App-based upstarts fight for slice of Denver’s taxi market
For close to a century, the personal, on-demand transportation market in Denver and throughout the state has been dominated by a relatively small but dedicated fleet of taxi companies and drivers. But thanks to the smartphone revolution, that might all change. Or at the very least, work a lot differently.
Currently in Denver four companies provide taxi services: Metro Taxi, Yellow Cab, Freedom Cabs and Union Taxi, which are allowed by the state to operate a combined total of roughly 1,200 taxis in the metro area. Anyone who has ever hailed a cab knows how the business works: Stand on a street corner until you find an open taxi, tell the driver where you're going and pay in cash (plus tip) at the end of your ride. That driver licenses that taxi from the taxi company or owns the vehicle outright, generally works 40 hours or more per week as a driver, and pays a fee to the taxi company to operate the vehicle. The annual mean wage for taxi drivers and chauffeurs in Denver last year was $26,260, according to the U.S. Bureau of Labor Statistics.
A host of Silicon Valley startups are working to improve or, in some cases, dramatically overhaul the system. Generally, these companies hope to simplify the experience for riders by allowing them to digitally hail a cab to their location, figure out the fare before the ride starts, pay for the ride via their phone, and then rate their overall experience — all via a smartphone app. And some of these companies are hoping to completely change the experience for the driver as well by allowing regular people to tap into an automated taxi dispatch system and pick up riders with their own cars.
The eventual result could upend the entire market for transportation.
"It turns out people want rides," said Will McCollum, Denver general manager of one such upstart, Uber. "We bring more options to the table."
Uber, launched in 2010 in San Francisco, expanded to Denver as its 15th market in 2012 — and now operates in 68 markets worldwide. Uber initially launched its limousine-style service in Denver, and last year expanded with a cheaper service called UberX. It's the UberX service, and those like it, that are causing a significant amount of noise, because such services allow unregulated drivers to make money by providing taxi-type services using their own cars, whenever and wherever they want. Dubbed ride-sharing, the trend could significantly disrupt the transportation service market, which is exactly what companies like Uber want. And that's precisely why incumbent taxi providers are so concerned.
"There's nothing new or innovative about this," said Brad Whittle, senior vice president of Veolia, the company that owns the Yellow Cab and operates 500 vehicles in Denver. Whittle said Yellow Cab has offered riders the ability to call a cab via smartphone app for roughly five years thanks to its partnership with app company Taxi Magic. In fact, Whittle said, Yellow Cab prefers this model since each phone call to a taxi dispatcher ends up costing Yellow Cab $2.
The rub, Whittle explained, is that the Colorado Public Utilities Commission has heavily regulated the state's taxi market for the past 70 years. The PUC limits the number of cabs each taxi company can operate as well as the fares they can charge. The PUC earlier this year ruled that Uber, Lyft and other new market entrants should be regulated like other taxi companies.
"In our opinion they are operating as Common Carriers, like a taxi company. And by statue, by the law as it currently stands, Common Carriers must be fully regulated under this commission," said Terry Bote, a PUC spokesman. "Uber and Lyft were operating outside of this statute. It was essentially our recommendation that if they want to operate, they need to go to the state legislature and get the statute changed to authorize their operation."
And that's exactly what Uber, Lyft and others are doing. The Colorado legislature is debating a bill that would create a new classification — called Transportation Network Companies — for the new tech-savvy taxi providers. If the bill is approved and signed into law, TNCs wouldn't have to follow the same regulations that Common Carriers (taxis) do.
Not surprisingly, the taxi industry doesn't support this.
"My hope is the bill will be killed," Yellow Cab's Whittle said. "I think our legislators are rushing into this."
Whittle argued that the taxi market needs to be heavily regulated so that Denver's streets aren't overrun with independent taxis, and so riders can be assured that drivers are professionals and insured. Further, Whittle said, if Uber, Lyft and others are allowed to officially operate in Denver, the city's existing taxi companies will likely lose out on the market for high-margin, smartphone-toting business executives, and will instead service the elderly and disabled.
Uber's McCollum countered that "market forces dictate that we deliver a safe, insured and quality experience." He said prohibiting Uber's service in favor of taxi companies would be like blocking Netflix's streaming movie service in order to protect Blockbuster's DVD retail business.
Uber announced in mid-March that it will now cover UberX drivers during the time they’re logged into Uber’s app but are not providing transportation, if the drivers’ own policies don’t already cover that. Lyft said it plans to initiate the same coverage for drivers. Both companies already provide commercial liability insurance when drivers have connected with a rider.
Taxi companies "have a vested interest in protecting their established, monopoly business model," McCollum said. "If there's a ride out there, then we want to connect it."
It's worth noting that Uber and Lyft aren't the only Silicon Valley startups hoping to move into the Denver market. Sachin Kansal, chief product officer of Flywheel, said Denver is one of a dozen or so cities that he plans to expand into this year.
Kansal agreed that the taxi experience is ripe for an overhaul, but putting more cars on the road — like Uber and Lyft — is not the solution. Instead, he said Flywheel's technology sits on top of an existing taxi fleet and creates a simpler and more efficient system for both riders and drivers. Kansal said riders can easily call and pay for a taxi ride, and drivers can more efficiently move between riders due to the technology's dispatch system. Importantly, riders are able to rate drivers, which Kansal said motivates drivers to provide a good experience.
"There's a lot of consumer demand for what we are doing," Kansal said.
It's unclear exactly how the market will shake out in Denver and Colorado. Some are betting that the existing taxi companies will remain in the business of providing on-demand rides. Others, however, are hoping for a broader revamp where those willing to drive and those willing to ride can be easily connected — for a fee.
Taxi trips in 2011 in the Denver Metro Area (2011):
Yellow Cab: 1,368,418
Freedom Cabs: 192,475
Metro Taxi: 1,560,713
Union Taxi: 512,799
Source: December 2012 report by the Colorado Public Utilities Commission
Employment of taxi drivers and chauffeurs in Colorado as of May 2012:
Annual mean wage: $26,260
Source: U.S. Bureau of Labor Statistics
Typical rider experience
How it works
Hail passing taxi, tell driver destination, pay with cash or card at end of ride
Heavily regulated by state, fixed fares, tips encouraged
Reliable and established
Part-time and full-time, private
Luxury and regular
Use app to hail ride, select either luxury or regular car, pay through app, rate experience via app
Uber offers both luxury limousines and taxi-style services by connecting private riders and drivers via app
Yes, but regulations for UberX (the service for non-luxury cars) are still being debated by the legislature
A revolution in transportation
Hail taxi with app, pay through app, rate experience via app
Works with existing taxi companies and makes hailing and paying for a taxi easier
Will launch in Denver later this year
A better way for taxis to operate
Select destination via app, choose driver offering lowest fare, pay via app
Connects private drivers with riders in a marketplace where drivers compete for riders by setting their own fares
Helps riders find the lowest fares by allowing drivers to set rates
Part time, private
Select destination via app, pay via app
Connects private drivers with riders via app
Yes, but the legislature is still debating final regulations
"Your friend with a car."