Comfort DelGro, Singapore’s largest taxi operator with a fleet of 16000 cars, announced on Tuesday that it is in talks with Uber about a tie-up making its fleet available on the Uber Platform.
Uber’s rival in Southeast Asia Grab has already established partnerships with all the other five taxi operators in Singapore. Grab has incentivized users to make “JustGrab”, an option which broadcasts requests to both taxis and private hire cars, default. While Uber in Singapore has taken an asset heavy approach, buying tens of thousands of cars through its subsidiary Lioncity Car Rentals (LCR). Through the Goldman Sachs financed car purchases, Uber expects to own a fleet larger than that of Comfort by the end of the year.
In Singapore, taxis are comfortable enough to ride in, and often more spacious than private vehicles. So the competition is really on availability of supply, and fast dispatching.
Before ride-hailing apps
When we (the Easy Taxi team) were studying the feasibility of entering Singapore market for Easy Taxi back in late 2013, we met all the operators, and pulled all the numbers available. The conclusion is that Singapore is a good market with natural high demand and good ride ticket size. The challenge, which made us almost not launch it, was not Grab or Uber, but Comfort – simply put, back then, nobody could put as many cars online quickly enough should Comfort decides to suffocate you.
Comfort was in a comfortable position, with 60% of the fleet in Singapore, it had more than 90% of all the call bookings. In fact it launched its app for booking which was ahead of any third party entrants. And many stocks analysts were predicting a good upside for Comfort shares, listed on the Singapore Stock Exchange.
Not a threat after all
We changed our mind after more detailed industry research.
We understood from industry players that Comfort was very confident in their business model. The management did not see hailing apps as a threat, citing that they knew the industry inside out, an expertise that takes decades to build and impossible for others to replicate quickly. Besides, they were publicly listed, had a long list of drivers queuing to join, and expanding confidently overseas.
Management were unaware of (or ignoring) many complaints from drivers and customers , even though it took only a few street-side interviews (and even reading of frequent ‘taxi woes’ coverage in newspapers) to find out the reality on the ground.
We also tested the Comfort app, it was functional but way behind the internet industry in terms of usability, user experience. Confirming that it was designed and developed by a third party – we finally concluded that there is a good time window for third parties to develop the market before Comfort realises what they are facing.
(Trying to) turn the tidal wave
And the rest is history that we all know too well. Taxi drivers, facing the drop in demand and attempted by the carrot dangling in front of them, jumped in droves to the private hire car industry. Empty cars were piling up; taxis, instead of passengers, now queue at taxi stands.
To salvage this, Comfort was trying hard. It launched a new app (which honestly was not bad at all); it started offering drivers more flexibility and even cash perks for taking bookings; it did a tie-up with MasterCard offering discounts if people opt to pay electronically.
Alas, they are doing the right things, but always one or two steps behind their competitors.
And Comfort shares declined:
Comfort might not be the hardest hit taxi operator in Singapore. Trans-cab, with an ambitious general manager, was growing their fleet very aggressively. They had 5000 cars in 2014, making them the second biggest in Singapore. The management refused to talk to any third party which came to them for partnership. They were doing well in tactical growth, alas, they also failed to see what tsunami was coming their way.
A path of no return
The Uber tie-up news sends Comfort stocks sharply up this morning.
However, we do not think it solves the fundamental problems Comfort is facing – it is losing its grip in the market which should have been theirs. From a market leader with key competitive advantages, Comfort has now become just another fleet owner maintaining cars and managing drivers, with practically no leverage.
Worse, the Uber tie-up is likely a milestone signifying this changed role of Comfort. Comfort’s 16000 strong fleet makes the Uber app even more appealing to consumers, at the same time the Comfort app less necessary to consumers. When Comfort app users jump in droves to the Uber app, Comfort will lose its control of consumer traffic (and data) and be further relegated in the value chain.
Feeding their drivers some candies from Uber will provide the temporary respite; but to recover its glory, and share prices, it will need far more drastic moves, and fast.