Startup Model – On Demand Cab Services

The Model: An app for users to book a cab. Users can enter details, get real time quotes and make a reservation.  A fixed ride fare is then auctioned to drivers, rising till a driver decides to accept it (Reverse DutchAuction).

Startup Doing It: Blacklane (German startup)

What I Like:

Core Idea – On demand cab service is big business.

Easy to Use – The interface of the app makes it very quick and easy to use.

Margins – Tend to be better than other cab services. Since a Reverse Dutch Auction is used, Blacklane tends to make a profit every time the demand for cabs is lower than supply. This is because when the supply is more, drivers tend to accept a lower price in a bid to get the ride.

My Concerns:

Price Discovery – The auction being used inn the background can lead to delays in price discovery. Also, as has happened already, drivers may collude to keep prices at high levels, thereby impacting profitability of the startup.

Competition – Competition is high in this space. The differentiation of this app is relevant more for the company’s profitability. To the users, there is no difference. Also for drivers, I would presume this price discovery mechanism brings with it more uncertainty and challenges in getting good fares.