In early October 2020 the UK’s Competition and Market Authority (CMA) invited iCabbi to formally engage in a preliminary investigation into Uber’s proposed acquisition of our competitor Autocab. This process has involved a considerable amount of time and resources on our part, including a formal, recorded web based meeting, the completion of questionnaires supplied by the CMA, addressing ongoing written queries for clarification and a formal written submission that was drafted together with a legal team who are experts in Mergers & Acquisitions.
With the CMA we are engaging with a body that has to familiarise themselves with an industry that is largely unknown to them, and the nuances within it. I’m sure it’s an incredibly difficult challenge for them to undertake but one they’re well able for given their experiences learning how different industries work in their various investigations.
The challenge on our part is not only to describe how the taxi and private hire industry in the UK works, but to try to succinctly and articulately paint a picture of where we believe the UK Taxi and Private Hire industry could be in 3-5 years should Uber’s acquisition of Autocab go ahead.
This is of course our view, and is a prediction or a forecast. We can only make this based on the information we have to hand, and by looking at what has already happened in other markets, both in relation to Uber and in other platform based industries.
The clearest example we can find of that is the Amazon platform and the retailers on it. In this case Amazon is not only a platform for its own sellers, but is also a retailer itself on its own platform. That is they are competing with the very retailers that offer so much choice on their platform. This sounds very like the situation we may have if Uber were to own Autocab, and thereby have a degree of influence or control over demand and the taxi and private hire companies using their system.
Uber’s slow growth in the UK:
As both Uber and Autocab have pointed out, Uber has not entered into any new cities or towns in the UK in the last few years. One can only imagine that’s due to the considerable effort that would be required to enter each new town or city relative to the projected return that would be delivered.
One particular barrier is local councils and regulators holding fast in their licensing requirements, that have been designed to protect everyone in the industry including passengers, drivers and local cab companies. Until now to attain the cross UK coverage they crave Uber would have to get approval to operate in each market which would take a great deal of time, lobbying efforts and costs.
Then once Uber get approved to enter a new UK market they have to source drivers (who have to be vetted to ensure that they meet the required regulatory or licensing levels), often providing costly incentives for drivers to accept Uber trips and then there is the considerable cost of building up a base of passengers (marketing, market entry pricing discounts etc).
Each local council and regulator operates on the ground in their towns and cities. They have an inherent understanding on how different service businesses interact with each other and their customer bases, and indeed their importance and impact on the local communities they are a part of. This is theoretically to the benefit of all stakeholders in the community.
Uber’s proposed acquisition of Autocab is incredibly clever and insightful. In one fell swoop they can cut out the most cumbersome and costly elements required to have a presence right across the UK.
My view is that this is part of a medium to long term plan to build a quasi monopoly in the UK taxi and private hire industry. Should this prediction come to pass it would allow Uber to crush the competition (taxi and private hire companies) and ultimately to dictate pricing at the cost of the end passenger.
Partnership – why not become an Aggregator?
Perhaps Uber might argue that the set up and structure of the localised licensing and regulatory environment in the UK is antiquated and is a hindrance to the growth of big tech and ease of use for the passengers that want it.
Both Uber and Autocab have also publicly declared that the proposed acquisition of Autocab by Uber is in the name of partnering with the traditional taxi and private hire industry.
Fair enough, there is however a problem with both arguments. There are no restrictions on big tech operating throughout the UK by way of partnerships. Companies such as Uber could simply partner with the taxi and private hire industry as arms length aggregators and send trips to drivers that want to accept them via integrations to their current dispatch technology companies. I’m not going to speculate on if/how the traditional taxi and private hire industry would want to partner with Uber, however based on claims from Autocab around the levels of companies wishing to speak with them we can assume that some are interested.
An aggregator model would be very simple to implement, it would be transparent and easy to understand (driver gets X% of trip price, taxi/private hire company gets Y%, Uber gets Z%). Uber would simply become a marketing machine, a brand such as Booking.com in the hotels world. All they would have to do is generate demand and not have to worry about anything else as their partners would be responsible for fulfilling their trips.
With this approach they would have little or no integration costs, they wouldn’t have the costs associated with acquiring Autocab (or the hassle of integrating them into the global business), they would theoretically have access to even more taxis and private hire companies as they would have have the whole of the UK market available to them (dispatch companies will integrate to whatever aggregators their customers need them to). But having said that they also wouldn’t have access to the treasure trove of taxi passenger data that Autocab are hosting in their customers dispatch systems.
It’s not therefore a big challenge to see taxi and private hire companies accepting trips from Uber (or similar companies) under an aggregator model by using a well managed channel strategy such as hotels use to operate hand in glove with the likes of Booking.com and Hotels.com.
That is they give a limited % of their supply to aggregators and keep the rest for the local regular business that they have and can maintain relationships with. Then they can leverage their partnership to their advantage by opening up the availability of more supply to the aggregator when they have excess capacity or make last minute cancellations available at cut price rates in the hope that they can fill available supply in very limited timelines.
In this model the aggregator has a strong brand, but crucially the service provider has control on supply, owns their own data and the relationships with their valuable repeat, local business.
The Amazon Model:
What got me thinking about all this is an article last weekend in Ireland’s national newspaper of record, The Irish Times. It’s about Amazon opening a fulfilment centre in Ireland (due to Brexit) and what this may mean for traditional retail in Ireland.
While reading it I couldn’t help but think of our own taxi and private hire industry, and found myself replacing “Amazon” with “Uber” and traditional retailers with taxi or private hire company.
This one quote particularly stood out to me:
“As a consumer you might think it is fantastic if they move here. You will be able to get free delivery, and that is wonderful. But you have to look at their business model. They want to flatten all other retail.”
Of particular interest to our industry in relation to this is that it’s not just us thinking about the Amazon model relative to Uber/Autocab, but it’s also Autocab’s as their CEO is publicly stating that their ambition is for Uber/Autocab to become the Amazon of Transportation.
I would assume that this is being said with a view to giving our industry comfort about the potential for growth and partnerships with new verticals.
Amazon Antitrust Engagements:
However this is a questionable approach given Amazon have ongoing Antitrust engagements with the EU and the US (House Judiciary and Congressional committee) that perhaps paint a picture of what our greatest fears may be for the UK taxi and private hire industry should the Uber acquisition of Autocab be allowed to proceed.
This scenario would see Uber owning the greatest source of passenger data in the whole of the UK, that is Autocab. This can not be good for the private hire and taxi industry, drivers, or the passengers using their services.
The key thrust of the Amazon antitrust investigation in Europe is that Amazon is not only a platform for its own sellers, but is also a retailer itself on its own platform. There’s surely glaring similarities in a situation where Uber owned Autocab/iGo, they’ll be both a retailer of private hire/taxi trips and the biggest supplier of technology to the industry, would this eventually not give them an element of control over the taxi and private hire companies within it?
This Techcrunch article did a far better job of articulating it than I can. Once again when reading it I found myself thinking about it from our industry’s perspective, that is putting Uber in Amazon’s position and where the Private Hire and Taxi companies using Autocab’s system instead of the retailers on Amazon’s platform.
The Techcrunch article outlines how Amazon is thought to have “abused its market position…via its use of big data” in a way that appears to distort genuine competition.
The Amazon investigation is looking into concerns about whether third party sellers were being placed at a data-disadvantage. Like Uber, Amazon is data driven, it’s a highly automated company where business decisions are based on algorithmic tools. Amazon uses these algorithms to decide on a range of things including pricing and the choice of the best supplier for a product.
In the Amazon case “The competition chief said its preliminary concern is thus that third party sellers are unable to compete on the merits as a result of the big data advantage Amazon gleans from its access to third party sellers’ data.”
Lets think about this for a minute, if that is indeed the case then Amazon used the big data generated by retailers on its’ own platform against the retailers themselves!
The key concern in the investigation is around the insights that Amazon retail has about the accumulated business data of the active sellers on its platform. They can use this data to make “precise and targeted” conclusions from it. Once again thinking about how this could potentially look from the Uber/Autocab deal, perhaps it could see them legally using big data from the dispatch systems of taxi/private hire companies to get an understanding on the market and draw conclusions from them that may help them to shape their growth strategy in the UK.
As Techcrunch outlines an antitrust report from the US House Judiciary argues that Amazon wields monopoly power over SMEs via its dominance of online retail — which in turn enables it to “self-preference and disadvantage competitors in ways that undermine free and fair competition”. Amazon rebutted this claiming its interests align with the third party sellers on its platform, denying there’s any conflict of interests.
However in an earlier U.S. Congressional committee investigation Amazon stated that they did not use individual seller data to compete, but then admitted that it uses aggregated data from sellers.
As with the Amazon example our greatest fear in relation to Uber owning Autocab is around the potential to access and understand taxi and private hire companies’ big data. This would be entirely within their rights from a legal point of view and could over time prove to be devastating to individual companies across the country.
I’m not for a minute suggesting that Amazon have done anything wrong (that’s up to the investigations to determine) or that Uber have done anything wrong, or necessarily intend to. I’m merely illustrating a scenario where the taxi and private hire industry could theoretically find themselves under the pressure of a quasi monopoly in the future reached through entirely legal methods. Should this happen there will be no going back!
Autocab’s Recent Position:
This is a recent release from Autocab relating to 30 Autocab customers signing Memoranda of Understanding with Autocab.
I’d like to break the message down and analyse it:
1. More jobs/trips. This is interesting, in the scenario where Uber acquire Autocab they are not aggregators. It’s the parent company supplying trips into a network that they now own (like Amazon both owning the platform that retailers sell from, while also selling competing products themselves). They’re the very same trips the Taxi and Private Hire companies would probably have been doing if Uber wasn’t involved. These same Taxi and Private Hire companies are now competing with and paying Uber/Autocab for their own trips, but over time unlike the pure arms length aggregator model they have no control. The reality is their dispatch technology provider will be owned by Uber, their biggest and most aggressive competitor.
2. Long Term Strategy – from extensive reading on the subject my understanding is that in the countries named Uber are working with taxis where they have been forced to as regulators won’t allow them to operate their standard model. That is they are partnering with the taxi industry by feeding trips into them as an aggregator at arms length. They don’t own the dispatch technology, or have access to or own the valuable customer data contained within. Bolt will work with taxi and private hire companies as an aggregator, not own their dispatch technology.
3. Data is safe. This is well worded, as is other material Autocab have released on this subject. Safe from what is the key question? They say it’s safe, that it’s protected by relevant data laws such as GDPR, that Autocab/Uber will operate within the required data laws etc. Of this I have absolutely no doubt and wouldn’t suggest otherwise. However what it doesn’t say is that as owners Uber can access big data if they need to for genuine reasons eg “to improve the system” (see relevance in the Amazon case). The truth is as owners Uber can access a company’s big data through Autocab if/when they want within relevant data laws.
Offering great commercials – there is a distinct lack of information being made available around Uber’s model for providing trips. That is How many? How much? For how long? What happens when the contract expires? What about competing firms? Will you guarantee not to put Uber cars directly into our town etc.
To be honest if I was an Autocab powered taxi or private hire company I’d consider signing it to see what they’re offering. The problem with that of course is it also involves signing a Non Disclosure Agreement (NDA). Which means you can’t speak about it to anyone. This builds silos throughout the industry which theoretically should prevent mass discussion on who gets what, when, how and for how much. A pretty good tactic if you were scheming to take over the industry in the medium to long term.
Bob Nixon’s prediction for the future:
I have gazed into my crystal ball and offer this prediction for the future should the proposed acquisition of Autocab by Uber be allowed to go ahead. Like Mystic Meg’s predictions, it may be right or wrong, or somewhere in between…
1. The deal goes through. At this stage the taxi and private hire companies have a degree of power and can influence the terms of engagement with Uber/Autocab. The contract terms will be solid and fair. Indeed the terms of the contract may well lean in favour of the taxi or private hire company accepting them. Rates will be good, terms of competition clear and reasonable and the contract will be 2-3 years in length. Companies that were initially uncomfortable with the prospect of working with Uber/Autocab will see other companies benefitting (locally such as competitors, or on a national scale) and will be lulled into partnerships or forced to as they see their competitors getting more trips.
2. From a passenger perspective it looks like there is more choice. It’s more convenient for out of town passengers to use one app (Uber/iGo) wherever they go in the country. Cars will be clearly marked on the passenger app as being local taxi/private hire or Uber so they’ll feel they have more options and control. Pricing will be very competitive for the passenger as Uber push to make their brand the go to booking app for taxis and private hire in the UK (except for surge pricing).
3. In the 2-3 year term of the initial contracts Uber and Autocab/iGo will become more closely integrated and aligned. Passengers will find themselves defaulting to the Uber app more and more often. This may not matter too much to the local private hire and taxi companies as their trip numbers may rise. They may also have the opportunity to build up Uber’s other verticals in their local area. However they will be Uber’s verticals, not the taxi or private hire companies (they’ll manage and service them). This will increase their reliance on Uber. Side by side with that, slowly but surely the % of Uber trips to self sourced trips will change and the taxi and private hire company will depend on them (imagine a business where 50-75% of trips are coming from Uber).
4. The initial contract signed on deal completion is due to expire and is up for renegotiation. Uber have achieved their initial objective of getting their brand and app used right across the UK. The partnering taxi or private hire company that serviced their trips may have more trips and revenue and seem more valuable, but in reality as they depend so much on one contract (Uber), their valuation is largely determined by this. It will be similar to taxi or private hire companies that base their business model around airport based contracts, it’s valuable but they are extremely vulnerable when contracts are set for rebidding and their company valuation is largely determined by this work. Uber/Autocab now hold the power in negotiation around rates and commissions they offer, how much work they’ll give, if/when they want to use competing taxi or private hire companies, or in the better performing markets they may decide to apply for a local license and do the work themselves. In that case the taxi or private hire company that was short sighted enough to initially work with them, let the fox into the hen house and has lost a large proportion of their customer base who are now using the Uber app as their default booking method. Some private hire and taxi companies begin to shut down as the competitive might of Uber squeezes them out.
5. Passengers who were initially thrilled to have more booking options have been sucked in by the Uber marketing machine. The heavy discount model used to attract customers in other markets has proven to be too attractive for passengers not to engage. Over time as more and more local taxi and private hire taxi companies are squeezed out of business Uber begins to wield more control over pricing and the days of discounted trips are numbered. Passengers in many areas will end up with a single service provider in Uber and have to pay their increasing prices and operate within their restricted model (this may have repercussions for the elderly or vulnerable who can’t use certain vehicles or booking methods).
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