Crain's New York Taxis finally try to beat Uber at its own game: with an app by Andrew J. Hawkins

Crain's New York
Taxis finally try to beat Uber at its own game: with an app
Andrew J. Hawkins
09/21/2015

Uber has driven the yellow-taxi industry into a free fall. Medallion values have plummeted and fare-box revenue is down as riders and drivers continue to flock to the Silicon Valley insurgent worth $50 billion.

Now the cab industry believes it has a fighting chance in the form of not one but two apps that offer riders with a smartphone a seamless way to hail and pay for a ride in any of the city's 20,000 yellow and green taxis.

The apps, Arro and Way2Ride, are backed by the companies that together provide the credit-card and Taxi TV systems in the back of all cabs. The recent launches by Creative Mobile Technologies and Verifone Systems are the first sign that the yellow-taxi industry wants to try to beat Uber at its own game.

And while there are two separate apps—CMT produced Arro, and Verifone created Way2Ride—the companies are working with each other so that by the end of the year each will work seamlessly in every single cab in town—something not even Uber can do. That's a sharp turnaround for an industry that has long been resistant to change and has been fragmented among fleet owners, individual medallion holders, lenders and others.

"Sometimes you have to cooperate with your competitors," said Evan Rawley, associate professor at Columbia University, who tracks Uber and the taxi industry. "This is the kind of situation where they were just going to be overwhelmed by Uber if they didn't do something to work together."

The stakes are huge: Medallions that once sold for $1.3 million now auction for around $715,000. (Two sold for that price in August.) Drivers are defecting to Uber in droves, enticed by startup bonuses, surge pricing and more flexible hours. Daily yellow-cab trips decreased by 25,000, or 5%, from 2013 to 2014, and the average total fare revenue fell by $200,000 a day, or under 3%. An increasing number of idle yellow taxis are piling up on the streets of Brooklyn outside dispatch lots.

Meanwhile, Uber is gaining market share at a remarkable rate. It says 25,000 new users sign up for its service in New York every week. Its bases in the city had more than 19,000 affiliated vehicles, or about 65% of the for-hire vehicle industry. And the company is running hot after successfully repelling Mayor Bill de Blasio's attempt to impose a temporary cap on its growth to study its effects on traffic congestion.

Enter CMT and Verifone. New York-based CMT is owned by Ron Sherman, who owns 200 medallions and operates a trade group, the Metropolitan Taxicab Board of Trade, whose members own or operate 40% of the city's 13,000-plus yellow cabs. Verifone is a public company based in San Jose, Calif., and whose stock trades at about $29.

Their duopoly of the credit-card readers means that each has about 50% market share. Their rivalry has mainly played out during registration periods, when taxi owners are required to sign up with one vendor or the other. But it has also spilled over into the courts. In 2012, CMT sued Verifone for $250 million, alleging a breach of an agreement to place advertisements on screens in city taxis. (The lawsuit was eventually settled.)

"It's a complicated industry," said Jason Gross, Verifone's vice president for strategy and innovation, with a laugh.

The two companies are now putting their differences aside in the interest of winning back customers from Uber. Mr. Gross said Way2Ride (pictured at left) is currently operational in 14,000 yellow and green taxis. Mike Epley is a former logistics consultant at CMT who now serves as director of product management at Arro.

'All the taxis are in play'

"Consumers may prefer one app for whatever reason," he said. "But they'll know whichever one they're using, all the taxis are in play."
The two companies are collaborating to figure out how to make each app compatible with all yellow and green taxis, and hope to reach a deal by the end of the year.

They believe that despite their late start against Uber that they have a distinct advantage: the universally known yellow cab, with its metered rates, professional drivers and highly regulated environment.

Both companies have ambitions of expanding their apps beyond New York: Way2Ride is compatible in the 11 countries around the world where Verifone operates, while Arro plans to grow to San Francisco, Washington, D.C., Chicago and Boston.

But Uber's dominance has already crushed other apps. London-based Hailo pulled up stakes in North America last year after failing to secure a share of the market. The biggest question will be whether Uber riders and drivers need or even want to use a second app when one will do.

"This technology platform is basically winner-take-all," said Columbia's Mr. Rawley. "If you have all the demand, pressing the Uber button, then all the drivers are going to want to sign up with Uber. And because it's hard for drivers to [use multiple apps] because they can't get the guarantees [from Uber]...then the drivers will tend to choose the app that's going deliver the most riders."

Ben Kallos, a city councilman and software developer, introduced a bill last year that would require the city to create a free universal e-hail app. He praised the new apps as "exactly what the city needed," but lamented their late arrival.

"It's disappointing it took them this long to build the hail apps," he said.

The apps also didn't come in time for Manhattan-based Montauk Credit Union, a small institution that issued a high percentage of its loans to buyers of taxi medallions. Delinquencies on such loans were once rare but have surged in the past year, and the credit union was seized Friday by New York state regulators for operating in an "unsafe and unsound" manner. It will now be run by the National Credit Union Administration. Other medallion lenders are trying to stave off similar action.

Since its launch in late August, Arro has been downloaded 10,000 times, a spokesman said. Way2Ride, meanwhile, has been downloaded 4,000 times since its official release Sept. 10, a spokesman said. Both apps had soft launches earlier in the year.

Drivers and medallion owners are hopeful the new apps will help stem the industry's losses. Max Yaloz, a taxi-medallion owner since 1984, recently used Arro to hail a yellow cab for the first time. His verdict?
"It worked beautifully," he said. "This app is going to save us."

Amrik Singh, a medallion owner and driver for 25 years, was more skeptical. He was disappointed that Arro lacked Uber's popular GPS tracker, instead sending pickup addresses directly to his front-seat monitor. "It's better than nothing," he said with a sigh.

A version of this article appears in the September 21, 2015, print issue of Crain's New York Business.

Issue: 
Transportation