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Taxify: old taxis should have been discarded

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Founders of Taxify, Martin and Markus Villig, have expanded to 18 countries and involved €2 million in venture capital after just three years in business. The brothers are prepared to talk about their findings and experience on what is a suddenly a bubbling taxi market with a surprising degree of candor.

Going back to the very first days of Taxify, a lot of people welcomed you with open arms, including established taxi companies like Tulika and Krooni. Next thing you know, everyone's at war with everyone. What happened?

MARTIN: We started our business in Estonia three and a half years ago, and our initial strategy was to unite all taxi companies under a single platform and become the Baltic leader that way.

After the first year, however, we realized that demand far outweighed the number of good taxis available, while we couldn't find a good cooperation model with existing companies. This culminated in cooperation with individual drivers and with private drivers six months later. Demand is higher than the number of available taxis everywhere.

What exactly did the taxi companies find disagreeable? Were they being cut out of commissions «because of you»?

MARTIN: Commissions were not the problem. They were offered a very sensible discount on Taxify bookings, which they sold to their drivers at a 50 percent mark-up.

The only problem was that we both realized – us and the taxi companies – that their value was dropping weekly. Taxi companies add no value to the service in the eyes of the client in a situation where Taxify can maintain the same level of quality with its automatic orders system and quality control.

The taxi business has increasingly become a public transport service – the client no longer cares about the logo on the bus, rather it is the price and quality of the service. People choose operators whose cars are closest and cheapest.

... and by now we are in a situation where almost every taxi driver has several competing apps open at the same time, with the old-fashioned meter still ticking in the background and the voice of dispatch coming from the speakers. It all seems disorganized. How far are things concerning legislation for ridesharing?

MARTIN: As concerns the bill to legalize ridesharing in the Riigikogu, the thing that matters to taxi drivers is flexibility – so that everyone could have both a meter and taxi markings to pick people up from the street or taxi stops, and also be able to accept fares using apps and call centers.

So that all drivers would have the same options, with the only difference concerning measuring devices that must be used and who can use public transit lanes.

Ridesharing in itself is no longer necessary as a part of the law – taxi regulations will become so much simpler that everyone can register as a driver in a few days and start working after electronic background checks have been carried out. Parallel regulation of two different services should become history.

Tallinn's municipal police has said that apps have boosted the quality of taxis. The feedback system motivates drivers to offer better service.

Despite tensions in Estonia, you were bold enough to expand.

MARKUS: We first set our sights on Estonia's southern neighbors. Taxify is currently the biggest transport app in the three Baltic countries. Uber is not active in Latvia at all. Lithuania has three apps, and Estonia has even more; however, compared to Taxify and Uber, the others are small.

The second stage was to concentrate on Eastern Europe in 2015 during which our service reached 12 countries. However, we were held back by the fact markets were highly regulated and we couldn't find enough cars to service new clients.

The third strategy, from last spring, is to go global – we have picked the biggest cities with a good market situation for expansion. Cairo, Mexico City, Nairobi, the largest cities of the Republic of South Africa. There are tens of countries where it is possible to use private drivers.

MARTIN: Today we are basically an Estonia-based global ridesharing company. The market in Estonia only makes up 10-15 percent of our trips and turnover – trip prices are more or less the same everywhere. Even in Africa, the average trip costs around €5.

Is permissibility of ridesharing the main criterion in terms of entering new markets?

MARKUS: We can basically continue adding new cars to the system indefinitely in countries where we are growing rapidly. For example, we have more than 10,000 drivers waiting for training in Johannesburg. While private drivers are not allowed in Budapest, we've found a system that is sufficiently attractive for taxi drivers. That said, it does not work like that in most countries.

That is the reason we left Finland – we couldn't find enough drivers, and it was very difficult to cooperate with taxi companies. Drivers were threatened not to join Taxify. It makes a lot of sense for drivers to join as 40-50 percent of their free time needs to be filled. However, if their bosses make no money on these trips and tell them not to...

MARTIN: Looking at the global picture, competition is fierce in Asia, USA, Latin America, India, and Russia. Unions do not allow drivers to join apps and contribute to competition in Germany, Italy, Spain, and the Nordics. Taxi services are up to four-five times more expensive in the latter countries compared to Estonia.

That is why our focus is currently on Africa and Eastern Europe, and we are growing very quickly here. Our proposal to European politicians is to legalize ridesharing instead of paying immigrants social benefits to allow them to support their families and pay taxes themselves.

Can apps really lower taxi prices?

MARKUS: Taxi is still a luxury service in most European countries. If you ask an average person how many times a month they take a taxi, most will tell you they never do as it's just too expensive. Using a personal car is still four times cheaper in old Europe.

Looking at Estonia, even students use taxis because the service is that affordable. A lot of young people do not buy a car of their own because taxis have become such a convenient alternative to public transport.

We believe that today's 2-percent relative importance of taxis in city transport will grow explosively – tens of times – in the coming years through new private drivers, car-sharing technologies, and eventually self-driving cars.

To try and sum up your three years in business, has everything gone according to plan, and what would you definitely do differently given the chance?

MARKUS: I'll be honest in saying that we planned a different expansion. We hoped taxi companies would realize they have to adapt to the new situation and we could cooperate.

It turned out after two years that it is not easy to change the minds of taxi companies and drivers. We have learned that it is simpler to partner up with a new private driver, explain to them how the service works, and teach them to offer a new level of quality than it is to try and change a taxi driver.

MARTIN: Some taxi drivers understand and make progress; however, on average, it is very difficult to improve taxi drivers. We perceive a great divide in cast of mind.

MARKUS: We were addicted to licensed taxis for too long. We've boosted our volumes five-six times in the past year after reversing out strategy.

What about the taxi app business as such – is it lucrative?

MARKUS: The business model is definitely profitable. If we take Georgia, or other areas where we've been active for some time, our profit margins exceed 40 percent a month. It is expensive to develop the platform and launch it; however, once it's up and running, it is a very good, very profitable business.

We have been investing and developing markets and technology for three years now – today we are profitable in several countries, which will allow us to expand further.

MARTIN: More than half of our total business will be in Africa by the end of this year. Interest in the service is much bigger than it is in Europe, both from clients and drivers.

You have moved office several times, and it seems you've hired a lot more developers. The applications seems ready, what is there to develop on such a scale?

MARTIN: Taxify has so far made do with just 13 developers, which is nothing compared to major companies that employ hundreds and thousands. We are growing very quickly – we grew by 35 percent in March month-over-month – which is why we need another 50 developers in Estonia this year.

The technological challenge of the Taxify platform is different from those of other startups as our platform works in real time – we connect tens of thousands of drivers and hundreds of thousands of clients at any given time. We need to record all their locations and calculate fare prices in real time.

MARKUS: If you have millions of trips every month even the smallest details can be decisive – down to which side of the house should we drop the pin for the pick-up.

Parts of artificial intelligence are making their way into taxi apps – especially when it comes to forecasting demand based on the weather, major events, last week's statistics. How many trips we will have in which areas at which time, and making all that information available to the drivers.

MARTIN: If a major concert is about to end at the Song Festival Grounds and you have a thousand taxis parked outside the Linnahall building, they are clearly in the wrong place. The time will definitely come when taxi apps can be connected to people's calendars – so that you would have a taxi waiting by the time you're due to leave for your next meeting.

You are probably the most aggressively expanding Estonian startup that is targeting countries where our businessmen have never gone before. What is the recipe for entering entirely alien markets in central Africa?

MARKUS: We have people who used to work for Google, Transferwise, Skype, and Uber. We have talked to a lot of investors; however, none of them have ever seen the likes of our expansion model.

Martin was taught in business school that first you have to find a consultant and let them survey the market for six months. Next you need to compare potential target countries and establish subsidiaries there, find a local director and staff. All in all, you need to invest 100,000 and a year's time to make realistic preparations.

... only to discover you've spent all your money and are now bankrupt?

MARTIN: We did try it like that at first, and it was exceedingly stupid. Now we do it in exactly the opposite way. We turn to Google for a preliminary analysis which takes five minutes – how many people in the city, how much they get paid, and whether the country allows private drivers.

MARKUS: If the country seems more or less okay, we post wanted ads to find local young people and ask them to submit their own market analysis. We usually receive dozens of CVs from which we make our choice and task the chosen people to launch the service with some initial drivers. The local subsidiary and everything else follows once business is already underway in the new city.

You have been burned a few times though?

MARTIN: We usually burn our fingers when we miscalculate the market situation and find ourselves in one where we would have to invest a lot of money to operate in the country.

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