This is one of the most enduring fallacies there is in ridesharing and maybe accounts for just why the “best minds” have failed to crack this problem for 40+ years.
To quote James Morris of Carnegie Mellon University (CMU),
Reality This kind of idea has been tried many times and failed because a robust market of drivers and riders never formed. (I even tried it at U.C. Berkeley in 1973!) To achieve a system that attracts riders, there will have to be many drivers available. The drivers will emerge only when it appears profitable or otherwise desirable, and that depends on there being many riders. Thus we have a market-formation problem.
Several pilots of this idea have failed to find a market, so venture capitalists are not interested, unless you count Ben Rosen. Someone must discover a winning formula before anyone will invest. If a service succeeds, it will have an early mover’s advantage. Not only will the service with the most subscribers have gravity working for it, it will also have useful data exhaust that informs it where there is unmet supply or demand.
This is not necessarily true and was falsified in 2006 and 2008 by actual operational deployments of Texxi in England.
Not only did Texxi find and prove a winning formula as far back as 2006, but we had a 4 year headstart on many of our closest rivals. Goose Networks deployed something similar in 2007 in Washington State and failed to get very many people using their system despite running for 5 days per week for 2 years, with a grant from Washington State Department of Transport.
The reason that the putative “Market Formation Problem” can be overcome is because it happens to be the same problem that was solved by commodity exchanges in 1848; by the use of “Market Makers”.
What are Market Makers
Please see this blog post: The DRT Exchange
We decided to treat taxi drivers as small farm holders and therefore consider how we would approach their problems from an agricultural perspective. The answer would be an agricultural or produce exchange which would serve as an open marketplace. Since what a taxi driver produces is “trip fulfilment”, the marketplace would have to “come to the producer”. This is now very easy with modern technology. We wondered why there was not a formalised “Taxi Transit Exchange”, so we set about to create it. This is the “Demand Responsive Transit Exchange” or the “Transit Exchange for the XXI Century” (TE XXI).
By mapping the transit problem to exchange-space, we can use some tricks from finance – like liquidity provision and market makers. Thus in order to prime demand, we can purchase “empty seats” (perform “stuffups”) by open market operations. This serves to give customers confidence over a buildup period that their requests for transport will be met and will serve to make sure that we can get to a critical mass. Such liquidity provision is undertaken by the exchange operator who makes back the “loan” over the rest of the year. Thus our corollary to the Federal Open Markets Committee (FOMC) will be TEOMOC – The Transit Exchange Open Markets Operations Committee.
What we found while deploying Texxi was that the system we were trying to model changed its nature as the Texxi “good” became accepted. This rapidly invalidated many modelling assumptions since the propensity and intention to use the Texxi service was directly related to its availability and perceived reliability far more than its cost.
In Liverpool, during our first large deployment in March 2006 to September 2006, we had attempted to operate from one location (a nightclub) and market directly to customers on their way in and out of the club. We had also festooned the club with banners and advertising and had invested in thousands of flyers.
We had two very attractive promotional models at the entrance to the club handing out flyers. We spent on 28 large billboards around the city and we ran a radio advert for 5 weeks.
We got some PR writeups in the local newspapers and we attempted to engage local promotion agencies to do flyer drops. In short we followed all the usual, “marketing advice” from “marketing professionals”.
This proved to be a disastrous strategy. At least in terms of the cost per ridematch.
Not least since Liverpool has a large underworld element to it. We found that it was impossible to get people to notice what Texxi was or how it worked using such tactics.
We were attempting to run Evening Economy mode which had to appeal to the nightclub demographic. Unfortunately most of our customers were too drunk to follow our instructions, even though they had actual transport difficulties.
Thus our prediction model for uptake “fell over” spectacularly. We even tried giving away free trips but found that this did not help people to value the service. Something which is free has no value after all. It is much harder, it turns out, to move from charging $0.00 to $0.10 than it is to charge $0.10 and then charge $5.00.
Fast forward 2 years to a deployment for 6 months on the Isle of Wight; July 2008 – December 2008.
This time we invested in a large set of promotion teams. We produced higher quality handout collateral and we restricted its distribution to people who become customers, i.e. actually followed the sign-up process and travelled.
We incentivised the “Street Teams” to land more customers. We ran some local PR in the newspapers and on the radio.
We moved 5 times as many people (700) for 1/10th the cost as in Liverpool in an area whose “potential” was far less. We never used billboards or flyers. We got one mention on the radio. In Liverpool we ran on Friday and Saturday nights. In Ryde, only on Saturday.
Liverpool has 500,000+ people (1.5m in the conurbation), 22,000 taxis and is a must go destination in the Northwest of England for partygoers. The town of Ryde on the Isle of Wight has 20,000 people and perhaps 50 cabs. The whole Island has 135,000 people and is completely bounded by water. Most people in the UK have never heard of Ryde.
Ignore all “conventional marketing approaches”. Focus on what works on the street and perception level.
The “Demand” for shared trips will increase as knowledge spreads that such a service exists and can be relied upon. This means that the behaviours of customers completely changes within a very short timescale. We caused a depression in normal taxi trip prices in Ryde within 3 – 6 weeks, so much so that we had threats of violence from other firms within the 6 month deployment. This makes historical data of limited use in predicting what will happen once uptake happens.
One has to prepare for hostility from
1) incumbent transport operators
2) compromised council officials who receive incentives from incumbent transport firms
3) rival taxi firms
4) other business owners who just want to discredit anything new.
This hostility will take the form of D5E operations: destruction, degradation, denial, disruption, deceit, and exploitation.
We never had a break from day one – so we are pretty tough. Liverpool turns out to be one of the more challenging cities we could have begun in, but this has hardened us somewhat.