Uber’s Dead End – Germany

Uber’s Dead End – Germany

The global expansion of Uber’s transportation services is unparalleled. Within few years, Uber entered multiple markets across continents and today, serves customers in 63 countries[1]. However, conflicts with national transportation regulations have caused Uber headaches in several cities. One particularly difficult market for Uber is Germany. Multiple court cases have first slowed down the German market entry before on March 18 of this year, a nationwide ban[2] on UberPop was imposed. With fines as high as 250,000 EUR (approx. 272,000 USD) per violation, did Uber reach a dead end with its expansion in Germany – a key market in Europe?

[3]Key Challenges for Uber in the German Market

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Germany’s taxi market is well known for its luxury cars. Indeed, most of German taxis are comfortable Mercedes. Not an easy environment for a taxi service business model that builds on the idea, that private drivers with their own cars provide taxi services. Nonetheless, the attractiveness of the German taxi market is high with yearly revenues of over 4.4bn EUR. Above that, an annual growth of over 4.3%[4] over the last decade underpins the potential for new players in the passenger transportation service market. Therefore, a successful expansion in the German market is quintessential for Uber to grow in Europe. However, there are three main challenges Uber is facing in the German market.

 

  1. Regulatory challenges:

The basis for transportation services is the ‘PBefG’ law in Germany. It regulates the taxi market and requires multiple safety and quality standards from taxi drivers. In the final court ruling (Frankfurt district court) in March 2015, the presiding judge declared[5] Uber violates the passenger transport law, and thus distorts competition. The main argument is that Uber drivers operate without necessary licenses as well as insurance levels to cover Uber’s services are not sufficient. As a consequence, Uber had to cease its UberPop service in the following weeks after the court ruling.

 

  1. Competition from Uber clones[6]2

Regulatory hurdles are not the only challenge for Uber in the German market. In fact, there exists a very strong competitor, mytaxi, which allows customers to call and pay taxis via an app. Mytaxi positions itself as the worldwide first taxi-app. They work only together with licensed taxi drivers and thus, circumvent the regulatory dead end Uber faces. Mytaxi claims to have 10m registered users and a network of 45,000[7] taxis. Thereby, they have a strong focus on business customers and also have partnerships with loyalty programs such as Miles & More. The functionality is quite alike Uber’s: one can see the available drivers in the neighborhood, book a trip, see the rote, and pay with the app. However, a distinctive difference – there is no surge pricing. German’s appear to prefer reliability and no surprises. A nice add-on of mytaxi is the option to request specific drivers.

 

  1. Traditional competitors beefing up:

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Also the traditional taxi players become aware of the opportunities digitalization offers. Meanwhile, many larger regional taxi companies have launched their own apps. Apparently, the network effects of these apps are limited as they are bound to drivers of the same network. Thus, they are at a disadvantage compared to a mytaxi, who has taxis in every major city and across different taxi companies in the network. As the prices are the same, there is no real incentive for customers to choose a company specific app vs. apps that connect different taxi networks.

 

 

 

Key Learnings for Uber: Learn How Germans Think

First of all, Uber’s dogma ‘rather ask for forgiveness than for permission’ did not work out at all and heavily damaged the image / branding of Uber in Germany. My advice: ‘rather ask for permission than for forgiveness’, because Germans simply not good at forgiving mistakes. Secondly, proactively regulate oneself. Uber can offer an adjusted service that complies with German regulation. Similarly to mytaxi, Uber needs to partner up with licensed taxi drivers. The challenge will be to be more attractive for drivers than mytaxi. Uber could leverage its size to offer special services to drivers (e.g. better rates at car dealers, repair shops, or car washes) and aggressively offer bonuses when joining Uber as a driver (similarly to the 500 USD bonus in the US). Finally, Uber needs to step up to the high expectations of the German market. Linking Uber with Miles & More, the leading loyalty program in Germany, is quintessential (not only SPG as in the US). Moreover, Germans are accustomed to the option to request regular drivers as well as order taxis in advance. The latter option is particularly important for business travelers.

[1] https://www.uber.com/cities

[2] http://fortune.com/2015/03/18/german-court-ban-uber/

[3] http://www.autobild.de/bilder/taxis-aus-aller-welt-3500104.html

[4] Own calculation, based on numbers from: Deutscher Taxi- und Mietwagenverband; BMVI; Deutscher Taxi- und Mietwagenverband – Geschäftsbericht 2014/2015, Seite 113

[5] http://www.bbc.com/news/technology-31942997

[6] http://upload-magazin.de/blog/7859-mobilitaet/mytaxi/

[7] https://de.mytaxi.com/index.html

By: Frederic Rupprecht


1 Comment

  1. Guilherme Cruz

    This is an interesting article that, in my view, speaks to a big problem of Entrepreneurship in Europe. Europeans are too conservative and always stick to "ask for permission" – even when they're asking for permission to perform an activity based on outdated, over complicated laws that benefit interest group and little else. Although I am not fully in agreement with Uber's aggressive growth strategies – and indeed some of its morally dubious actions – it's interesting to see how European regulators always stand in the way of highly innovative ideas and prevent innovative companies to emerge in Europe at the same rate as in the US. It's gonna be hard to come up with Airbnbs and Ubers if the mindset of the legislators and the entrepreneurs doesn't change.