The Journal The Authority on Global Business in Japan


MARCH 2015

Business on the Move

Taxi apps transform the on-demand market

By Richard Jolley

Disruptive innovation—products or services transforming a market and displacing established competitors—perhaps best describes Uber, the taxi application recently brought to Japan.

The company raised $1.6 billion in January after previous injections of $1.2 billion in December 2014 and $1.2 billion in June of that year, according to the Financial Times.

While disruptive innovation seems a proven business model, the taxi industry in cities such as New York and Berlin does not fully support this transportation revolution. Their interpretation of disruptive innovation seems akin to the Japanese translation of the phrase, which Uber Japan President Masami Takahashi recently said is more like market destruction than market transformation.

In addition to Uber, Japan passengers can ride with Hailo, the London-based “black cab” app. The messaging giant Line has also entered the field with Line Taxi.

Across Asia, taxi apps are pulling in serious amounts of investor cash, not least from Japanese businesses such as SoftBank Corp.

In January, the company poured $600 million into taxi-hailing app Kuaidi Dache in China. In December, SoftBank invested $250 million in GrabTaxi, which is headquartered in Singapore, but also operates in other Southeast Asian markets.

When asked how long it might be before the app comes to Tokyo, GrabTaxi’s Group Head of Marketing Cheryl Goh said, “At the moment, we have no plans to leave the region; but it is not beyond the realm of possibility in the future. We will definitely consider the option if the right opportunity presents itself.”

If or when GrabTaxi and others come to Japan, they’ll find that—as most expatriates can attest—things work differently here.

The taxi industry in Japan is heavily regulated, and taxi apps can operate only in partnership with established companies. Forget the possibility of confrontation as seen on the streets of the Big Apple.

Uber, classed as a “travel agent” in Japan, works in harmony with local taxi companies. Effectively, it brings taxi companies and consumers together through its smartphone technology and electronic-payment platform.

The company has also launched a range of service options. These include UberBlack, offering rides in high-end cars such as BMW 7 Series sedans, and UberTAXILUX, giving passengers a slightly upmarket ride in a Toyota Crown Athlete sedan or a Nissan Elgrand multipurpose vehicle.
Partners are key
Hailo in Japan operates in the same way as Uber: through partnerships with local taxi operators.

Currently, the company offers its services out of Osaka, with plans to launch in Tokyo in the first half of this year. Hailo Japan’s President and CEO Ryo Umezawa, 31, already has plenty of experience building businesses around smartphone apps.

In terms of funding, Hailo doesn’t have anywhere near as much financial muscle as Uber. But Umezawa isn’t concerned, as Hailo has at least 500 drivers in Osaka and partnerships with 40 taxi companies.

A key strength, Umezawa said, is that Hailo follows a principle he calls “constructive innovation,” meaning the company works closely with taxi partners by sharing data gathered during Hailo rides.

“The taxi business is in our DNA,” he said. “I meet regularly with the taxi companies to discuss our operations. We have a heat map visualization system that I share.” This system helps taxi companies identify trends and areas of potential growth.

Hailo is also overcoming one of its original challenges, that of too few drivers having smartphones. Through the support of its investors, Hailo is now giving drivers access to special deals on smart devices. “We have seen smartphone penetration among taxi drivers increase from 10 to 20 percent, and the number continues to rise,” Umezawa added.

Beyond taxis and travel
CoverPost2Though it sounds counterintuitive, taxi apps are about more than arranging rides. The organizations behind these apps are sophisticated technology leaders, developing payment platforms and a level of trust with consumers that could help them evolve in new ways.

Uber’s Takahashi clearly stated at a recent American Chamber of Commerce in Japan luncheon that the company aims to avoid any taxi-app straitjacket. He said Uber seeks to develop the on-demand economy around the world.

In the summer of 2014, Uber Japan rolled out an Uber Ice Cream campaign, delivering frosty treats to customers’ doorsteps after orders were placed and paid for via the app.

The idea of taxi apps expanding the on-demand market is nothing new. For more than a year, commentators have sited Uber as a logistics business and possible challenger to Amazon. After all, what is Amazon but a business that quickly delivers goods to customers?

In November, The Wall Street Journal reported that Amazon was testing Uber in the United States as a possible delivery partner.

Taxi apps also play a role in the sharing economy—in which companies build business models around people sharing resources. Think Airbnb, a website for renting other people’s homes or spare bedrooms; or RelayRides, a US service connecting vehicle owners with those who want to hire a car.

The sharing economy was definitely trending in 2014. A key finding in a recent report from App Annie shows incredible growth in app downloads throughout 2014 for travel and transport in the sharing economy. The top 10 apps in this category, including Airbnb, Uber and Lyft—an Uber competitor—grew 30 percent last year.

While Uber Japan has thus far stuck to building partnerships with taxi operators, there are signs it is successfully spreading its wings. In the past few weeks, the company kick-started a ride-sharing pilot scheme in Fukuoka.

Aimed at commuters, the idea is for Uber to collect data from commuter rides and, working with Kyushu University, present it to regional authorities to help develop the local transportation infrastructure.

Is this just a PR exercise?

Whatever the case, the company’s cooperation with regulators is likely to prove useful when it bids to become much more than a travel agent in this market.




Richard Jolley is an IT and business writer in Tokyo.