Call Taxi India
This is a post on Radio Taxi business in India. I am using Meru just as an example to understand the economics of business. There are simple back of an envelop calculations and hope someone gives me a better insight on this business. The numbers look too tempting to be real.
I was traveling with Meru yesterday (27th July 2008) and I happened to strike a conversation with the driver. During our conversation, he gave me following stats
- No of Meru taxis on Mumbai roads: 800
- No of taxis by EOY in Mumbai: 1300
- Average occupancy: 100% in peak-hours and 80%+ in non-peak hours
- Peak Hours: 7AM to 10AM and 6PM to 10PM. He said that its impossible to get a Meru Cab in peak hours. This vindicates the business model and demand in the market for these call cabs.
- Average Fare: Rs. 15 per KM. Compare this with regular taxis in Mumbai. A regular taxi is Rs. 13 per KM and a premium of Rs. 2 is not very steep considering the convenience and comfort of a call cab.
With these numbers the business sure makes a lot of sense. Only deterrents I can think of are:
- High fixed cost of acquiring taxis. Not a huge problem. They can take long term loans from banks or PE players. They can also acquire more cabs by using the part-ownership model (where each driver pools in some money to own the taxi and Meru is just a brand name).
- Setup of call center. Obviously each taxi needs to have a GPS device and a two-way radio. There has to be a way to connect the cab with the nearest available free taxi. And since this is a pure service offering, call center is very important.
- Capped Potential: The earnings is directly proportional to number of taxis on the road. The scope of innovating on income stream is really low. At max you can use your taxi as an advertising medium.
- Traffic rules and regulations: Registration with transport authorities in India is a very cumbersome and long process. Although this is a one-time stumbling block, companies would have to divert a lot of attention there initially.
- What else? Am I missing something here?
Business Sense
- I would want to what percentage of bookings is done for immediate travel and what percentage is booked at least 2 hours in advance. If the pre-planned travel is very high, then these companies can better utilize their capacities and go for some kind of planning.
- I would also want to know what percentage of bookings is for large corporates (say institutional). Because moment Meru gets institutional bookings, they can again manage the fleet better and can be assured of certain minimum number of bookings.
Future
- Is their a merit in getting into contracts with airlines, hotels,
coporate parks etc to manage their taxi services? Again its of those
things where you convert huge one time capex for companies into on-demand opex. - What innovations are possible so as to maximize the utilization of fleet and make more money from the same number of taxis? Would a thing like car-pooling work with radio taxis? Say junta going from Andheri to Town everyday can pool a Meru.
- What else? Please send in your suggestions.
From the Meru website, I could get following details
- After Mumbai, Meru is now available in Hyderabad, Bangalore and Delhi. As I said earlier also, the business potential is vindicated by simple calculations.
- India Value Fund has already invested in Meru. Although I am no fortune teller, but I can easily foresee a handsome return on the investment. And I can’t understand why the Penguin effect is absent in this industry. If I had money, I would have loved to get into this business. Obviously at the right time and right price.
Other Radio Taxi Players in India
If anyone can help me connect to someone with Meru or any other radio cab owners/managers, please drop a line. I will keep on updating this post on my wiki at s4ur4bh.pbwiki.com.
More links
Image Credits: Andertho via Flickr
Disclaimer: I am assuming that the occupancy rates given by that driver are correct and the taxi service would have similar occupancy numbers in other cities
This post has 10 comments
July 28th, 2008
seems like you missed advertisements. Btw, not many cabs carry ads like NY cabs carry. I wonder what gives ?
Nice analysis. Post some numbers on how many taxis, investment, revenue etc.
July 29th, 2008
Hi PKJ,
I wrote about ads but again the number of places you can put an ad are limited - outdoor panels of the taxi, behind the head-rests (the way they put it in budget airlines).
Thanks for reviewing it btw.
Regards,
SG
August 1st, 2008
the only thing which could serve as an effective barrier to entry is being the lowest cost provider of services. they must have a significant share of the market whcih wold enable them to divide their fixed cost over a larger volume. in short, they enjoy economies of scale.
so do they conform with above conditions …cant say unless u have the numbers?
innovations and ideas could be simply copied away by the competitors unless they have patents. once an innovation later becomes a necessary and common part of the business .the other CA they could hv is they r more efficient then the rest of the players.
August 1st, 2008
Hi Sandesh,
I think in this business I would not look at the classic five forces. Barriers to entry is an interesting concept but when the market size is very large (there are already 4 players in Mumbai alone and all of them run to their full capacity), these things cease to exist.
And second the scalability will only depend on the number of taxis they have. They cant exploit economies of scale here because there is a limit on passengers a taxi can ferry every day.
Thanks for the comment.
Regards,
SG
August 1st, 2008
Saurabh,
“the number of places you can put an ad are limited” - Maybe, but the ways are not limited.
Since you have a GPS on the Taxi, you know exactly where you are. To begin with, load a bunch of ads to loop through on to the taxis based on the locality. The display needs to be electronic instead of traditional fixed.
As the local advertisements grow in India, I imagine XYZ sweets shop in the neighborhood would love to display their ads right in front of the nearest Haldirams.
August 3rd, 2008
@Gaurav,
Very interesting idea indeed. Only deterrents I can think of are
1. the high costs of installing these devices in each cab and
2. the number of people that these ads would reach. In a cab, there would only be at max 100 people per day (assuming that one cab carries 2 people at a time, it takes 30 mins per journey, this makes 4 people per hour and 96 people in 24 hours). Effectively the advertiser would pay for exposure to only 3000 eyeballs per month per cab. And coming from advertising background, this is too less an eyeball and too homogeneous a crowd (high ranking executives, airlines travelers etc.) and thus amount should not be very high.
If we can figure out a way, am sure there is money to be made.
Regards,
SG
August 4th, 2008
To avoid high cost inititally maybe the operators could just depend on phone updates on their whereabouts and status before implementing expensive GPS equipment. I think it’s manageable with an efficient back-office (much cheaper to maintain one and with such dirt cheap phone call rates from operators like Reliance it could almost become an intercom service like).
Talking about these taxis - one thing I strongly suggest implementing in them is COMPULSORY headphones for the drivers because they keep getting calls from customers tracing them or the call centre checking on them.
August 4th, 2008
Saurabh,
1. Agreed. However, it is a fixed one time cost.
2. I wasn’t talking about inside the Taxi, but outside ( http://www.flickr.com/photos/patthebunny27/2393710988/ ). Taxis in metros probably run (not really) at about 20 - 25 Kmph on average. With thousands of people walking around, a well targeted ad can help.
One of the challenges I can think of is convincing advertisers. This is a new form of advertising with no numbers around ROI, sales, leads, etc. To get some stats (at least initially) Taxi specific campaigns can be ran. Like ‘Use ABC coupon code to get Rs 5 off at South Ex Pizza Hut’
August 5th, 2008
Well, There are few things which you have missed:
a) There are limited number of taxi licenses available in Mumbai and since 1998 government has not issued any new license in Mumbai. So, Companies like Meru purchase licenses from old black and yellow cabwallahs. These licenses can serve as entry barrier as those who will expand their fleet size aggresively will be in better position to beat the competition.
b) Revenue is linked only to the number of taxis. It is not linked to occupancy rate because according to the deal between company and driver, driver has to give a fix amount daily to company regardless of occupancy rate. Rest of the income ( revenue - fuel cost ) driver can keep with himself. Company takes care of maintainenace
August 18th, 2008
To answer your second question…I was always curious as to why the Courier business (signed package delivery) cannot be merged, with something like Meru.
Essentially if the Meru (on demand cab business) can be just viewed as a generalization of couriering people around the city, wouldn’t it make more sense that the same Taxi be utilized to carry partially a passenger load & urgent document/packages for delivery. The logistics of achieving high-occupancy rate in both are essentially the same.
Of course the delivery of people would take priority, but there’s no reason why a package also cannot be dropped off later along the same route.
As the Taxi operators of Meru are trusted, accountabilty will not be an issue.
More security can be enforced by using configurable number-combination locks on package containers. This combination can be set by the sender after locking the container, and then he can directly phone the combination number to the receiver, who will use it to retrieve the documents upon delivery.
This ensures tamper-proofing. RFID tags can also be used on package containers to track how many times it left the vehicle, as an added security measure.
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