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‘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)

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The location-based technology of beacons is a relatively recent newcomer in the retail scene (since 2013). Beacons provide an additional route for interacting with shoppers in real-time via their smartphones as they move around in stores and malls. Foremost, this technology is about marrying between the physical and the digital (virtual) spaces to create better integrated and encompassing shopping experiences.

It is already widely acknowledged that in-store and online shopping are not independent and do not happen completely separate from each other; instead, experience and information from one scene can feed and drive a shopping experience, and purchase, in the other scene. In particular, mobile devices enable shoppers to apply digital resources while shopping in a physical shop or store.  Beacons may advance retailers and shoppers another step forward in that direction, with the expectation to generate more purchases in-store. The beacon technology was received at first with enthusiasm and promising willingness-to-accept by retailers, but these subdued in the past year and adoption has stalled. A salient obstacle appears as consumers remain hesitant and cautious about letting retailers communicate through beacons with their smartphones and the implications it may have on their privacy.

In essence, beacons are small, battery-powered, low-energy Bluetooth devices that function as transmitters of information — primarily unique location signals — to nearby smartphones with an app authorised to receive the information. The availability of an authorised app (e.g., retailer’s, mall operator’s) installed on the consumer’s smartphone (or tablet) is critical for the communication technology to function properly. Upon receiving a location signal, the app is thereby triggered to display location-relevant content for the shopper in-store (e.g., product information, digital coupons, as well as store activities and services).

Additional requirements may be in force such as the retailer’s app being open during the shopping trip or that the shopper consents (opts-in) to allow the app receive information from beacons, but these do not seem to be necessary or mandatory conditions for the technology to work (e.g., an app may be set with ‘approval’ as default). Ambiguity that seemingly prevails about the extra requirements could be one of the sour points in the technology’s implementation. On one hand, the application of beacons is more ethical when setting up at least one of these requirements, and should endow it with greater credibility among consumers. On the other hand, any additional criterion for access of beacons to smartphones — assuming the app is already installed — could limit further the number of participating shoppers and reduce its marketing impact.

  • Only smartphones (and tablets) support apps, not any mobile phone. It should not be taken for granted that everyone has supporting smartphones, hence raising another possible limiting requirement on access for beacons (though in decline in developed countries). Another problem, yet, concerns the distinction between Apple iPhones operated with iOS and smartphones of other brands operated with Google’s Android — beacons have to work with either type of operating system and compatible apps but they do not necessarily do so (e.g., iBeacons are exclusive for Apple’s own mobile devices).

There are some more variations in the application of beacon technology in retail. Beacon devices may be attached to shelves next to specific product displays or to fixtures and building columns in positions aimed at capturing smartphones of shoppers moving in a close area (e.g., an aisle). If the beacon is associated with a particular product, the shopper may engage using the app by actively approaching the phone to the beacon. Otherwise, the app communicates with the beacons without  shoppers taking any voluntary action. Furthermore, some applications of beacon technology suggest sending information other than location signals from the beacon, such as product-related information, and receiving customer-related information by the beacon from the smartphone.

Reasonably, retailers would be interested first in applications of the technology for practical marketing purposes in their stores. However, beacon technology may also be utilised in research on shopper behaviour, a purpose now appreciated by many large retailers.

Marketing Practice in Retail

The instant sales-driven idea of application of beacon technology evoked by retailers is to introduce special offers, discount deals and digital coupons for selected products as shoppers get near to their displays. Notwithstanding this type of application, location-based features and services enabled via beacons can be even more creative and useful for shoppers, and beneficial for the retailers.

Relevance is key in achieving an effective application of the technology. Any message or content must be relevant in time and place to the shopper. That is, the content must be related to available products when the shopper is getting close enough to them. The content should not be too general in reference to any product in the store but to products in a section of the store where the shopper passes-by. Triggering an offer for a product just after the shopper entered a store is less likely to be effective, unless, for example, there is a special promotional activity for it in a main area of the floor. The retailer should not err in introducing an offer for a product item that is not available in the specific store at that time. Furthermore, if the app can link product information with customer information, it may be able to generate better content that is both location-relevant and personalised. The app could make use of accessible information on personal purchase history, interests and demographic characteristics. This higher-level application surely requires greater resources and effort of the retailer to implement.

The beacons’ greatest enemy could be their use for bombardment of shoppers with push or pop-up messages of offers, deals, discounts etc. This practice is suspected as a major fault in the early days of the technology that may be responsible for the slowdown in adoption lately. There could be nothing more irritating for a shopper if every few meters walked in the store he or she is interrupted by a buzz and message of “just today offer on X” that appears on the smartphone’s screen. Retailers have to be selective lest customers will avoid using their apps. It is much more important to produce adaptive, relevant and customer-specific messages and content overall (Adobe, Digital Marketing Blog, 4 February 2016).

  • The grocery retail chain Target, that launched a trial with beacons in 50 US stores in the second half of 2015, committed, for instance, to show no more than two promotional (push) messages during a store visit (TechCrunch.com, 5 Aug. ’15).

More intelligent and helpful ways exist to apply the beacon technology in interaction with the app than promotional push messages. First, content of the “front page” of the app can change as the shopper progresses in the store to reflect information that would be of interest to the shopper in that area of the store (e.g., show hyper-linked ’tiles’ for nearby product types). Second, beyond ‘technical’ information on product characteristics and price, a retailer can facilitate shopper-user access to reviews and recommendations for location-relevant products via the app. Third, if the shopper fills-in a shopping list on a retailer’s app (e.g., a supermarket), and the app has a built-in plan of the store, it can help the shopper navigate through the store to find the requested products, and it may even re-order the list and propose to the shopper a more ‘efficient’ path.

Beacons are associated mostly with stores (e.g., department stores, chain stores, supermarkets). However, beacons may also be utilised by mall operators where the ‘targets’ are stores rather than specific products. An application programme in a mall may command collaboration with the retailers (e.g., store profile and notifications, special promotional messages [for extra pay], content contributions).

In another interesting form of collaboration, the fashion magazine Elle initiated a programme with ShopAdvisor, a mobile app and facilitator that assists retailers in connecting with their shoppers through beacons. As an enhancement to its special 30th anniversary issue, Elle launched a trial project in partnership with some of its advertisers (e.g., Guess, Levi’s, Vince Camuto) to introduce their customers to location-based content with the help of ShopAdvisor (focused on promotional alerts)(1).

Consumers are concerned about tactics of location-based technologies like beacons that get intrusive and even creepy; they become adverse towards the way such apps sometimes surprise them (e.g., in dressing rooms). Indeed, only shoppers who installed an authorised app can be affected, but for customers who installed such a retailer’s app, with other benefits in mind, it can be disturbing at times. The hard issue at stake is how the app alerts or approaches its shoppers-users with location-based messages. Shoppers do not like to feel that someone is watching where they go.

The shopper may believe that if the app remains closed on the smartphone he or she cannot be approached. But if, as reported in CNBC News, a dormant app can be awaken by a beacon signal, this measure is not enough. This may happen because the shopper previously allowed the app to receive the Bluetooth signal or the app “assumed” so as default.  The shopper must take an extra step to disable the function at the app-level or device-level (Bluetooth connectivity). Retailers should let their customers opt-out and be careful in any attempt to remotely open their apps on smartphones (so-called “welcome reminders”), because imposing and interfering with customer choices may get the opposite outcome of removing the app.

The app may display ‘digital’ coupons for the shopper to “pick-up” and show later at the cashier (or self-service check-out). It is reasoned that if coupons are shown at the right time shoppers will welcome the offer, no resentment. The manner shoppers are alerted can also matter, by not being too obtrusive (e.g., “Click here for coupons for products in this aisle”). Shoppers told CNBC News that if digital coupons were offered to them by the app just when relevant, they would be glad to use this option, being more convenient than going around with paper coupons, but they would want the ability to opt-out.

Shopper Behaviour Research

The beacon technology may further contribute to research on shopper behaviour in stores or malls. Specifically, it may be suitable for collecting data of shopper traffic to be used in path analysis of the shopping journeys. The information may cover what areas of the store shoppers visit more frequently, how long one stays in a given area, and sequences of passes between areas.

Nonetheless, there are methodological, technological and ethical factors retailers and researchers have to consider. At this time, there are distinct limitations to be recognized that may inflict on the validity and reliability of the research application of beacons. Ethical issues discussed above regarding the provision of access of beacons to mobile apps furthermore apply in the research context.

This methodology involves tracking the movements of shoppers. Beacon technology may record frequency of visits in each area of the store separately or it may track the presence of a particular shopper by different beacons across the store. A beacon may also be able to send repeated signals at fixed intervals to a smartphone to measure how long a shopper remains in a given area. However, this type of research is not informative about what a shopper does in a specific location as in front of product shelves, and thus it cannot provide valuable details on her decision processes. Hence, retailers cannot rely on this methodology as a substitute for other methods capable of studying shopper behaviour more deeply, especially with respect to decision-making. A range of methods may be used to supplement path analysis such as interviewer’s walk-along with a shopper, passive observations, video filming, and possibly also in-store eye-tracking.

An implementation of the technology for research would require a comprehensive coverage of the premises with beacons, perhaps greater than needed for marketing practice. It should be compared with alternative location-based technologies (e.g., Radio Frequency Identification [RFID], Wi-Fi)  on criteria of access, range and accuracy, and of course cost-effectiveness. For example, the RFID technology employs tags ( transmitters) regularly attached to shopping carts — if a shopper leaves the cart at the end-of-aisle and goes in to pick-up a couple of products, the system will miss that; smartphones, however, are carried on shoppers all the time. Beacon technology may have an important advantage over RFID if location data is linked with customer characteristics, but this is a sensitive ethical issue and at least it is imperative to ensure no personal IDs are included in the dataset. All alternative technologies may also have to deal with different types of environmental interferences with their signals. Access would have both technical and ethical aspects.

A mixture of problems emerges as responsible for impairing the utilisation of beacon technology, according to RetailDive (online news and trends magazine), mainly consumers who do not perceive beacon-triggered features as useful enough to them and retailers troubled by technical or operational difficulties. Among the suggestions made: encourage pull of helpful information from beacons by shoppers rather than push messages, and speed-up calling staff for assistance via beacons (RetailDive, 17 December 2015). A recent research report by Adobe and Econsultancy on Digital Trends for 2016 indicates that retailers are becoming more reluctant to implement a geo-targeting technology like beacons this year compared with 2015 (a decrease in proportion of retailers who have this technology in plan or exploring it, against an increase in proportion of those who are not exploring or do not know). Conspicuously, there seems to be much more optimism about high effectiveness of geo-targeting technology at technology and consultancy agencies than among retailers, who seem to be much more in the opinion that it is too early (2). Agencies could have better understanding of the field, yet it signals an alarm of disconnect between agencies and their clients.

There is potential to beacon technology with clearly identifiable benefits it can deliver to retailers and consumers. It is still a young technology and requires more development and progress on various technical, applied and ethical aspects.  Promotional messages are  important tools but must be used in a good and sensible measure. A retailer cannot settle for a small set of fixed messages. It has to develop a dynamic ‘bank’ of messages, large enough to be versatile over products, (chain) stores, and consumer groups, and maintain regular updates. However, retailers have to develop and provide a more rich suite of clever content and practical tools based on location. Consumers will have to be convinced of the benefits enabled by beacons, yet feel free to decide when and how to enjoy them.

Ron Ventura, Ph.D. (Marketing)

Notes:

(1) “App Helps Target Shoppers’ Location and Spontaneity”, Glenn Rifkin, International New-York Times, 31 December 2015 – 1 January 2016.

(2) “Quarterly Digital Intelligence Briefing: 2016 Digital Trends”, Adobe and Econsultancy, January 2016 (pp. 24-25). The findings are considered with caution because of relatively small sub-samples of respondents on this topic (N < 200).

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An inspection of the mobile app-based services run by companies like Uber, Gett (formerly GetTaxi), Lyft or Hailo raises important issues about the distinction between taxi and non-taxi ridesharing transportation for individuals. Developments of the past two years seem to have broken the boundaries of driving-for-pay. A utility that started as an option for hailing licensed taxis by a mobile app is turning into an unruly “business” of private drivers. Uber in particular is the source of disruption in the ‘private transport’ sector that is causing much public controversy and protest by professional drivers.

The convenience in hailing a taxi using a mobile app when needed from anywhere a passenger may be in town, instead of hand-hailing in the street until a free taxi shows up is clear and undisputable. Through technology a taxi driver in vicinity is notified and can arrive without further human briefing to the passenger to pick him or her up for the ride — it can save precious time and nervous waiting. It may also help drivers reduce wasted time and fuel whilst wandering between “jobs” until a new customer is found. The applications in market were aimed originally to connect between consumers-passengers and drivers of taxis, black cabs and limousines.

A crucial aspect to notice about those mobile e-hailing applications is that they allow drivers to take customers independently of a present employer or a fleet they may belong to. Briefly, an app of this type incorporates geo-location, reservation management and credit payment functionalities so that a driver is related only with a passenger on one side and the technology company operating the app on the other side. No cash is actually passing between the three parties involved. This arrangement soon proved to have a potential to involve a larger variety of employed and non-employed, trade-licensed and non-licensed drivers.

For taxi companies or syndicates the problem is twofold. Professional drivers often depend on local fleet operators for their license, car and livelihood because of the companies’ strong influence over issuance of new taxi licenses. A license and an authorised (properly marked) taxi vehicle are harder to get without affiliation to a fleet. The new app utility may open a window for changing the balance of power between companies and upset professional drivers. Furthermore, affiliated taxi drivers may occasionally take passengers reached via the mobile app without going through the fleet, and perhaps even without notifying the dispatcher. The fleet operator risks here a loss of control, authority and income (grabbed instead by the tech company — Uber for example collects 20% of the fare).

Some co-operation between the mobile technology companies and local taxi operators and associations may still exist (e.g., authorised taxi vehicles in Israel can be seen carrying a sticker of GetTaxi) but that is less likely now, especially after Uber expanded the scope of drivers it would work with. That is, Uber opened the gate for private drivers, anyone who has a driving license and a car, to provide “private ridesharing” transportation. Subsequently, frictions with taxi fleet operators have expanded into hostile struggles with unions and professional associations of taxi drivers as well as city and state authorities.

Uber, Gett, Lyft, Hailo, and others similar to them, are designated as transportation network companies ; the networks are constructed, accessed and managed by means of mobile applications. The challenge mounted primarily by Uber is the expansion of the network to allow non-formal drivers to transport other passengers in their private cars for payment. The schemes of Uber for this “ridesharing” portion of their network are known in different countries as UberX, UberPop or UberPool. However, the descriptive title of ‘ridesharing’ for this activity is contentious.

Many probably know car-pooling from their time in college or university: students group together to transport to or from campus in the car of one of the group members and share the cost of fuel between them. Frequently the participants are friends or acquaintances (e.g., classmates, sharing the rental of a house) but at the very least they are connected by affiliation to the same institution. Due to rise in cost of fuel, traffic congestion and air pollution, car-pooling has become more prevalent also among working peers employed in the same organization (as among colleagues whose work is in City A and live in City B). We may see another form of saving on transportation by a small group of people who rideshare a taxi (e.g., for an evening out at a restaurant or on the way back home, dropping each at a separate address). These are usually voluntary and informal arrangements where people related to some degree either ride in the car of one of the group members or hire together a taxi with a professional driver. Uber tries to emulate both and yet enables none of these arrangements.

The term ‘ridesharing’ seems rather ambiguous the way Uber claims to implement it. Uber, Lyft, and others like them, present themselves as platforms for “peer-to-peer transportation”, not as passenger services. But who are the peers when ridesharing with Uber’s schemes mentioned above? There is no guarantee that the driver and passenger are “peers” or acquaintances of any kind nor is there any requirement that a group of people “share” the ride with Uber’s driver. The driver is not formally required to have the same destination as the passenger nor does the passenger’s destination need to be on the driver’s route anywhere else. In real terms, passengers are actually hiring a driver known to them only via the mobile app with none of the assurances that normally accompany the hiring of a licensed taxi driver. Administrative and legal authorities in various countries noticed that this operation occurs in grey area and started to suspend or ban such questionable schemes by Uber in different cities or countries.

  • Given the capital Uber has raised thus far it is valued as of May 2015 at $40bn. Uber operates in more than 250 cities in nearly 60 countries, though in some locations part of its activity is suspended due to legal disputes.

In the Netherlands Uber tried to argue that its UberPop scheme is a car-pool service as opposed to a taxi service. However, the Trade and Industry Appeal Tribunal in the country rejected this defence claim because it failed the legal requirement of taxi drivers to have a special license. The ruling on 8th December 2014 determined that “drivers who transport people for payment without a license are breaking the law“. UberPop was also banned a day after by a court judge in Spain because drivers lacked official authorisation to offer driving services. It should be noted that the cost of the ride is not estimated and agreed by the co-passengers with the driver to share but it is a fare determined by a third-party tech company. Moreover, people in a private, non-formal arrangement also usually do not deal with each other by credit cards. The claim of Uber sounds naive and unrealistic or simply a case of pretence.

By the end of 2014 Uber was dealing with additional legal restrictions and bans from the US (e.g., Portland, Orgeon; Nevada; and even in Uber’s hometown San-Francisco) and Canada (Toronto), through Europe (e.g., Paris, France; Berlin and Hamburg in Germany) to India (New Delhi) and Thailand in Asia. A map chart by The Telegraph depicts all the places where Uber is operating and where its activity has been banned or curtailed. The UberPop service is currently under scrutiny in Paris for failing a law passed late last year that regulates the services of chauffeured cars vis-à-vis taxis; Uber’s office in Paris was raided by police in March, confiscating mobile phones and documents (*).

In face of the rising criticism in Europe Uber adamantly argues that it is a technology company, not a transport company; thereby it does not own the vehicles nor hire any of the drivers who engage in its schemes, including UberPop. In the view of Uber, its mobile technological platform only helps in mediating between the drivers and passengers. Yet the European Commission is not hurrying to accept this argument, underlying Uber’s own complaints that national laws in Europe unjustly constrain its competition with taxi services. Uber may not directly transport people but its digital platform has an impact on transportation, a spokesperson for the EC commented in response. Indeed, can Uber defend itself as merely a technology company without taking any responsibility for the effects of its mobile app’s activity on the physical transportation services?  This matter is now under examination by the EC as part of an overall study of the taxi and chauffeur service industry.


The brand (corporate-root) name “Uber” (originally Über in German) is problematic on two counts. The company transmits through its name that it owns a superior transportation network. First, it is an arrogant claim that may be perceived as provocative particularly by licensed taxi drivers for being contested by Uber’s network of private drivers who operate above them and the rules of transportation service that confine them. Second, the name is quite insensitive because of the associations it may bring to mind that carry a strong negative connotation from the 1930s and 1940s. In addition, the attempt of Uber to justify themselves as only a technology company not responsible for the operation of transportation itself alerts one to think that the company is not inasmuch “Über Alles” (above all) as it is “Über Chuchem” (over-smart in Yiddish). The choice of name was not clever. It is already wide-spread around the world, but the name is tainted and may levy a price in future.

Uber and competing technology companies succeeded in introducing alternative private transport solutions for a reason: consumers who have become too frequently unsatisfied and even frustrated with the service delivered by licensed taxi drivers were open to the new type of “ridesharing” solutions. It may be triggered by complaints on low in-time availability, high cost and lack of reliability (e.g., not taking a shorter route, attempt to evade turning-on the taxi-meter). Sometimes it could be a feeling that the driver did not feel obliged enough to be kind to the passenger. Surely, many taxi drivers are honest, reliable and friendly, but the image of their service is tarnished by those who are less so. Obviously. the use of an e-hailing app is only part of the story here.

The main goal is protecting the quality and safety of taxi rides and other private chauffeur transport services. The business model offered by Uber is threatening to cause more damage than improve the situation — one cannot let these services be operated without oversight by official professional transportation agencies. There are some major concerns to address: (a) assuring the driving qualifications of the private drivers (though seeing how some authorised taxi drivers behave on the road makes one wonder also about their qualifications and the traffic rules they abide to…); (b) approving the physical fitness of the private driver; or (c) certifying the technical fitness of the private car used. Uber has already been charged with not making proper checks on the drivers who join them. Uber, though not alone, cannot be left to set its own rules for drivers.

The issue of cost and how ride-fares are measured is receiving special attention. Uber in particular has been charged with surge pricing (i.e., enacting a higher rate at peak hours when taxis are more difficult to get), a conduct other companies distance themselves from. More generally, the GPS-based assessment of fares is a subject of debate — is it accurate enough and can it be allowed in place of approved taxi-meters? According to Transport for London (TfL), fare calculations on smartphones are sufficiently divergent from taxi-meters’ for smartphones not to constitute a conventional metering equipment. Cab drivers in London went on strike to protest to TfL the special status of Uber, yet in a strange twist this stand may be used to protect Uber as a non-taxi service — TfL promised to investigate and resolve the conundrum. The fares at Uber are normally 15-20% lower than with licensed taxis. Passengers have to trade-off the expected saving against uncertain outcomes (e.g., reliability, safety) when riding with unauthorised private drivers. The decision may be different however if drivers applying Uber’s app were approved by official agencies.

A complex problem developed in multiple countries and is going to be difficult to sort out. In the short-term, taxi associations may collectively set-up or continue contracts with local mobile technology companies for operating sponsored e-hailing apps and guarantee 5-10% discounts to their users-passengers. In the long-term, it will be necessary to amend wounded relations between taxi drivers and consumers, and to consider if and how to accommodate different classes of authorised-licensed drivers, all kept under oversight of official professional agencies. Meanwhile, the mobile tech companies who probably sense the difficulties in the transport sector are already looking for new frontiers, to expand the use of their apps in other services (e.g., deliveries).

Ron Ventura, Ph.D. (Marketing)

(*) Uber Gets Reprieve in Paris in Fight on Low-Cost Service, International New-York Times (with Reuters), 1 April 2015.

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