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?
- 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.
- 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.
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.
Posted originally on my blog here.
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these ppl are already looking for entertainment in cabs such as interactive tv as in newyork,mobile chargers and the next thing would be internet access in cabs as it will interest more ppl and will create more space for advertising and hence more revenue.i have no idea how they will charge customers for these sevices and how
much but they will surely earn more revenue.
Somehow I missed this post when it first appeared in August, and was drawn to it only because of Anaggh’s comment today.
I share some of my thoughts and insights to the Radio Taxi business:
1. There was a suggestion that Meru Cabs should get into corporate accounts. Well, the fact is that Meru CAME from corporate accounts. The company, V-Link Taxis Pvt. Ltd. that runs Meru, had been involved in running cab services for BPOs and the like, and decided to get into this ‘retail’ segment thereafter! I am not sure if they still run the corporate accounts or not.
2. My personal experience at Mumbai airport on several occasions, is that there is a queue, with waiting time of nearly 20-30 mins, to get a private cab, while right in front of us, there are B&Y as well as the blue Cool Cabs waiting in plenty, and not finding takers. The branded experience, with lower chances of meter tampering, have inspired confidence to this extent. The private taxi queue is a common queue for Meru / Mega / Gold.
3. Again my own experience is that Meru has been flawless in terms of the meter business. I have had BAD experiences on two occasions, with Mega cabs, where meter adjustment was done. If I was not local to Mumbai, I would have not known and ended up paying much more than what should be the fare. Outsiders might be getting cheated regularly.
4. Which brings us to the fact that in case of Meru, drivers own the vehicle and are responsible for delivering the service. What it means essentially, is that the driver is a franchisee of Meru. And the heart of running a successful franchisee operation has to be training of the franchisee, to ensure consistent customer experience, and maintaining the desired brand goodwill. I presume Meru is investing a lot in such training, that almost all of us who have commented here, have only good things to say about Meru!
5. While the advertising outside, on the exteriors of the car, is obviously targeted for the eyes of the passersby, there are opportunities within the vehicle as well. These may go beyond just brand visibility, and may point to more response driven mechanisms. Like putting Dominos discount coupons, or a Vijay Sales deal offer, or even a “drop your card for a lucky draw” option. We may even see going ahead, some branded gaming screens, or other forms of entertainment with a commercial angle that could come inside the vehicle. Of course, sponsored ones!
6. When run on CNG, on a gross basis, there is good money in taxis. Where the ordinary B&Y driver / owner may not make so much money, is in his inability to generate high usability. If Meru becomes popular and manages to keep fleet size in line with the demand, it may ensure very high utilization ratios. In that case, at a gross level, there will be decent margins to be made. But those margins will be offset by higher operational cost, from better upkeep of the cars, to sharing margins with the drivers, to running call centres, technology costs, and others. Which may land them to same net margin levels, per car, that the ordinary B&Y gets.
7. Going ahead, if good volumes are reached, and self-serving web / SMS options are made efficient, the marginal additional cost, per transaction could come down. They may even manage to get a small premium on price, although they may not be in a hurry to tread that path. But after all that, like a software body shop business, there will be a max cap hit, in terms of profitability, which will be determined by the number of vehicles that they own.
This makes for a good organic growth business, but not quite the exponential growth beyond a threshold point, that VCs are known to like.
But on the other hand, a business of this kind can clock good volumes, make profit, and may get to IPO soon enough. And that may be of interest to the VC!
Anaggh, The thought of it extending to autos sounds interesting. May be cities like Delhi and Chennai need it more (since they dont have fix auto fares).
Certainly makes business sense.
Phew, everyone seems to have covered practically everything, you can start the biz tomorrow. However there are instances, heresay, that meru has a fixed account & a variable account. Someone staying in Lokhandwala needs drop to Nariman Point in the morning & back in the evening, the driver closest takes that on & charges for the 20 working days etc. Also meru taxi licenses are owned by the drivers i.e. badges and looks that it would continue to be so in future also. Now with more 25 year old taxis off the road, it would get more interesting. And how long before this can be done for the Auto Rickshaws also.
the advertising on cabs is not only for person hiring the cab,it can be seen by other ppl on the roads from were the cab is passing hence visibility is high and depends upon the population of the area .visibily is very high in the places like mumbai and u can advertise according to the routes in which a particular cab traveles so it is very much targeted,only internal ads are for captive audiences.you can earn upto rs-5000pm/per cab with effective advertisments ,and cost will also include parking charges which is quite high in metro cities and is going on increasing especially due to privatisation.hope this is helpful.