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Mobile App Drives Digital Disruption for London Taxi Company

On a drizzly March day on the outskirts of London, executives at 60-year-old taxi company Radio Taxis Group met for two hours to discuss something of great importance. They needed to hash out a name for the company's newest crown jewel, a mobile app designed to go head-to-head with so-called "digital disruption" apps.

Much like the grey clouds filling the sky, a troubling fact also hung ominously over the meeting-Radio Taxis Group was terribly late to the mobile app game. A little more than a year ago, a swelling group of startups with snappy names like Hailo, GetTaxi, Click A Taxi and Kabbee began arriving on the London scene with iPhone and Android apps for hailing cabs, and were now connecting tens of thousands of passengers with taxi drivers every day.

"You always think to yourself, we should have thought of this first," says Radio Taxis Group CIO Gordon Brown, adding, "But you can't just stand by, you've got to be in it."

Radio Taxis Group was on the verge of launching its mobile app but needed to come up with a name. At the meeting, the decision boiled down to two options: jump on the clever name craze or stick to the well-known brand. Then there's the problem with the word "radio" in the company name, a tired technology in a brave new digital world.

Radio Taxis Group is just one of many companies facing a mobile digital disrupter in their midst. These mobile apps flout tradition while taking on the role of rising-star matchmaker on smartphones. They wring out supply-and-demand inefficiencies with awesome digital execution.

"With Hailo, there's a two minute average from tap to taxi," said Hailo CEO Jay Bregman.

Digital Disruptors Can Be Destroyers

Left unchecked, a fast-moving digital disrupter can wreak havoc on a company saddled with infrastructure costs, such as call centers, equipment and a bloated workforce. Amazon, perhaps the most famous digital disrupter, blindsided U.S. brick-and-mortar retailers. E-readers piled on. The resulting disruption caused Borders to go out of business and Barnes and Noble to shutter stores.

"Usually coming late to digital is dangerous," says James McQuivey, Forrester Research analyst and author of Digital Disruption: Unleashing the Next Wave of Innovation. "It's a turning point that many companies culturally aren't ready for."

Radio Taxis Group Chairman and CEO Geoffrey Riesel, CIO Brown and other directors at the meeting had seen enough of these "rogue apps," as Riesel puts it. They had been watching patiently on the sidelines and now were ready to light the fuse on their own mobile app for a springtime launch. The piece de resistance would be the app's name.

They chose: "Radio Taxis, London's Black Cab."

By tapping into the power of their existing brand, the app wouldn't look like a late-entry newcomer to the crowded taxi app space. Nearly everyone in London has been inside a Radio Taxis cab or heard of the company or seen its logo. Radio Taxis Group also hopes to blunt the Oldsmobile-effect of the word "radio" in its name with marketing collateral pushing the company's initials, RTG.

"If you talk to people in London, they know the name Radio Taxis-and that it delivers a cab," says Brown. "In these kinds of meetings, you start to remember all the things you're good at."

Radio Taxis Group also has history on its side. It started out as a cooperative in London in 1953 and became a privately-held company in 2004. Radio Taxis Group employs some 300 people in operations and support but doesn't actually own any cabs.

Taxi drivers are independent operators who join the Radio Taxis Group network, or circuit, to find passengers and pick up fares. They pay 60 pounds per week for the privilege. They also must adhere to a strict code of conduct and agree to background checks and possible training.

There are more than 23,000 licensed taxi drivers operating in London today. Some 2,500 are on the Radio Taxis Group circuit, although this number is dwindling due to the high subscription fee. In comparison, half of all licensed taxi drivers in London use Hailo, CEO Bregman claims. It's a sure bet there's a lot of overlap with taxi drivers signed up on multiple circuits, although Radio Taxis Group's official, hard-to-police policy is that drivers can't use other apps.

Hailo doesn't charge taxi drivers a subscription fee and instead takes a 10 percent cut of a fare on a trip originating from the Hailo app. Passengers can use the Hailo app for free, but if they request a trip on Hailo and don't follow through, they may be charged anywhere from $1 to $1.50 via their credit card on file. (For more on Hailo, check out Hailo Picks Up Speed as a Digital Disrupter for Taxis.)

Hailo is causing Radio Taxis Group to re-think its entire business model. In order to stem the tide of fleeing taxi drivers on its circuit, Radio Taxis Group plans to reduce subscription fees later this year. Lost revenue will be made up by charging drivers some percentage of the fare, just like Hailo. Initially, the new mobile app will be free for passengers to use, but Radio Taxis Group might tack on a "convenience" fee later.

Both Hailo and Radio Taxis Group agree that mobile apps have transformed the taxi business because they're so easy to use. Passengers who would have called private transportation for the convenience or wouldn't go to a party across town due to the hassles of finding a cab are instead using Hailo. Taxi drivers report an average 30 percent spike in business with Hailo, Bergman claims.

"Down the road, some massive percentage of transportation requests are going to come through a digital channel," says Forrester's McQuivey. "This has to be the way it goes."

When Digital Disruptors Hit a Wall: Regulations

Ironically, Radio Taxis Group was the Hailo of its day, only with radio instead of a mobile app. In the early days, Radio Taxis Group lashed aluminum ladders to buildings as transmitter antennas. Electronic dispatch replaced analog in 1990. GPS, or global positioning system, arrived eight years later.

Radio Taxis Group also made a strong push to provide transportation services to corporate accounts, which helps insulate it somewhat from digital disrupters like Hailo that target consumers. In addition to taxi driver subscription fees, Radio Taxis Group made money on the backend with corporate passenger booking fees. Radio Taxis CEO Riesel says the consumer side, known in the industry as "street work," only represents 15 percent of Radio Taxis Group's business.

However, corporate accounts mean added costs-and risk.

Radio Taxis Group has had to invest in server-side technology for an account management system, record keeping, automatic billing and other processing tasks. Radio Taxis Group also employs a fleet of account managers and customer service reps. This infrastructure weighs heavy on the balance sheet.

Moreover, a sudden slowdown of corporate business can be devastating. The economic downturn of the past few years hit London companies particularly hard, and Radio Taxis Group's annual revenue plummeted from $75 million in 2009 to $48 million last year.

Now the company is making moves to right the ship. In addition to expanding transportation services in other areas, such as transportation for public authorities, Radio Taxis Group is making a big bet to grow its street work. This is where the new mobile app is expected to play a critical role. But is it too late?

In regulated industries such as transportation services, entrenched companies do have a temporary advantage-that is, red tape often trips up digital disrupters. Hailo is awaiting regulatory compliance before it can launch operations fully in New York, Tokyo, Madrid and Barcelona. Uber, which connects passengers to drivers using town cars and SUVs instead of traditional taxi cabs, has been riddled with lawsuits in the United States.

"Digital people can't compete as aggressively as they'd like because they run afoul of the law," McQuivey says. "In heavily regulated industries, there's some air cover for existing players to figure out their response. You can stay in this even though the digital guys got the jump on you."

Don't Make Technology the Master

Still, it's easy to fault Radio Taxis Group for waiting too long. Mobile apps are a no-brainer, right?

Flash back 10 years ago when another digital disrupter, Zingo, wanted to turn the London taxi business on its ear. Zingo identified a taxi's location using cell tower triangulation. It would forward a call from a person requesting a cab to a nearby taxi. Radio Taxis Group decided to wait and see how it played out.

"In two years, Zingo spent 13 million pounds on marketing," Riesel says. "After three years, they sold the company for one pound."

CEO Geoffrey Riesel, Radio Taxis Group

Zingo's fast fall, followed by a nasty economic downturn, might explain Radio Taxis Group's conservative stance. Even when the company finally decided to venture into mobile in late 2011, it only dipped its toes. Radio Taxis Group came out with a mobile website for its corporate customers, called Taxi Connect, a far cry from a slick digital disrupter app.

"It's a bit clunky," admits Riesel. "You may have to do a dozen presses to get the cab. But I still use it rather than the telephone."

But CIO Brown pushed forward with a mobile consumer app and hired consultancy Mobile Data Systems late last year for the job. Using a process that helps identify a mobile app's user friendliness, Mobile Data Systems designed the app to hail a cab in two taps, just like Hailo. The app has features that help users find the quickest way to a destination, maybe using the Tube and not a taxi cab. While this seems counterproductive, the goal is to give people more reasons to use the app.

Many CIOs get hung up on the functionality of a consumer-facing mobile app and try to pack it full of features, says CTO Martin Hudson at Mobile Data Systems. Tech people, he says, love to work on mobile app projects but bring some of their desktop software baggage with them. Hudson is constantly fighting scope creep-uncontrolled expansion of a project-in mobile app development.

Slideshow: 15 Best iPhone Apps for Newbies (2012)

Another common mistake: neglecting back-end connections.

When a consumer opens the Radio Taxis Group mobile app for the first time and registers, the app needs to communicate with the backend account management system to create a new user. Once in the system, the user can contact the call center when problems arise, and the call center will be able to look up the user's history and take action, such as a refund on a credit card.

The problem is that the account management system is contracted to be used for corporate accounts. Suppliers of back-end systems won't want to grant access to a consumer-facing mobile app.

"The moment you go near it, they're going to walk away from the maintenance and support contracts," Hudson says. "So we make the app talk to our web services and to a little database in the middle. We're taking that and building interfaces into the legacy systems. It's a two to three month development cycle."

Legacy infrastructure leads to the million-dollar question for Radio Taxis Group: Do call centers, account management systems, code-of-conduct and background checks for taxi drivers, and other traditional customer services matter to passengers? Digital disrupters, obviously, are more streamlined.

"Maybe the Hailo business model works, in which case we'll have to change and get rid of all the infrastructure, but I'd be surprised," Riesel says. "I think it's a mistake to make technology the master."

What's in a Name? Everything

And then there's the grand old brand.

Londoners know Radio Taxis Group well, and so do taxi drivers. Many of these drivers have a longstanding loyalty to Radio Taxis. They've put the company logo on their cab doors. They worry that violations of the code of conduct might result in a censor or even suspension from the circuit. Do they have the same loyalty to Hailo or any of the other dozen mobile taxi apps? Probably not.

Right now, there's slow demand from passengers for taxis in general. Taxi drivers are looking to tap any channel to score fares, digital or otherwise. If the market changes and passengers are everywhere, taxi drivers might be inclined not to use Hailo and give up 10 percent of their fare. This might also be the time to switch to a passenger-convenience fee for using the app.

All of this merely ups the ante for a successful debut of the app, now called "Radio Taxis, London's Black Cab." Radio Taxis Group's decision to tie the app name to the brand carries lots of advantages but can also backfire. What if the app proves more difficult to use than Hailo? What if no one uses it?

The fear is that taxi drivers will see a lot more fares coming from the Hailo app than the Radio Taxis app, which sit side-by-side on a taxi driver's smart phone.

"There's brand risk if it doesn't work," Brown says.

Tom Kaneshige covers Apple, BYOD and Consumerization of IT for CIO.com. Follow Tom on Twitter @kaneshige. Follow everything from CIO.com on Twitter @CIOonline, Facebook, Google + and LinkedIn. Email Tom at [email protected]

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