It’s the User-Experience Stupid: Why Uber Is Destroying the Taxi Industry

Uber logo

Perhaps no market has been more quickly “disrupted” than that of taxis and chauffeur-driven cars. Whatever you want to say about the company’s ethically challenged management, Uber has delivered a fantastic consumer experience all the way around and become a global phenomenon in a very short period of time (since 2010).

Uber is being fought in many countries and US municipalities. However Uber will probably ultimately win most of those fights. As an interesting aside, vested interests have always sought to use the state or legal apparatus to block new entrants when their markets and incomes were existentially threatened. This goes way back to the European Middle Ages.

Various government and private interests have aligned to try and fight Uber. Yet what is so threatening to the taxi industry is the fact that Uber is simply better, more pleasant, cleaner, more convenient and usually cheaper.

In March the New York Post, remarkably, announced that there were now more Uber cars driving in NYC than yellow cabs. Accordingly the market for taxi medallions in NYC has also taken a bit hit. This is essentially the taxi futures market.

The following chart shows the impact of ride-sharing services on the San Francisco Taxi industry:

Uber impact on SF taxi industry

Source: SF MTA/The Atlantic

We can certainly debate any or all of the following questions surrounding Uber:

  • The ethics and m.o. of the company
  • Whether Uber drivers are sufficiently background-checked and insured
  • Whether drivers can actually make a living wage with Uber
  • Whether, if Uber and its imitators win, the long term impact will be bad for drivers and ultimately for consumers
  • Whether Uber, as a future public company, has staying power over the long term

I’m focused on the user-experience here, however. Heavily regulated and quasi-monopolistic, the taxi industry became complacent. The passenger-user was effectively an afterthought in most markets, especially in places like New York. Dealing with dispatchers in other markets was painful and you couldn’t ever be confident that the cab would actually show up.

Indeed, the terrible experience of getting cabs in San Francisco inspired Uber:

Garrett’s big idea was cracking the horrible taxi problem in San Francisco — getting stranded on the streets of San Francisco is familiar territory for any San Franciscan.

The well-designed app and — this cannot be emphasized enough — the “payment in the background” made using Uber a radical improvement over cabs. After one Uber ride, generally you were hooked.

It’s possible, though unlikely, that the taxi industry will be able to recover and upgrade its service to match Uber. For example, Flywheel has tried to duplicate the app-based Uber experience but it’s a weak imitation. I’ve tried to use it several times but won’t any further.

Here’s a secondary point: if you’re an incumbent being disrupted you can’t simply create a “me-too” offering. You have to go beyond what the insurgent is doing. That may be effectively impossible in most industries where the culture and economics are typically stacked against creative innovation.

In some markets, such as Manhattan, taxis will undoubtedly survive. New Yorkers have fewer reasons to use Uber. However in most other places, such as San Francisco, the Uber experience is so much better, that it is decimating the existing industry.

In another sense Uber is a lesson in customer service and what providing a superior customer experience can do.

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