Why Do Online Taxi Booking Businesses Fail? Common Reasons to Note

The last few years have seen some of the greatest rivalries among the top companies, especially in the online taxi booking sector. The rise of on-demand taxi booking services has led to the birth of countless ride-hailing businesses, but not all were able to touch Uber's benchmark. So, why do most online taxi startups fail? Let’s find out the most common reasons. 

The taxi booking industry has undergone a complete change after almost a century. Earlier, traditional taxi services lacked technological advancement, making them unsuitable for today’s tech-savvy generation. However, Uber identified this loophole and introduced an on-demand taxi service in San Francisco for the first time in 2009. 

Right after Uber's success, many companies, such as Grab, DiDi, Lyft, and Ola, entered the on-demand ride-share app landscape. However, none of these companies made it as big as Uber. But they are still doing great business in their respective service regions. 

So, these are some of the prominent names in the online taxi booking market, but what about those startups that failed miserably? What happened to them? What was the reason behind their failure? Let’s find out why on-demand taxi businesses fail. 

Market Overview: Key Statistics on On-Demand Taxi Booking 

• The global online taxi booking market was worth $147.28 billion in 2023 and is expected to increase to $679.18 billion by 2032 at a CAGR of 4.9%. (Source: Straits Research)
• Over 300 million people worldwide use online taxi services, with Uber and DiDi contributing nearly half of this figure. (Source: Business of Apps)
• In 2023, there were over 1.7 billion active digital ride-hailing app users globally, and this number is expected to increase to 2.3 billion by 2029. (Source: Statista)
• China has the largest number of taxi service users, with over 44% of the total population using it. (Source: RadicalStart)

What is an Online Taxi Booking App?

An on-demand taxi booking app is a mobile app that lets people book rides with drivers using their smartphones. Instead of waiting for a taxi on the street or calling a cab company, you can use these apps to find a nearby driver to pick you up and take you where you need to go.

When you open the app, it shows your current location and the drivers available nearby. You type in your destination, and the app finds a driver for you. It also tells you the estimated fare and how long it will take for the driver to arrive.

These apps usually let you pay through the app itself using a credit card, debit card, or digital wallet. This is often easier and more convenient than traditional taxi booking services.

Autopsy of Failed Online Taxi Businesses

Before we move on to discuss the common issues and challenges of the on-demand taxi booking market, we have analyzed a few taxi booking startups that failed drastically even after getting good funding. 

1). Hailo                                                       

Hailo was a taxi company that allowed people to book yellow cabs using a mobile app. It started in 2011 with a strong beginning, backed by a $100 million investment. Initially, the company did very well. However, by 2013, things began to go downhill.

There were several reasons for Hailo's failure. One major issue was its inability to compete with big players like Uber. Uber and similar companies were top-rated in New York, making it tough for Hailo to attract enough drivers and passengers.

Another problem was Hailo's business model, which had many flaws. The company did not target the right audience at the right time and place, making it hard for Hailo to establish a strong foothold in the market. In the end, Hailo could not keep up with its competitors and had to shut down.

2). HEY BOB

HEY BOB was a ride-hailing startup that offered bike taxis and cycle rickshaws to customers. The company was founded in 2015 in Bangalore and later expanded its operations to Mumbai. Unfortunately, HEY BOB had to shut down on September 7, 2016.

The main reason for the closure was the inability to secure additional funding to expand its business. The company couldn't grow without the necessary funds and had to cease its operations. HEY BOB's story highlights the importance of continuous funding for startups to thrive and expand.

3). Karhoo

Karhoo was a London-based taxi startup that started in 2017. The company allowed customers to book minicabs through an app and contact centers. They connected riders and businesses with taxis and private hire vehicles. 

Karhoo did well for the first six months but struggled after that. The main reasons for their failure were poor business management and execution. Despite a promising start, they couldn't sustain their operations due to these issues.

4). Roder

Roder was a service that let people book cars for outstation travel without having to pay for the return trip. They offered one-way rides at prices almost 50% lower than the market rate. However, Roder faced several challenges that led to its downfall.

One of the main issues was the high cost of getting new customers and keeping them. Roder struggled to compete with other taxi companies because it couldn't offer discounts and special deals to attract customers. Additionally, Roder faced difficulties in securing additional funding to support and expand its business operations. All these factors combined led to the company's failure to sustain itself in the competitive market.

5). AUTOnCAB

This online taxi service made daily commuting very easy. It allowed riders to book auto-rickshaws, cabs, and three-wheeled vehicles through an app. The app did well in the beginning and expanded to six cities, getting good reviews from users. 

However, it struggled to compete with other well-funded businesses in the industry. Eventually, it couldn't keep up with its rivals and had to shut down. The lack of funds and strong competition were the main reasons for its failure.

Reasons Why Online Taxi Booking Businesses Fail 

As an experienced taxi app development company, we have curated some of the common reasons why an online taxi business fails. So, let’s take a look at them: 

Reason 1: Government Regulations 

Starting a profitable taxi booking app business can be very challenging, especially because of government regulations. While millions of people have embraced ride-sharing, there have been safety concerns, such as cases of assault and harassment. This has led governments worldwide to enforce stricter laws for ride-sharing apps like Uber.

Companies that don't meet these regulations may be banned permanently or temporarily lose their operating licenses, which can result in permanent customer loss. Therefore, it is crucial to understand and comply with government regulations before starting an app-based ride-sharing business.

Reason 2: Competition   

Competition is common in all well-known industries, and it's natural. But if competition causes profits to drop, you need to see it as a challenge and find ways to overcome it before it gets worse.

In every tier 1 and 2 city, people have multiple taxi booking options. Because of these choices, they can easily switch to another app if yours doesn't impress them.

If your taxi app has advanced features, you will attract more users than your competitors, making your business profitable. Here are some features that can make your taxi app stand out:

• Split Payment
• Vehicle Selection
• Interactive Map and Taxi Tracking
• Inbuilt Messenger
• Gamification
• Voice Recognition
• Discount or Referral Program
• Preferred Driver.
• Ride Scheduling

Reason 3: Lack of Funding  

If you're planning to enter the ridesharing market with an app similar to Uber, you might be hoping to secure a lot of funding from big investors. However, this isn't easy. Ridesharing is already a well-known and crowded industry. There isn't much room for new ideas. 

Because of this, investors prefer to invest their money in well-established companies like Uber, Grab, and Lyft. These companies have a proven track record, making them a safer bet for investors. If you're starting out, you'll need a strong strategy and a unique approach to stand out and attract funding.

Reason 4: Lack of  Professional Drivers 

A proper driver authorization process is what makes a taxi booking business safe and secure for end-users. Ridesharing companies also prefer avoiding inexperienced drivers, but the gig economy's nature makes it difficult.

As a business owner, you can ensure safety by adding specific modules to the admin panel. This way, drivers can upload character and police check certifications directly in the app. 

You can also monitor driver ratings, and if a driver's rating falls below a certain level, you can easily remove their profile with just one click. This helps maintain a professional and safe environment for all riders.

Reason 5: High App Development Cost 

Creating a taxi app is the first essential step in starting an online taxi booking business. Without an app, this kind of business cannot be run online.

Fortunately, many companies specialize in developing taxi apps. They have the skills and experience to create a good app for your business.

 However, the downside is that developing a taxi app can be quite expensive, especially for startups. The cost may not be affordable for everyone, making it a challenge for new businesses to get started.

Reason 6: Riders’ Safety 

Many taxi app providers overlook safety, but you shouldn't. Ignoring it could be a big mistake for your new startup. So, how can your small team ensure the safety of thousands of passengers using your service?

You have several options. First, add two key safety features:

• SOS Button: This button should be on every screen of the app, allowing passengers to ask for help if needed quickly.
• Ride Sharing: Allow passengers to share their ride status with family or friends. This way, someone else knows where they are and can check on them.

Additionally, you can ask your taxi app development company to include an AI-based feature in the admin panel. This feature can assess drivers' reliability by looking at factors like their driving patterns and user reviews. This helps ensure that only trustworthy drivers are on your platform.

Reason 7: Taxi Allocation or Driver Matching  

Uber is so successful because of its smart way of assigning taxis to riders. Uber uses a special algorithm that quickly finds the best driver for each rider. This algorithm takes into account things like traffic, one-way streets, bridges, and weather conditions, not just the distance to the driver.

By doing this, Uber ensures that riders don't have to wait too long for their ride. This smart matching makes the whole process efficient, keeping riders happy and boosting Uber's profits.

Reason 8: Automation 

Automation can significantly reduce the need for manpower and boost business efficiency, opening up numerous opportunities for growth. For example, GoJek, a successful startup, offers over 22 on-demand services, including taxi booking. It manages 3 million drivers with just 12 engineers and a robust automated system.

If you want to achieve similar success, automation is crucial. It simplifies important business processes like payroll, driver verification, and decision-making, freeing up time and resources for other tasks. This way, you can focus on expanding and improving your business without getting bogged down by manual work.

Reason 9: Ignoring Market Trends

A new business needs to be unique to stand out in the very competitive taxi market. Many established companies already have a strong customer base and have created a lot of excitement around their services. Not keeping up with changing customer habits is a common reason why new businesses fail.

Successful ride-hailing companies adapt to the market and meet customer expectations by offering dedicated, scalable services. They regularly update their services to stay relevant and attract more customers. This is key to succeeding in the ever-evolving taxi industry.

Reason 10: Improper Business Model

The trends in the taxi business are constantly changing, and customer needs vary with these trends. If a business fails to adapt to these changes, it can face serious problems. Predicting the wrong trends can lead to poor business strategies and eventual failure.

The online taxi business also depends on the different preferences of customers in various regions. It is likely to fail if a business cannot cater to these varying preferences. However, a scalable business model with well-thought-out strategies can overcome these challenges and succeed in the long run. A business can thrive despite potential obstacles by staying flexible and responsive to market changes.

Expert Tips to Make Your Online Taxi Booking Business Success

Failure is not the end for any business or entrepreneur. The journey to success is often tough, and many businesses grow stronger after learning from their failures. Learning from the mistakes of other startups in your industry can help you avoid similar pitfalls. So, here are some important lessons to learn from the other taxi booking business failures: 

#1. Never Overlook the Power of Market Research

Market research is essential for creating effective business strategies and staying competitive. Hailo, a well-funded taxi app, failed because it didn’t conduct proper market research. By doing market research, businesses can identify the key problems their audience faces and understand why current solutions don’t work.

If Hailo had studied the challenges faced by New York’s drivers, it might have become the leading taxi app in the country. Market research helps businesses design their services to address real problems, ensuring they meet the needs of their target audience. It is a crucial step for any business looking to succeed.

#2. Technical Errors aren’t Forgivable

When a startup fails due to unforeseen events or natural disasters, like COVID-19, it’s understandable. These situations are beyond our control. However, failing because of technical errors is not acceptable, especially for a tech startup.

If you're developing an on-demand taxi app, even a small mistake can lead to big problems. This is why it's crucial to be extra cautious during the development process. Make sure to conduct thorough quality checks and testing before launching your app. This will help you avoid any technical issues that could harm your business. 

#3. Inefficient Planning 

For startups, success hinges on thorough research, careful planning, and executing the right plan at the right time. The entire process is centered around making good decisions. What you learn from your research will shape your actions. What you prioritize in your planning will guide your steps. When you choose to execute your plan is critical.

See? This is why it's important to get expert advice and ensure your decisions are backed by solid data. With careful decisions, your startup can navigate challenges and succeed.

Conclusion

Although taxi app services saw a big drop in rides during the pandemic, the number of users is actually increasing. Research shows that more people in major cities will stop using cars in the next five years and turn to shared mobility services. Ride-hailing apps will also become more prevalent in towns around the world.

Because of this, taxi app startups need to get ready to provide unique and exciting experiences for their users to grow quickly. It's important to learn from the mistakes of others and see what your competitors are doing. By doing this, you can create a taxi booking service that is unlike anything else, keeping your customers loyal and greatly increasing your return on investment.

So, if you’re the one struggling with your existing online taxi business or planning to start a new one but are afraid of the challenges that lie ahead, we can help you in both scenarios. At Mtoag Technologies, we have years of experience in building on-demand taxi booking apps. When you partner with us, we promise you don’t have to worry about the abovementioned issues. 

FAQs

Why Did Hailo Fail?

Hailo failed because it couldn't compete with bigger companies like Uber and Lyft. It struggled to attract enough drivers and customers and needed more money to keep growing. Eventually, it had to shut down its operations.

How Did Uber Disrupt the Taxi Industry?

Uber disrupted the taxi industry by offering a convenient app that lets people book rides easily. It provided a better experience with features like tracking your ride, paying through the app, and rating drivers, making traditional taxis seem outdated and less appealing.

Are Ubers Better Than Taxis?

Ubers can be better than traditional taxis because they offer more convenience. You can book a ride through an app, track your driver, and pay without cash. However, taxis are still useful in areas where Uber isn't available or for people who prefer them.

What is the Problem with the Taxi Industry?

The taxi industry often faces issues like high fares, unavailability, and poor service. Taxis can be hard to find during peak times, and some drivers may need a better experience. These problems have led many people to switch to ride-sharing services like Uber.

Is a Taxi Booking Business Profitable?

A taxi booking business can be profitable, but it depends on factors like location, competition, and management. In busy cities with high demand, it can be very profitable. However, it can be challenging to make a profit in area.