The following is a guest post by Theodore Monzies, who heads up SNCF’s Porte-à-porte service, which allows train travelers to book taxis to & from the departing & arriving train stations, for a door-to-door service. As such, Theodore would like to clarify that the opinions expressed in this article are his own and not related to the official stance of SNCF. You can follow him at @TMonzies.
Fifteen minutes, this is the delay that will be mandatory between order and pickup for minicabs in France, if the government & taxi drivers have their way. This delay, which would harm an emerging industry, is representative of the fierce struggle that is taking place between traditional taxis and new minicab companies entering this market. How did that happen? Here is the story.
In the beginning, there were taxis. Then came 2009
Taxis have long been (almost) the sole players in the on demand transportation market, leaving them in a monopolistic position. There were a few alternative means of transportation, but their numbers were so strictly controlled by the State that they have never posed a threat to taxis. As a result, there are around three times less taxis or private hire vehicle drivers per inhabitant in Paris than in London or New York (See Richard Darbera’s paper).
There have been several attempts to remedy this scarcity. Yet in the 60’s, the Rueff-Armand report aimed to reform the market and more recently, in 2008, the Attali report advised to deregulate this profession to improve economic growth.
But then, a 2009 law (loi du 22 juillet 2009 de développement et de modernisation des services touristiques) introduced a major change. It introduced a newly created vehicle category, called VTC (vehicules de tourisme avec chauffeur), to supply what was the taxi market. The regulatory framework seemed quite simple (it is now the point of controversy) : according to that law, VTC can operate if they are hired in advance. On the contrary, taxis have access to street hail market and pre-booking market.
A first attempt to enter the taxi market : The Easytake story
In France, it is not easy to enter the taxi market. The first notorious entrepreneurs to take the chance were Jean Marc Sibade and Michel Olivier who cofounded Easytake in 2010. The company, which was operating in Avignon (in the south of France) was very competitive with fares of around 1€ per km (7€ for 7km, for instance) almost half the price of a regular taxi. They operated vans covered with adverts.
Of course, taxis did not roll out the red carpet for that company. Easytake issued several prosecutions and a new law opportunistically introduced a minimum length and horsepower for VTC cars. Plagued with bad luck, Easytake’s vehicles were a few centimeters short, so the company had to renew its newly bought fleet.
Due to this “bad luck” and perhaps also to a business model that was difficult to balance (fares were very cheap, the sustainability of the business model could be questioned over a long period), the company closed in 2012. Here is the epitaph of the founders (in French).
A vicious circle
The Easytake story illustrates how fierce this battle between taxis and VTC is. How did we come to that end? At the beginning (let’s say in the early 1930’s), there were more taxis than today in Paris. The economy was not performing well, and many jobless people became cab driver while the population they were supposed to transport was becoming poorer and poorer.
As a result, the competition among drivers was intense and only a few could decently live off of their work. A surge in the gas price caused a very serious strike and in 1937, the government, in order to improve the situation, set up a numerus clausus to limit the number of taxi drivers.
What was a good idea in the beginning (the majority of cities set up such limits) turned into a power struggle between taxis and authorities. The regulator got quickly captured by the taxi operators’ lobby. As a result, despite increasing needs for transport, the number of taxis in Paris almost flattened from 14,000 in 1937 to around 18,000 today. Moreover, until 2009, the government gave very little space for private hire vehicles to develop. This explains why there are only few minicabs in France whereas they have prospered in New York or in London.
The result of this scarcity is a very high price for taxi licenses that prevents any form of competition. In Paris, owning a license costs around 200,000-250,000€. Any newcomer to that business must borrow that amount of money and repay that debt. The last thing they want is to see the decrease of the value of what they have bought. Elderly taxi drivers didn’t spend such an amount of money to become taxi, but they now see that license as a kind of retirement plan. Also, an intense lobbying is made by taxi licenses rental companies that own dozens to hundreds of such licenses. This represents millions of euros for them and they are not willing to lose money.
The problem is that the more licenses are valued, the more theses stakeholders will fight against any evolution of the system: it is a vicious circle. Even if VTCs will argue that the market in Paris is so undersupplied that there is room for everyone, taxis, comforted by decades of successful resistance, are not willing to take the risk.
Who are the new comers ?
So we are in 2009, the market is opening. Easytake took the first hit. But the market is notoriously so undersupplied that several other companies have taken their chance. A few years later, some are doing pretty well. So who are they?
- VTC dispatch companies. These companies are marketplaces, they try to attract on one side the largest possible customers base and on the other side several VTC drivers in order to execute them. They earn money by taking a fee on each fare they provide to drivers. In exchange they provide the dispatching technology, a billing capacity and a client base. Such companies are for instance Snapcar, Uber, Chauffeur Privé and Allocab. They key thing for them is to establish a strong franchise.
- There are also taxi dispatch companies (Taxyz, LebonTaxi, Taxibeat), which are similar to Hailo, operating in France. These companies are competing with established taxi networks, they use technology in order to provide jobs to drivers without the cost of a call center. They do not occasion the same reaction among the taxi profession since they do not pretend to increase the number of licenses. Actually, some drivers even welcome them as an alternative to big dispatch companies.
- VTC integrated companies. This model is a bit different in a way that these companies not only provide jobs to drivers, but also cars and sometimes even permanent employment for drivers. Therefore, they are not in a strict business of intermediation. The result is that they have a greater control on quality and driver availability, but the drawback is that they have higher fixed costs and need more capital. They also are “more compliant” to the French regulation (in France, a person who is spending the majority of its time working for a sole employer can asked to be hired under a long term contract) . These companies are for instance LeCab, Voitures Jaunes and Navendis.
Incidentally, one must notice that most of these new companies are run by entrepreneurs that were before completely stranger to the transportation market. It seems we are facing to a major disruption in a market with incumbents that struggle to adapt.
What could come next and how could the government react?
Even if taxis have always demonstrated a strong ability to influence the government’s policy, new VTC companies have recently shown a prolific activism in order to prevent any form of delay between order and pick up for VTC. You can bet they will not let that happen easily.
In the same time, the government is doing its best to improve its image with entrepreneurs. The recent pigeon movement shown that the entrepreneur now have a voice in France. Moreover, the government cannot simply ignore the effect of that measure on employment. The issue of this battle between taxis and minicabs is thus quite uncertain.
Nevertheless, even if it is said the 15 minutes delay will be confirmed, this does not seem to be a viable long term solution. Even if taxis manage to get that delay adopted, no law will ever be able to protect them from the sharing economy or from the driverless car that could completely change the industry.