This story is part of a series of features, The Future of Ride-Hailing. The project is intended to show how the taxicab industry, with varying degrees of success, is pushing back against the existential threat posed by the rise of ride-hailing services like Lyft and Uber.
For a brief moment, amid the insanity of the 1990s dot-com bubble, Hansu Kim glimpsed the future of taxicabs. He saw the single thing that could decimate the industry and then, potentially, bring it back from the brink.
Yahoo, then at the peak of its influence, had hired Kim to oversee its fledgling taxi program. Kim didn't know a thing about taxis—his background was as a consultant for municipalities looking to make technology purchases—but this was Silicon Valley circa 1999. Details like that didn't seem particularly important.
The tech giant had purchased a small fleet of taxicabs, painted them purple with the firm's logo in bright yellow lettering, and put laptops in the back for passengers to browse the Internet—years before the widespread adoption of Wi-Fi or the deployment of cellular networks capable of supporting Web browsing. The laptops employed a system called Ricochet that used radio repeaters located throughout the city to deliver service that, while slow, let people surf the ‘net in the backseat of a car. For its time and place, it was shockingly innovative.
Kim wasn't just in charge of the program—he also got his taxi driver's license and started picking up passengers himself. He enjoyed the experience, explaining to passengers how they could use the Internet wirelessly. The contrast between the old-fashioned image of taxicabs and the futuristic technology operating inside the vehicles stuck with him long after Yahoo discontinued the program when the tech bubble burst.
“It's kind of the wild west here.”
A decade and a half later, Kim is still in the taxi industry. He's the co-owner of DeSoto Cab, the oldest continually operating taxicab fleet in San Francisco at a time when owning a taxicab fleet in San Francisco is a difficult proposition. Ride-hailing apps like Uber and Lyft have brought thousands of new drivers onto the road, dominating much of the business that used to be taxis' exclusive domain. Between March 2012 and July 2014, the number of taxi rides in the San Francisco plummeted by 65 percent. Yellow Cab, San Francisco's largest taxi operator, filed for bankruptcy in January.
Mobile technology, a generation removed from the laptop in the back of Kim's purple Yahoo cab, is strangling the taxi industry. Kim had to do something drastic: He needed to adapt.
Last February, Kim transformed his entire company to operate more like Uber and Lyft, employing mobile payments and GPS tracking, even going so far as to rebrand the company after Flywheel, which does for cabbies what Uber does for its non-professional drivers. He’s essentially betting the future of his company on an app—and he’s trying to convince the rest for the company to do the same.
Cabulous, the company that would eventually evolve into Flywheel, was created to solve a very specific problem. Back when the company was founded in 2009, the hardware inside cabs was a nightmare. With a pair of manufacturers cornering the market, the terminals were bulky, difficult to install, and a hassle maintain. When one of terminals crashed, which happened frequently, the entire cab had to be temporarily taken off the road. In 2009, cabs were still running on MS-DOS.
Cabulous's idea was to take all of that gear, toss it out the window, and move the entire thing to a smartphone. The business gradually expanded to become an all-in-one operating system for dispatching cabs, tracking locations, and processing payments. Along the way, the name changed to Flywheel and the app was made available to the general public to facilitate smartphone hailing—well before its ride-sharing competitors raised their first round of venture funding.
Like Uber and Lyft, Flywheel is based in San Francisco. It began rolling out its service to local cab companies shortly after it first launched seven years ago. According to Flywheel's internal metrics, the app is currently running on 80 percent of all cabs in the city, processing over 100,000 individual orders a month. Outside of the Bay Area, it has a presence in Seattle, Portland, Sacramento, and Los Angeles. There have also been test runs in New York, Chicago, Philadelphia, and Boston.
Flywheel President Oneal Bhambani noted that the app is also allowing taxis to move into a new line of business: package delivery. “Ecommerce companies are utilizing our transportation for last-mile deliveries. Our drivers are on the road all the time, they're professionals, they've been driving in taxis for a number of years and they know the roads,” he explained. “It's kind of the wild west here. These ecommerce companies are trying all types of things to increase speed and minimize costs because, at scale, if you can save 15 cents on the dollar per package, that's very meaningful.”
Perhaps the most meaningful change implied by the adoption of Flywheel, and the one that best reveals the logic behind Kim's re-branding of De Soto, is how it consolidates the diverse and often fractious taxi industry into a single unified front against its competitors. Traditionally, calling a cab company will only give you access to that company's fleet, which extends wait times as fewer cabs have to traverse longer distances to reach their fares. Flywheel works across multiple taxi fleets, giving greater density and, ideally, making calling a cab just as efficient as pinging Uber.
“I see taxis right now as a single brand. You have Uber, you have Lyft, and you have taxis,” said Mark Gruberg of the San Francisco Taxi Workers Alliance. “As long the industry remains fragmented and Balkanized, I really don't see us regaining the market share that we really need to survive and thrive as an industry and for drivers to make a decent living.”
Gruberg has been a taxi driver in San Francisco for decades. He owns a small fleet, Green Cab, which was the one of the first to beta test Flywheel when it launched in 2009. He's been using the system ever since.
“I see taxis right now as a single brand. You have Uber, you have Lyft, and you have taxis.”
In a way, Gruberg recalls, Flywheel has been able to succeed where prior efforts to unite the industry have stumbled. “Back in maybe 2011, we approached the city about the idea of having a universal app. Cabulous was on board with this,” he said. “They had proposed an app that would be available to all cabs and all companies. [The city] for reasons of pressure from cab companies, decided not to go down that path.” Going back even further, Gruberg said the United Taxicab Workers pushed for a centralized dispatch system for years to no avail. More recently, he said, there have been talks inside the industry about developing a driver-sponsored app that would take a smaller cut out of driver revenue than Flywheel’s 13 percent cut, which goes toward the cost of providing mobile devices to drivers, wireless data, and paying credit card processing fees-—on top of a $1 service fee paid by the passenger.
When Kim rebranded DeSoto to Flywheel Taxi last year, he replaced his company’s iconic color scheme with logos reminding people they could download the Flywheel app on the Google and Apple app stores. The two companies remain separate firms, but he believes that increasing user adoption will benefit the taxi industry across the board. “In the long term, we are all going to benefit,” he said. And while there improvements that could be made to Flywheel’s model, he argues that building an app from scratch to compete with Uber or Lyft is a tall order.
“Everyone thinks they can do an app. People don't realize that to do an app correctly on the level of Uber, Lyft and Flywheel—with the level of scalability of having thousands of orders goring at one time...really takes millions of dollars,” Kim said. “Unfortunately, the taxi industry thinks they can create their own app with some kid who is a programmer. But, really, the taxi industry has to have a high-quality app.”
Kim has seen some results first-hand. When Kim bought DeSoto in 2010, the company had 100 medallions. Now, it has 250—purchased from other local taxi companies who are scaling down while FlywheelTaxi is bulking up. “In the most challenging deregulated environment, I have grown this company,” he boasted. “That's because we have embraced this technology.”
Even if Flywheel attains the same name recognition as Uber, the odds are still stacked against the taxi industry.
There are 37,000 Uber and Lyft cars working in San Francisco with any regularity, but just under 2,000 taxis. For customers, this disparity means calling an Uber likely results in getting car to your location faster than a cab. The upstarts could offer than convenience that taxis, hamstrung by city rules, simply couldn't match. That’s because the supply of medallions, which are required to operate a cab in the city, have been kept far too low for far too long—largely because most cab companies lobbied against issuing more medallions to protect their profit margins.
“In the most challenging deregulated environment, I have grown this company.”
“The real culprit here in terms of not meeting demand was really regulators. They have the ability to put out more medallions. They could have doubled the number of medallion,” Kim said. “Where there clearly were not enough vehicles meeting the demand, of course companies like Uber and Lyft arose in reaction to the very poor service in terms of the numbers of vehicles picking up the public.”
The cost of complying with all of the city’s rules—which Uber and Lyft skirt around—also makes it harder for taxicabs to compete on price. That’s something Flywheel Taxi driver Surinder Dhillon knows first-hand. He picks up passengers using the app on a daily basis. “Flywheel works the same as Uber but our meter is high, our prices are high,” he says with a sigh. “Sometimes people tell me you guys are expensive. Flywheel works just the same as Uber, but people say we're twice as much as Uber.”
The problem, Dhillon insists, is that Uber and Lyft can shift costs—like gas, insurance, and vehicle maintenance—onto drivers, whereas cab companies pay for all that themselves. And their venture capital allows them to absorb losses. (Uber is losing $1 billion annually trying to break into the Chinese market.)
Dhillon started driving a cab in 2012. When ride-hailing apps started decimating the city's taxi business shortly thereafter, some of his taxi-driving friends made the switch. Listening to Uber's promises to their drivers about being able to rake in cash on a flexible schedule, Dhillon joined them.
As it turned out, Dhillon made far less. He spent eight to 10 hours a day driving for Uber and Lyft, but his take-home pay, after subtracting expenses, was consistently under $10 an hour—well below the city's minimum wage. He lasted about a month before getting back behind the wheel of a cab, where he regularly made up to $30 an hour without the same personal expenses.
“The real culprit here in terms of not meeting demand was really regulators.”
Kim notes that Dhillon's story is far from unique. Many drivers have made the jump from Uber to traditional taxis after doing the math for themselves, but the industry still faces a driver shortage.
Becoming a cab driver in the first place is a long, complicated, and often expensive process. In contrast, the only limit to how many drivers Uber and Lyft can sign up is the number of people with cars who are willing to submit to a quick and painless background check. For people treating Uber as a second job a few hours a week, making $10 an hour whenever that have some free time is better than the alternative.
The power dynamic is clearly shifting in the industry, but Kim wants taxis to fight back, and do so partially on the tech-savvy terms on which Uber and Lyft are competing.
“Taxi are a $12 billion industry, [they're] not going to disappear. But it's going to continue to shrink [and] have more bankruptcies until the smart companies embrace technology in a way that makes them far more competitive,” he charged. “Right now, as a whole, the taxi industry is way behind. I call them dinosaurs that are still swimming in the tar pits. These guys are not moving fast enough; they're not reading the writing on the wall. They need to start moving more quickly.”