long term business model in doubt, page-3

Interesting article in the fin the other day. I agree taxi apps could be genuine threat to cab.

Investment bank UBS and private equity funds have poured $3.4 million into ingogo, which offers a mobile-phone taxi-booking app, valuing the two-year-old Australian start-up at $25 million as it prepares to list on the Australian Securities Exchange next year.

The Sydney-based company, a competitor to the Cabcharge network, allows consumers to call taxis using an app and pay for the ride. The company has also rolled out about 1000 payment terminals that allow drivers to take payments for rides not taken using a passenger’s app.

The company said the new funding came from 14 investors including private equity fund Wilbow Group and unidentified Melbourne family investors, believed to be the Libermans, regarded as ­technology enthusiasts.

They join existing investors including MYOB co-founder Brad Shofer, Netus founders Daniel Petre and Alison Deans, and Silicon Valley investor Vikram Mehta.

It comes just months after ingogo raised $1 million in August, bringing total funding to $7.5 million and valuing the company at $25 million.

“We’re looking at other areas we believe we can deploy the payment platform we built beyond the taxi market and there’s a lot of things we want to do to keep building on the business,” ingogo managing director Hamish Petrie told The Australian Financial Review.

Despite lobbying from incumbent payment services, state governments have allowed smartphone-based alternatives to thrive, attracting investors.

A local rival to ingogo, goCatch, which claims 200,000 app downloads and 15,000 registered drivers, recently raised $3 million from investors including James Packer and SEEK co-founder Paul Bassat . Silicon Valley-based Uber, which also provides apps for upmarket taxis in Sydney and Melbourne, raised $258 million from Google in September, valuing the company at $3.5 billion.

Mr Petrie, who previously founded online ticket booking site Moshtix, said he expected the company to break even early next year before the company lists.

INDUSTRY DEVELOPING
Ingogo claims its app has been downloaded 70,000 times since it launched last year and Mr Petrie has previously said about 15 per cent of Sydney taxi drivers take bookings through the app.

The company takes the same 10 per cent booking fee for taxi rides as incumbent services, but pays 6 per cent of that fee as a rebate back to drivers.

“You’re looking at an industry that hasn’t been disrupted to date – newspapers, music and a range of other industries have. Up until this point, it hadn’t really happened in the taxi environment,” Mr Petrie said. “It’s really the development of apps and mobile payments that’s really brought that opportunity forward. You wouldn’t have been able to do this three or four years ago because the technology wasn’t right.”

Though Victoria and NSW governments are contemplating regulations for the apps, it is expected rules that require taxi drivers to sign up to incumbent networks such as Cabcharge could be removed in coming years, providing greater incentive for drivers and passengers alike to take up the apps.

Former competition tsar Graeme Samuel has applauded the apps, saying they would “break down the institutional straitjackets which have impeded competition for decades”.

Adam Michell, an analyst at investment bank Moelis & Co who has forecast a steady decline in Cabcharge’s earnings and profits, said he expected the existing near-monopoly on taxi payments would be replaced by several competitors.

“What you’ve seen with the payments business is independent operators moving in,” he said. “It’s like a lot of industries which have seen technology introduced, and you’ve got the incumbent, which is reliant on regulatory protection. That is no longer the case.”