rP os t op yo

IMB 507

TAXIFORSURE: TECHNICAL INNOVATION IN
THE RADIO CAB INDUSTRY

Do

No

tC

ANSHUMAN TRIPATHY, PIYUSH TARIYAL AND VYOM CHARAYA

Professor Anshuman Tripathy and PGP students Piyush Tariyal and Vyom Charaya prepared this case for class discussion. This case is not intended to serve as an endorsement, source of primary data, or to show effective or inefficient handling of decision or business processes.
Copyright © 2015 by the Indian Institute of Management Bangalore. No part of the publication may be reproduced or transmitted in any form or by any means – electronic, mechanical, photocopying, recording, or otherwise (including internet) – without the permission of Indian Institute of Management Bangalore.

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TaxiForSure: Technical Innovation in the Radio Cab Industry

Our biggest strength is our unique algorithm which combines all taxi operators within one platform. We believe it helps us in being a more efficient player and provide better service than the other radio cab operators in the industry.
—Aprameya Radhakrishna, Co-founder TaxiForSure

tC

op yo The day had begun on a good note for the founding team members of TaxiForSure as they sat analyzing the latest figures emerging out of Delhi, the city in which they had expanded most recently. Growth had been faster than they had anticipated and several taxi operators had agreed to join their platform.
Aprameya, one of the co-founders often wondered whether they had been incredibly lucky in entering the market with the right technology at the right time. Three years ago when Aprameya and his team had first thought of this venture, few would have imagined that it would grow so big in such a short span of time.
The company had expanded from its base city of Bangalore to Chennai and Delhi and the news in both instances had so far been positive. The decision to expand beyond Bangalore had come only after the team felt assured that the business model had been fine-tuned enough in Bangalore and that they now had the capability to replicate their model in other cities. Yet, even as Aprameya and his team congratulated each other on the success of their recent foray in Delhi, they were also deeply thoughtful about the key decision that they were about to take. Delhi, Bangalore, and Chennai were just a few of the major markets that they could tap nationally and their marketing department suggested that there was plenty of scope internationally as well. Was this then a good time to rapidly expand the company or should they take a more cautious approach? Would competitors not try to imitate their model in cities where they had no presence, potentially denying them future space for expansion? Yet on the other hand, would expanding rapidly not drain their resources seriously and possibly expose the company to serious financial risk? The decision was critical and could well decide whether their venture would be highly successful or possibly collapse. RADIO CAB INDUSTRY IN INDIA

No

The taxi business in India was largely unorganized before the advent of radio cabs as a concept around
2007. Earlier attempts in the radio cab industry notably by the Delhi government in 2000 had failed owing to financial difficulties and lack of timely approvals. i Prior to this, major cities had fleets of independently owned taxis marked distinctively as per government regulations. Unionization was rampant and the service left much to be desired for. Fares too were regulated by the government for the taxi services. It was in this scenario that private commercial players stepped in with the concept of radio cabs. Companies such as Meru were one of the first few to step into this domain and experience rapid growth owing to a variety of factors. ii

Do

Radio cab operators operated with a fleet of higher end automobiles such as Mahindra Logan in contrast to the Ambassador cars used by the traditional taxi services. Drivers received training on how to deal with passengers in a courteous manner and also instructions on how they should help the passengers with their luggage and hold the door open for them. This contrasted sharply with the traditional taxi services where polite and helpful drivers were rare to find. Booking these radio cabs was also convenient with options of booking online or contacting a call center. This allowed a customer to order a cab in advance, especially when making a planned travel decision with a time constraint such as reaching the airport or the railway
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TaxiForSure: Technical Innovation in the Radio Cab Industry

station on time. Fares were transparent and largely notified in advance (varied from company to company). Even if the overall fare was not declared, the per kilometer charge was known to prospective customers. Fare meters were always up and running unlike the often faulty or tampered meters of the traditional taxi drivers. All in all, the radio cab service companies provided a significantly enhanced and hassle-free taxi service for a similar or slightly higher cost than the traditional players.

op yo The uptake for this service was therefore rather fast with the fastest growth being witnessed in the airport transfer segment. According to an industry report in 2013, the airport transfer segment contributed around
30–50% of total revenue for most players in this segment. iii Owing to the significantly enhanced experience offered to the customers, there had been certain unjustified skepticism about the fares that would be charged by radio cabs in the general population and uptake had therefore been lesser for general intercity travel. Corporate users had thus formed a major part of the initial user base.
Radio cab operators had also been innovative in their business model, experimenting with new sources of revenue such as advertisements on the sides of the cars. New technological innovations too had rapidly been adopted in the radio car industry such as GPS trackers and SMS notifications for customers.

MAJOR PLAYERS IN THE RADIO CAB INDUSTRY

No

tC

One of the key players in the radio cab industry had been Meru Cabs. Started in Mumbai in 2007 as one of the pioneers in the industry, Meru expanded to six major cities namely Mumbai, Delhi, Bangalore,
Hyderabad, Jaipur, and Ahmedabad. Service and reliability have always been the key selling points for
Meru with prices generally at the higher end of the market. Within just 7 years, Meru became the third largest radio cab operator in the world with a fleet size of 6000+ cabs (Mumbai – 1,800, Delhi – 1,400,
Bangalore – 1,500, Hyderabad – 800, Jaipur – 100, and Ahmedabad – 100) making 20,000 trips per day serving 1.8 million passengers. In terms of customer satisfaction, the company won several awards such as the Trip Advisor’s traveler’s choice award for 2013 and reported 90% customer satisfaction as per a third party audit. The company also won awards for implementation of IT in its systems. iv Other recent players in the industry have been Easy Cabs and Mega, which along with Meru are reported to hold over
70% of the market share. v

TAXIFORSURE

Do

TaxiForSure was started in June 2011 by IIM Ahmedabad graduates Raghunandan G and Aprameya
Radhakrishnan. The idea had emerged out of frustration and a lack of satisfaction with the existing taxi service providers. The biggest irritant that the founders had experienced was that whenever they wanted to catch a taxi, they often needed to call two to three operators as there were often issues with the availability of cabs and even after that one would be unsure of whether the taxi would arrive or not. The name of their venture had also thus emerged out of this experience. vi The idea they had was that if they were to aggregate the services of all the players on one platform, then the quality of service would definitely increase. By aggregating the services of several players, they would be able to provide a greater surety of service to the customers and also provide them with a greater range in terms of vehicles and

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TaxiForSure: Technical Innovation in the Radio Cab Industry

costs. Thus was created the aggregator model as opposed to the earlier owner-operator model of taxi services. AGGREGATOR VERSUS OWNER-OPERATOR MODEL

op yo Traditional radio cab operators functioned on the owner-operator model. In this model, the cab company owns a fleet of cars which are then operated by company drivers or independent drivers licensed by the company. Meru was the major company in this segment operating a fleet of largely Mahindra Logan cars. vii Operating as an owner-operator requires significant front-end investment in creating an inventory of radio cabs. Repair, maintenance also requires careful planning and management as they form a significant portion of the costs. viii
The aggregator model on the other hand does not require the company to hold any inventory at all
(Exhibits 1, 2). Here, the radio cab company simply acts as a demand aggregator for those providing taxi cab services which may include both independent taxi drivers from the traditional segment and radio cab companies running in the owner-operator mode. The company earns a margin through every successful match between the demand and supply. This model thus requires neither upfront investments in building a cab inventory nor focusing attention on running and maintaining this inventory. Key players in this segment included TaxiForSure, Savaari, Olacabs, among others.

TAXIFORSURE OPERATING STRATEGY

Do

No

tC

Operating in the aggregator segment, TaxiForSure believed that the key differentiating factor that set it apart from competition was its unique algorithm which helped it achieve a supply–demand match in the most optimum manner possible (Exhibit 3). The algorithm helped the company to carry out an optimum allocation by analyzing the distance, availability, prior driver/operator ratings, customer feedback, and frequency of visits for cab allocation. This helped the company to provide a better service to its customers and keep up with its brand name of ‘‘TaxiForSure’’ or ensuring reliability of service. For providing the cab service, TaxiForSure tied up with not just individual operators and owners of small cab businesses
(those owning say 10–20 cabs) but also with large operators in the owner-operator model such as Mega
Cabs. The margin charged from operators was 10–20%. The fares were decided in advance or a per kilometer charge was offered. Technology was extensively utilized in the operations with customers receiving SMS notifications about their driver, expected time of arrival, and also for feedback after the journey. Unlike the owner-operator model where major companies generally operated just a single kind of automobile for the sake of operational convenience and cost efficiencies in training, handling and repair
(largely Mahindra Logan for Meru cabs); TaxiForSure by its strategy of combining a range of operators was able to offer its customers a variety of automobiles and prices for the same route. Customers could thus opt to order a sedan or a hatchback, an air-conditioned, or a non-air-conditioned vehicle.

KEY STRENGTHS AND WEAKNESSES OF THE OPERATING MODEL

Operating as an aggregator definitely allowed TaxiForSure to expand rapidly with little capital expenditure and few risks as compared to an owner-operator. Also as it was able to provide automobiles
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TaxiForSure: Technical Innovation in the Radio Cab Industry

STATUS IN 2014

op yo at both the lowest end of the segment such as a non-AC Indica along with a high-end Logan, TaxiForSure was able to target both the affluent and price-conscious customers. The key issue arising from this was that as the actual service was outsourced to a third party; the scope of variability in the quality of the service offered to the customer was very large. Depending on the individual driver, there could be inconsistency in the way the passenger was treated, on whether the driver arrived on time, and also on whether the driver tried to cheat the customer by adding hidden undeclared charges such as toll tax. The company also had to devote significant management time to maintaining relationships, enforcing contracts, and scouting for its taxi partners. When faced with significant customer complaints about the variability in service, the company started training third party drivers in a manner similar to the training provided by owner aggregator taxi providers. The company also worked with its partners to enforce reliability and consistency in service. As the customer facing end for both TaxiForSure and its competitors in the owner-operator segment was similar, TaxiForSure had to make an extra effort to provide the same level of service.

No

tC

Within its home city of Bangalore, TaxiForSure carved out a major share of the market for itself in the radio cab industry. It had already become a profitable operation within Bangalore. TaxiForSure had over
400 employees and access to over 5,000 cabs across the five cities that it operated. Airport commute continued to be the key source of revenue which is reflected in this business being allocated a separate tab in the booking portals of the company. TaxiForSure completed 1,000,000 transactions in April 2014, a period of just 33 months. ix After its success in the Bangalore market, the company expanded to Chennai and Delhi in November and February 2013, respectively. x Both the forays were internally adjudged as successful by the company and the model deemed replicable in other metro cities nationally and even internationally. The company also offered intercity travel to its customers to nearby locations from its base cities. The key theme for selling the same was marketing them as weekend getaways. Offering new portals for booking cabs was also a major thrust area for the company with the launch of a smartphone app for mobile phones and bookings via Twitter (customers could tweet on TaxiForSure’s account stating their requirements such as “@taxiforsure need a taxi from JP Nagar to Airport at 5:30pm #TweetATaxi”).
Call center bookings however remained the major source for incoming requests with around 60–70% bookings coming through this channel. The company aimed to reduce this percentage as far as possible by offering incentives and more convenient modes of booking as call center bookings were one of the most expensive modes of receiving bookings for the company. xi

Do

Owing to the aggregator model followed by the company, there were frequent and public customer complaints over inconsistency in service (customers were often greeted by poorly maintained cabs or not so friendly drivers both of which were outside the company’s control). The company sought to tackle this issue by seeking feedback from customers after the trip by providing free missed calls and via SMS (free feedback was also sought for service components such as “Did the driver open the door for you?”; “Did the driver help you with your luggage?”). This feedback was then utilized to rate the cab operators, send corrective feedback to them and pressurizing them to reform if they wished to continue to receive more customers from the TaxiForSure portal. The company also invested in providing intensive training to both its employees and the drivers that it worked with, through workshops on an annual basis.
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TaxiForSure: Technical Innovation in the Radio Cab Industry

EXPANSION PLANS

tC

op yo The primary source of expansion that the company was considering was by offering services in more metro cities. As per the 2011 population census, India had around 10 major metropolitan centers with population of above 5 million. Based on the affluence levels of the population and the state of the traditional industry, the actual demand further varied from the population numbers in each area. No radio cab operator had yet built a presence for itself in all the major metro cities of the country. In mid-2014,
TaxiForSure celebrated its first anniversary in both Delhi and Chennai. Expansion had been rapid with the company operating hundreds of cabs in both cities. This rapid growth had been achieved through the company’s reliance on the aggregator model which allowed it to scale its operations in a rapid manner in both cities after suitable operating models were established. Even though TaxiForSure had judged its recent forays into Delhi and Chennai as successful, this had been achieved after overcoming several new and critical problems that were not present in its home market. There were also implementation issues unique to each city. In Delhi, there was the issue of multiple jurisdictions arising out of the NCR region being spread across the three states of Delhi, Haryana, and Uttar Pradesh. A large part of the passenger traffic was between the satellite towns, especially for those traveling between the airport in Delhi to the satellite towns of Gurgaon and Noida in Haryana and Uttar Pradesh, respectively. This meant negotiating and operating with government and taxation authorities in three states. Chennai too had its own set of problems – finding drivers able and willing to speak English and Hindi with the customers in order to provide them with a more comfortable experience, being a major issue. The other cities where
TaxiForSure had not yet expanded also had their own set of problems. Mumbai, the birthplace of Meru cabs was a hotbed of taxi unionism which had also infiltrated the ranks of Meru drivers and nearly forced it to shut down its operations in Mumbai. Regulation was lacking in Kolkata and the rules when enforced restricted radio cab operators to just 200 vehicles. xii

No

The second key source of expansion was by providing more services within the same market. As per this strategy, TaxiForSure started offering intercity services to destinations close to its operating centers of
Delhi, Chennai, and Bangalore under the banner of weekend getaways. Another key growth segment could be the one that still patronized auto rickshaws for travel within the city owing to perceptions about radio cabs being more expensive and less readily available. Intracity travel could act as a major segment for the radio cab industry in general. Initial forays in this segment had proved to be successful for both
TaxiForSure and other competitors. xiii Passengers coming to and from the city railway stations and bus stands could also be targeted more specifically. The company also offered cabs for full day/half day targeting the tourist segment. More such customer segments could be explored.

Do

The company had managed to successfully raise a second round of funding of US$ 10 million from a host of venture capital firms led by Bessemer Ventures to fund its expansion plans. xiv

THE KEY DECISION
TaxiForSure had been able to survive the initial startup hiccups successfully while operating in Bangalore and also attract investment for its venture from reputed venture capital firms (Exhibit 4). Yet as the firm itself advertised, the key differentiating factor for TaxiForSure had been its unique algorithm and
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TaxiForSure: Technical Innovation in the Radio Cab Industry

Do

No

tC

op yo technology was a field replete with rapid innovations and short lifespan for leaders. There could be no guarantee that tomorrow another company would not emerge in the scene offering a more optimum algorithm and thus a better platform to customers. Technology being the critical differentiator was also questionable as the older radio cab services such as Meru were able to survive the onslaught of the new technologically superior operators in the industry. It was therefore critical for the future of the company to decide the correct time for expanding its operations. On one hand, the resources could get overstretched leading to fall in service quality or too much capital could be committed on risky expansions leading to the overall collapse of the company. Yet on the other hand, leaving potential markets untouched was an open invitation for rivals to capture market share and build a brand image for themselves. The future of the company could very well depend on this decision.

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TaxiForSure: Technical Innovation in the Radio Cab Industry

Exhibit 1

Source: Company provided information

Exhibit 2

op yo Key Stakeholders in the Radio Cab Industry for TaxiForSure

Do

No

tC

Ownership versus Aggregator Modelxv

Source: Developed by case writers

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Exhibit 3

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TaxiForSure: Technical Innovation in the Radio Cab Industry

Operating Model of TaxiForSure

Content/
Inventory

Radio Cabs/ Large
Car Rentals

Dedicated
Operators

Vendors that have been extensively supported by TFS

op yo Small Operators

Small operators that have a few drivers attached to them

Platform

Branded Operators

Distribution
Channels

tC

TaxiForSure
Users

Do

No

Source: Company provided information

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Exhibit 4

tC

op yo Timeline

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TaxiForSure: Technical Innovation in the Radio Cab Industry

Do

No

Source: Company provided information

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TaxiForSure: Technical Innovation in the Radio Cab Industry

REFERENCES i “Radio Taxi: Way to go!”, http://www.dqindia.com/dataquest/news/145953/radio-taxi-way-go, accessed on April 21, 2014 http://www.moneycontrol.com/news/business/indias-taxi-king-transforms-transport-landscape_1076175.html, accessed on April 21, 2014 iii http://www.nextbigwhat.com/report-on-radio-cab-industry-297/, accessed on April 21, 2014 iv http://www.merucabs.com/about-us/. accessed on April 21, 2014 v http://articles.economictimes.indiatimes.com/2014-03-09/news/48029457_1_meru-cabs-sambhaji-bhosale-meru-driver, accessed on April 21,
2014
vi
Based on primary interviews with TaxiForSure executives vii http://103.1.112.210/Companies/KkXZQ7x610sR4WpzlhnPLN/Radio-taxi-firms-anxious-over-Mahindra-Renault-future.html, accessed on
April 21, 2014 viii http://forbesindia.com/article/work-in-progress/merus-flawed-business-model-negates-its-brand-value/33480/2, accessed on April 21, 2014 ix http://www.business-standard.com/article/pti-stories/taxiforsure-raises-usd-10-mn-more-to-enter-20-cities-soon-114050201019_1.html
,accessed on April 21, 2014 x http://articles.economictimes.indiatimes.com/2014-02-03/news/46962942_1_cab-operators-accel-partners-easy-cabs, accessed on April 21,
2014
xi http://www.nextbigwhat.com/taxiforsure-interview-297/, accessed on April 21, 2014 xii http://www.nextbigwhat.com/report-on-radio-cab-industry-297/, accessed on April 21, 2014 xiii http://indianexpress.com/article/cities/bangalore/unreasonable-autos-losing-out-to-economical-taxis/, accessed on April 21, 2014 xiv http://yourstory.com/2014/05/taxiforsure-funding-series-b/, accessed on April 21, 2014 xv http://articles.economictimes.indiatimes.com/2014-03-09/news/48029457_1_meru-cabs-sambhaji-bhosale-meru-driver/3, accessed on April
21, 2014

Do

No

tC

op yo ii

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