As Uber made rapid headway in the taxi industry, it didn’t just leave conventional taxi services behind; it threatened their very existence. Now, there’s a new kid on the block that hopes to restore cabs to their former glory, and maybe even make a run at dethroning Uber as top dog.
New York-based Karhoo is a taxi service aggregator and search engine. The app will bring thousands of operators onto one platform so users can draw comparisons and make their choice based on quality or proximity. They just raised $250 million in funding and hope to have $1 billion in funds in 18 months.
That’s a respectable amount of money, but certainly not nearly enough to give Karhoo any kind of advantage relative to Uber’s monetary reserves. Nevertheless the newcomer still has a chance to eat into Uber’s market. Here’s why.
Uber’s need to raise prices
Karhoo is entering the market at a time when it seems Uber cannot help but increase the prices of its rides. There are a couple reasons for this.
So far, Uber has been standing out from competition in new markets by offering prices that can’t be matched. It’s how the company has been able to almost wipe out taxi services that have held sway for decades in areas they’re just moving into.
While the slashed rates have made Uber the obvious choice for consumers, it’s had its trade offs.
Whenever prices drop, drivers make less money. The reduced margins result in drivers being less able to invest on maintenance and repairs of their rides. If such a scenario lasts long enough, the operators who remain may have vehicles that are poorly kempt and in some cases don’t meet safety standards. The effect is so glaring that there are locations where Uber becomes hard to differentiate from local taxi services, denting the service’s image and appeal to customers.
If that isn’t reason enough to increase prices, Uber also has to deal with becoming profitable before its IPO.
Uber’s going public has been long anticipated but was put off again earlier this year following another massive injection of funds into the organization. For a successful entry into the markets, the company will have to find a way to prove it’s making profits. As recently as mid 2015, Uber was operating at net losses, despite the resources afforded to it by the 8 or so billion dollars it has raised.
Of course consumers may not be privy to these details, but what they will possibly begin to notice soon is marginal (and maybe regular) increases in fares. If Karhoo offers competitive rates, people will begin to see it as an alternative to Uber.
Regulatory Issues
Uber has been beleaguered by regulatory issues ever since it came into being. Their approach so far has been ingenuous – they kick into gear wherever possible and railroad their way to creating a user base until problems with regulatory bodies become too onerous to contend with. After that, it’s a litany of legal proceedings and a back and forth until regulatory bodies concede some leeway. Most recently, Calgary mayor Naheed Nenshi let citizens know that driving for the service would be breaking the law – making the announcement on the very same day Uber launched in the city.
The source of Uber’s woes has been its collaborative consumption model. The sharing economy isn’t really addressed by prevalent economic policies, for which there are legal precedents. As a result of operating in a legal grey area, taxi companies and governments themselves have been able to make a strong case against Uber; their arguments generally center on unfair competitive advantages and a lack of structure.
Karhoo is much less likely to have a wrench thrown in its growth plans by legal outfits. This is because though it competes with Uber, Karhoo doesn’t operate the same way as its biggest rival. If anything, Karhoo is on the side of taxi drivers and companies, since its app serves as a search engine for existing cab services. Without having to go through the legal rigmarole that Uber has, Karhoo will be able to focus easily on engaging customers and making profits.
In combat sports, timing beats strength. And in business, timing beats monetary muscle power. Karhoo is taking on a force of nature in Uber, but it may just pull off a coup creditable in no small part to its arriving on the scene at the right time.
Prateek Jose is a writer and engineering undergrad from India with an unhealthy obsession for obscure historical trivia. Conversations about absurdist fiction and the technological singularity make his day. He’s already uploading parts of his brain to servers by writing for websites such as this one.
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I would hope that if Uber drivers are not making enough, they would just stop driving. If they cannot keep their car in shape mechanically, then they should not be in the business.
My question was always about whether Uber knew about regulations BEFORE coming onto the market and just played dumb, or if they were not aware of how much of a fight this was going to be with other taxi companies.
I would also like to know this. MOST of the time, those that have an idea for a startup are smart enough to check all the paths and make sure they do not lead them astray. I would have to assume that Uber thought about this part, but just crossed the fingers and went for it.
As if Uber has not been through the ringer enough. Now there are more companies taking the copy cat advantage from them. Of course, drivers are trying to make some money, but that does not mean the overall price has to jump so far up. That just leaves the market open for companies like Karhoo.