Taxi vs. Rideshare battle in the US market

Taxi vs. Rideshare battle in the US market

  • Emilya Galstyan
  • Post category:Rideshare
  • Post comments:0 Comments

Yellow taxicabs and skyscrapers are one of the quick associations people have when thinking about New York. That should be enough to describe the popularity taxis have in the USA…or had?

Since 1930, the taxi industry has been officially regulated in two major cities: New York and Chicago. Taxi companies were the primary employment source for many drivers, offering career opportunities such as earning more with longer shifts or growing up to purchasing their own taxi medallions. 

With the technological innovations and popularity of smartphones, the taxi industry has undergone significant changes. Uber (2012) and Lyft (2014) entered the taxi market, offering rideshare: a more affordable version of traditional taxis by the driver’s private vehicles. 

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Rideshare became a more humanistic, transparent, and convenient alternative to a taxi, which didn’t have to wait long for success. According to Hall and Krueger, at the end of 2015, the number of Uber and Lyth drivers was double that for traditional taxicabs and limos. This quick shift resulted in market transformations, making even the giant taxicab owners admit the game has changed.  

Devaluation of taxi medallion:

Taxi medallion is an official taxi-driving license, which cost more than $1M back in 2014, right before the “Uber effect.”After 2014, along with the significant demand increase for rideshare service, it also became a magnet for the drivers’ workforce. This caused a considerable decrease in taxi medallion demand. On the other hand, investments in taxi medallions became less profitable, as a significant portion of rides were by ride-trail apps.

This two-sided pressure made the price of taxi medallions fall to less than $200,000 currently.  

Earning reduction for traditional taxi cab drivers:

After introducing the so-called sharing economy, many traditional taxi cab drivers felt it hard on their earnings. There are reported cases of taxi driver suicides on the background of significant industry transformation. According to the Oxford University working paper, overall driver employment has increased as Uber and others offered a high demand for driver talent in a short timespan. However, Uber drivers started to earn more compared to traditional taxi drivers. The main reason for this was that rideshare apps were designed to ensure cars take passengers most of the time, while taxicabs could face difficulties when finding passengers because of the high competition. 

Heavy loan load:

Before the digital transformation, taxis were an attractive spot for the investments. Between 2002 and 2014, with the medallion price increasing from $ 200,000 to $ 1 milion, nearly 4,000 made a purchase. Loans financed a fair part of those. The recent disruption in the industry made it hard to pay those loans back. The take-home income of drivers significantly decreased. Even the most prominent NY taxi companies of Michael Cohen (owning 35 taxi medallions in partnership with his wife) reported having unpaid debts. 

Though traditional taxi supporters claim ride-hail apps are weaker in terms of security and passenger insurance, however, these apps continue to grow. It’s projected that by 2024 69% of US taxi industry operations will be online, most of them being rideshare applications.  

It’s interesting to observe whether taxi companies could make some innovative changes to regain their market share (or part of it). Uber wins the game because it walks parallel to modern life: smartphones, speed, convenience. On the other hand, taxi drivers are more experienced and have a better knowledge of roads, making the cabbie trips more secure for passengers. 

Many taxi companies have started taking steps to respond to the unprecedented competition: they make applications, try to introduce more flexible pricing options, and increase the service quality. 

Also, by the joint efforts of Wall Street traders and City Councilman Ritchie Torres, it’s being discussed to revalue the medallion prices to $250,000 and cover all outstanding loans of suffered drivers.  

With a new plan for solving the “taxi crisis,” an innovative transformation of traditional taxi companies will hopefully lead to good results for passengers looking for competitive and fair prices across Taxi and Rideshare options and Taxi Drivers regaining back their market share. 

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