Taxify challenges Uber with generous driver pay deals

Climbing into taxis to convince their notoriously sceptical drivers to sign up for a new service might not sound the best way to celebrate graduating from high school. But for Markus Villig, who was just 19 at the time, it was all part of trying to get his start-up Taxify off the ground with his older brother and co-founder Martin.

Few drivers agreed to join the service. “All I had was a lot of drive. I had wanted to start a tech company since whenever. It was extremely difficult to get them to sign up,” Markus, 24, says.

Five years later, however, Taxify is firmly established as Europe’s leading ride-hailing competitor to the likes of Uber and Lyft. Confirmation of Taxify’s success came in May when a $175m investment led by the German carmaker Daimler made it Europe’s latest unicorn, a start-up company valued at more than $1bn. It follows in the footsteps of other start-ups founded by Estonians such as Skype and TransferWise.

First known as mTakso, Taxify started as a pure aggregator of taxis. Success came after a pivot of the business.

“We started based on our personal problems. Tallinn is not too big a city and we had over 30 taxi companies but they all had only 30-50 cars so it was very hard to get one,” says Martin, 39, who has started and run other businesses.

It brought in ratings and credit card payments for convenience and started by signing up companies and then single drivers. But growth was still frustratingly slow, and so the brothers decided to take the plunge into the private hire business and start their own ride-hailing service.

“We told taxi companies: unless you change your strategy you will die. But the problem is that most companies are dinosaurs. So we moved on to individual drivers and had more success but it was still fairly slow. The big growth only came when we moved on to private hire drivers,” says Markus.

Taxify has tried to take business from other companies and says it has done so with a promise of better pay for drivers and cheaper fares for passengers. It thus takes a smaller margin for itself, but the brothers argue they gain a lot back by being more efficient than competitors. This year they are expecting more than $1bn of rides with about 10m passengers in 25 countries throughout Europe, Africa and Australia.

We realised the need for ride-sharing platforms is significantly bigger in Africa. In Europe car penetration is high, public transport is good. In Africa, in most cases, this doesn’t apply at all

The second stage of their strategy had been to focus on eastern Europe, looking at neighbouring Latvia and Finland first and then Lithuania. But as its external funding increased it started looking further afield both in Europe, to cities such as London and Paris, but also to Africa where the brothers had spotted a gap.

“We realised the need for ride-sharing platforms is significantly bigger in Africa. In Europe car penetration is high, public transport is good. In Africa, in most cases, this doesn’t apply at all,” says Markus. Taxify is present in cities such as Accra, Dar es Salaam, Nairobi, Lagos, Cape Town and Kampala.

Martin says Taxify’s strategy is to first head for a country’s capital city and once that is up and running head for the second, third and fourth cities. Much of its growth in the next few years — it is aiming to be in several hundred cities, up from the current 40 — will come from existing countries.

Starting up in a new country is not easy, especially as Uber or other services have often arrived there first. Markus says: “The thing in this space is that as we started many years after Uber most markets already have competition. Definitely the early days are hard because we don’t have as many cars. But because we are providing a better deal, we get more people coming to us.”

One of the battles for ride-hailing apps is regulation. Taxify has been kept out of London by strict taxi licensing rules for some time. Both brothers, however, go out of their way to praise the city for regulating not just the drivers but also ride-hailing platforms. “Platforms in the past have been too sloppy. That is why TfL [Transport for London, the regulator] is very cautious because they had a bad experience. We were one of the platforms hit by that,” says Markus.

For now the money being ploughed into the company gives the brothers a chance to play in what Markus calls “the biggest tech playground currently”. Taxify’s latest investment round included Daimler, the owner of Mercedes-Benz, the Chinese ride-hailing app Didi Chuxing, which was already an investor, plus one of the founders of TransferWise.

“The industry is so great that there’s room for us to grow 100 times from here. We could go public, we could get acquired,” says Markus.

Martin butts in to say that demand for ride-sharing could rise globally 10-fold in the next decade. “That is why we see there is so much potential ahead and so much funding. It’s still too early to sell out. We can have such a big impact.”