taxi cars can been seen more frequently in Tel-Aviv area carrying only a flag of Gett.
The absence of more traditional taxi companies from the bid could be the first sign of a problem. Those companies may have found it not worthwhile for them to commit to provide regular service at the airport. But as a replacement, Gett is not truly a ‘physical’ taxi company and has unique characteristics. It leaves the operation of taxi service by Gett open to much ambiguity. Drivers subscribed with Gett can ‘double’ by riding passengers either via Gett’s app or with a standard taxi meter installed in the car. Are traditional taxi companies ‘hiding’ behind drivers also associated with Gett? But if Gett had the permit, would it allow drivers in its network to take passengers also without its app? (i.e., leave money on the table from such journeys.) Yet, Gett’s drivers have to choose in advance in what periods they act as standard taxi drivers or as taxi drivers riding passengers on call from Gett’s app. This situation could lead to confusion: under what ‘hat’ are the drivers allowed to get in and out of the airport and at what time are they allowed to choose what type of passenger-customer to ride.
Furthermore, the service could be binding and unfairly restrictive for passengers who are not subscribed customers of Gett, especially when arriving from abroad. There could be several reasons for passengers to find themselves in an inferior position: Passengers may not have a mobile phone that supports software applications; they may not feel comfortable and skilled in using mobile apps; or passengers may not be confident in paying through a mobile app (e.g., prefer to pay taxis in cash). It may be hard to believe but such people do exist in our societies in different walks of life. It is also known that smartphone users are selective in the number and sources of apps they are willing to upload to their devices. It could be futile to try to force consumers to upload a particular app, but it would be especially unfair to require users to upload an app of Gett so they can be driven away from the airport. The IAA should have not allowed from start an outcome in which a company of the type of Gett becomes a single provider of taxi service at the airport, primarily for riding returning residents or visiting tourists (the latter may not even be aware of Gett beforehand). The ‘disruption’ would have actually become a distortion of service, leaving customers either with no substitute or with confusion and frustration.
But something else, awkward enough, happened. The two companies reached an agreement to bid a joint offer in which they committed to lower fares by 31% on average from the current price level. It is unclear who initiated the move, yet it is reasonable that Gett was about to offer a much lower price for taxi rides affordable by its model and platform, and probably the management of the Hadar-Lod taxi company was alerted and in order to secure its stay in business felt compelled to match such an offer or simply join hands with Gett. The drivers belonging to Hadar-Lod thought otherwise and started at the end of May a spontaneous strike. The two bidders tried to reach a new agreement but eventually the veteran company had to retreat. One cannot be certain that drivers with Gett would have co-operated — the new price level may have been affordable for Gett but not necessarily worth the ride for the drivers. Apparently, the recommended official price was already or about to go down 7%, and with the further reduction committed in the bid offer, the taxi fare would drop on average by 38%. One would have to work many more hours to fill the gap. The cut was too deep — it may have worked well for the companies and their management but could never work for the drivers. (Note: An explanation from a taxi driver with Gett helped to describe the situation above.)
Having taxis from both companies in service would have provided some remedy with a transportation solution for every type of customer-passenger. But a certain mechanism and a person to supervise would be needed to keep order on the taxi platform. For instance, travellers subscribed with Gett may schedule their ride while in the luggage hall, and there would be Gett taxis waiting ready to pick them up. One would have to make sure there are enough taxi cars available for the other passengers.
That bid is now cancelled. The IAA declared that it would soon publish a new bid, and until its results are known, any licensed taxi driver can arrive and leave the airport with passengers as long as they register with the IAA. Are the official recommended prices still in place? Who will regulate the operation and watch that taxi drivers respect consumer rights of their passengers? Who will supervise in particular the allocation of passengers to authorised taxis at the arrival terminal (i.e., dispatching)? Answers will have to be found on ground. It is no surprise that the new situation has been received with apprehension by consumers-travellers and taxi drivers alike.
Consumers will have to learn from experience or relatives and friends what are acceptable price ranges for rides into and from the airport, and form anew their references for a fair price and the highest (reservation) price they are willing to pay. They may also set a low price level under which the reduced price may be suspected as “too good to be true”. A discounted price by a single driver to attract passengers, which deviates too much from a ‘normal’ price, should alarm the customer-passenger that something could be wrong with the service, or else there is a logical reason for the reduction. For example, the taxi driver may suggest ridesharing a few arriving passengers to a common destination area in Tel-Aviv — some passengers may be happy to accept, but the terms must be stated in advance. It is unclear how long the interim period will last, but the notions about pricing described above may remain valid even afterwards in a new service regime.
Making changes like adding competition, and especially by involving a disruptive innovation in the service domain, can improve matters. However, the process must be handled with care and watched over to avoid the system from derailing during the transformation. In this case, the IAA could and should have planned and managed the bid and implementation of its plausible outcomes more wisely. At this time, there must be at least one traditional taxi service operator allowed in addition to an innovative service mediated by a company like Gett at the airport, and rules have to be set and respected. Rushing into any drastic and innovative transformation of service will not do good for its chances of success, just invoke confusion and resentment — sufficient time and support must be given for the customers-passengers and taxi drivers to accommodate and adapt to the new service settings at the international airport.
Ron Ventura, Ph.D. (Marketing)
One thought on “Disrupting or Simply Messing-Up: The Case of Taxi Service”
Highly informative piece which sheds light into the failed bid.