The company will face more constraints under the government’s multi-purpose taxi program than it did partnering with rental-car companies.
Uber Technologies’ experience in Taiwan is a cautionary tale that reveals much about how new business models and challenges to industry incumbents are perceived in this market. Although Uber boosted competition, created jobs, and raised the bar for ride-sharing technology – notably by making cashless payments mainstream and improving the transparency of trips with its app – in late 2019 it was effectively forced to join a program the Taiwanese government created for taxis. The viability of this arrangement is an open question.
The irony of the taxi industry’s chief disruptor joining Taiwan’s “multipurpose taxi program” (MPT) is evident. “We are not a taxi company,” insists Emilie Potvin, Uber’s APAC director of public policy. Of the MPT program, she says, “It’s a new model for us. We want to partner with the government.”
That was not always the case. Uber barreled into Taiwan in 2013 with little regard for existing regulations. That was how the company then operated under the leadership of Travis Kalanick, its hard-charging chief executive at the time.
Many millions of New Taiwan dollars in fines later, Uber in early 2017 reached an ostensible détente with the Ministry of Transportation and Communications (MOTC). Under the agreement, Uber would work through local rental car firms, and both Uber and the MOTC seemed satisfied with the arrangement.
It was a creative solution, but ultimately it wasn’t enough. Bowing to pressure from the taxi industry, MOTC in 2019 introduced an “Uber clause” to transportation regulations that defined vehicle rental services and taxis as businesses subject to different regulations. Vehicle rental services could only charge by the hour or day. The message was clear: Unless Uber worked directly with taxi companies, it would not have a way forward in the Taiwan market.
“After two years, Uber is now more tolerant of regulation,” says Jessica Liu, a partner at Taipei-based AppWorks Ventures, one of Asia’s largest accelerators. “They are changing their business model slightly to work in collaboration with Taiwan law, but they are losing some of their sharing-economy edge.”
That’s for certain. For years, Uber passengers benefited from its lower fares compared to taxis, especially for short distances. Under the MPT program, the cost of traveling somewhere in an Uber vehicle is generally almost identical to an ordinary yellow taxi.
Prior to Uber joining the MPT program, taxis felt threatened by the price advantage Uber enjoyed on short-distance rides, says Likai Gu, who served as Uber Taiwan’s general manager from 2013-2017.
Changing the status of Uber vehicles from private cars to rental cars in 2017 failed to placate the taxi industry. Incumbents perceived Uber to be providing taxi services in the guise of rental-car services, while undercutting them on price, Gu observes.
The conflict between Uber and the taxi sector came to a head in early 2019, in the run-up to the 2020 presidential election. Both of Taiwan’s major political parties expected a close race. Provoking the ire of the taxi industry – known for its political clout – would have been a risky bet during election season.
For its part, Uber had few cards left to play. Taiwan was one of just two East Asian markets – Hong Kong being the other – where the company had a successful business of its own that it wished to maintain. Elsewhere in the region, local competitors, whether taxis or large ride-sharing operations like China’s Didi Chuxing and Singapore’s Grab, had already won the day.
At the same time, Uber’s May 2019 IPO on the New York Stock Exchange had underwhelmed investors. The company raised US$69 billion, falling far short of an expected US$100 billion to US$120 billion valuation. In the first day of trading, the company’s shares fell from US$45 to US$41, the worst performance in a U.S. IPO since 1975, according to The New York Times.
Under that scenario, the last thing Uber needed was an abrupt exit from Taiwan caused by a regulatory dispute. Compromise was necessary.
Taxi in everything but name
At first blush, Uber’s Taiwan service under the MPT program appears nearly the same as when it partnered with rental-car firms. The app is the same. Upfront and surge pricing remain. Just like before, the vehicles are mostly late-model Toyotas, Nissans, and Hondas – or Lexuses, BMWs, and Mercedes-Benzes for the premium Uber Black service. For passengers, the only obvious differences are the slightly higher fares and the visible taxi license in each vehicle.
But in fact much has changed. Uber now must rely on third parties to hold a transportation business license, and taxi license plates are limited.
The uncertain availability of taxi license plates is a “red flag,” says Uber’s Potvin. Will the license plate supply “match market demand?” she wonders.
Uber’s fleet size will be crimped if the problem is left unresolved. Drivers will be out of a job. While 7,000-8,000 of Uber’s 12,000 drivers had obtained taxi business certificates as of late November, just 2,000 to 3,000 of them had obtained taxi license plates, according to data compiled by Taiwan’s Platform Driver Alliance. Without those plates, they cannot drive legally for Uber.
The change in Uber’s business model brings into question the viability of new business models in Taiwan. Startups tend to develop at a rapid pace, usually faster than the rate of regulatory change. If regulators always defer to industry incumbents, innovation is discouraged. There is a knock-on effect detrimental to the overall business environment.
“From the recent situation, Uber has suffered a big loss in Taiwan, because a pure sharing economy hasn’t been established here,” says AppWorks’ Chen. “You can observe that it’s just a repackaging of the old taxi business model. The only difference is the taxi doesn’t have to be yellow anymore.”
Indeed, the concessions Uber won were conditional on it joining the MPT program. Had Uber remained in a partnership with rental cars, those vehicles would have been required to charge by the hour and return to the garage after each trip. That was out of the question if Uber wanted to maintain a healthy business in Taiwan.
For the time-being, Uber’s transportation business is being negatively affected by the coronavirus outbreak as many people try to reduce their movements in public. Drivers say that business is down 20-30% from the normal level. But at the same time, the UberEats food delivery service has been doing a particularly brisk business, since many Taiwanese are hesitant to eat in restaurants during this period.
Before the first détente between the government and Uber in 2017, drivers for UberEats were also subject to fines. Later, the government took a more nuanced view of the food-delivery side of Uber’s business. The government recognizes that UberEats helps local restaurants get more orders, says Uber’s Potvin.
There is a crucial difference between Uber and UberEats from a regulatory standpoint: UberEats does not compete with any industry incumbents. Its competitors, like Singapore’s Foodpanda, are mostly foreign tech startups. Regulators risk little by supporting such businesses.
Looking ahead, entrepreneurs and investors will be closely watching how Uber’s participation in the MPT program works out. So far, it is too early to say whether the three-month-old arrangement will succeed.
In reaching the current agreement, Uber, the government, and the taxi industry made the best of a difficult situation, says former Uber Taiwan general manager Gu. He notes that the government rejected demands to expel Uber from Taiwan. “MOTC wanted Uber to stay, but they also didn’t want to raise unnecessary concerns in the taxi industry,” he says.
A lack of foresight may have caused the government to approve Uber’s partnering with rental-car firms, only to upend that decision a few years later. “They didn’t necessarily see around the corner,” Gu says.
While the change to Uber’s business model “hurt the service a little, that was what was required for Uber to stay in Taiwan,” he adds.
Meanwhile, AppWorks’ Liu remains sanguine about the sharing economy’s potential to develop in Taiwan. “I don’t think the current circumstances will limit innovative development in Taiwan. There’s still room for people to play around here,” she says.