For a very long time, one of the most valuable business assets in New York City was a yellow cab taxi medallion. With recent value in the $1 million dollar range, ownership of the medallion was a virtual cash annuity, combined with equity growth (in 2004 medallion prices were in the mid $200,000 range and have increased in value 15% year over year in the 9 years since). As one owner once put it, “it even makes money for me while I sleep,” since the cars can be rented when the owner is off shift.
Medallion owners tend to fall into two categories: private practitioners and fleet owners. Private practitioners own their own car, have responsibility for maintenance, gas and insurance, and tend to use the cash flow to live while allowing the medallion to appreciate over the course of their career. They then cash out as part of their retirement plan.
Fleet owners have dozens of medallions; they lease or buy fleets of automobiles and often have their own mechanics, car washes and gas pumps. They either hire drivers as employees or, more often, rent their cars to licensed taxi drivers who get to keep the balance of their earnings after their car and gas payments.
In London, taxi drivers have to invest 2 to 4 years of apprenticeship before they can take and pass a test called “The Knowledge.” However, like NYC, finally getting that a licence to operate a Black Cab in London is a hard-working but stable way to earn a living.
Now imagine that someone comes along that can offer all the services of the NYC yellow cab or the London Black Cab directly to the general public, but does not have to own the medallion, own the car or employ the driver. With as much as 70% lower overhead, they provide the same service to the consumer; in fact they are so consumer friendly that they become the virtual gatekeeper for all the taxi and car service business in the community.
How, you ask? Outsourcing the overhead and just-in-time inventory management; they convince thousands of people to drive around in their own cars with the promise of a potential payment for services driving someone from point A to point B. All these drivers have to do is meet certain standards of quality and safety. This new company does all the marketing and uses technology to make the connection between the currently active drivers and those in need of a ride; they provide simple and transparent access to a host of cars circulating in your neighborhood, let you know the price and send a picture and customer rating of the driver, all before he or she arrives, and they process the payment so no money ever changes hands.