THE last two decades have witnessed a massive shift in the way businesses are run as digital technologies transform the way we live, play, communicate and work. Those industries that have not been able to adapt swiftly have been driven into bankruptcy. Now, the taxi business worldwide is under threat.

Operating in 170 cities around the world, Uber was established scarcely five years ago, and is already valued at $18 billion. This service allows customers to summon a cab via their smartphones, and pay directly from their bank accounts. Generally, taxis arrive promptly, and you get an estimate of the fare before the driver arrives.

All this is possible because of the convergence of GPS, email and cell phone technologies. Basically, you download the Uber app onto your phone, and in the process give your bank account details and your email address. The app pinpoints your location for the driver, and shows you where he is and how long he’ll take to arrive. Meanwhile, you can track his progress. If he has trouble locating you, the driver will send you a text message.

Once you arrive at your destination, you just get off: there is no need to find the right amount, and figure out how much to tip him. Uber will deduct the fare from your account, and email you your receipt. At the end of the week, it will transfer 80 per cent of all the money the driver has made into his account, and keep 20 per cent.

I used the service for the first time on a recent visit to San Francisco, and found it to be efficient and reliable. But as Uber conquers city after city, it has caused a bitter backlash among tens of thousands of cab drivers who have seen their earnings fall sharply. One San Francisco cabbie described Uber as evil. Others use more colourful language.

In London, drivers of the iconic black cabs blocked central London in a massive but futile protest last July to force Uber off the roads. According to them, only they are licensed to pick up fares as they have passed a tough test, and paid the fee that permits them to operate. While there are other unmetered taxis operating in London, they cannot pick up passengers from the roadside, and can only be called to a specific address. Uber can do both.

Black cab drivers have to memorise London’s geography; to pass the exam, they have to take a passenger to any address in the huge city. This is known colloquially as the Knowledge, and for decades, it has served passengers to arrive unerringly at their destinations. But now, with GPS commonly available, the Knowledge has become suddenly redundant, much to the fury of those who spent up to two years acquiring it. But so far, London cabbies have not thought of reducing their high fares to compete with the upstart Uber.

Of course there is the investment necessary for buying their large and very comfortable vehicles. For Uber, even part-time drivers with small, inexpensive cars can pick up passengers in their free time. All they need is a relatively modern and clean car, and an unblemished driving record. Once they are registered, they download the necessary software via an app, and as they say in America, they are good to go.

Uber also uses variable pricing to maximise profits: when a big event like a major football match causes a sudden surge in demand, Uber raises the fare. And when such hot spots occur, it also sends a signal to distant drivers, asking them to converge to the area. Clearly, ordinary taxis cannot compete with this technology, and are feeling the pain any disruptive competitor causes.

This pain was evident when cab drivers in many European cities went to court to stop Uber taxis from operating on their turf. But as I learned in San Francisco, ordinary yellow taxis can sign up with Uber and get the best of both worlds: they can pick up passing fares as well as respond to Uber calls. This may be the way forward for taxi drivers who suddenly see their earnings slashed.

But as we know, monopolies seldom last long in a highly competitive world. Lyft, a new start-up, is snapping at Uber’s heels. In San Francisco, Uber accuses its challenger of calling their taxis, and then cancelling at the last minute. Uber drivers say Lyft does not screen applications as thoroughly as their company does. However, profit margins of 20 per cent attract competition just as honey does bees. It is a matter of time before a price war begins.

In a sense, Uber is not unlike Airbnb, a website that makes it possible for travellers to stay in homes where the owners have a spare room they are willing to rent. Now valued at $10 billion, the company began life in 2009 when two penniless friends decided to rent their loft to make some money, and then advertised the space on the internet. This idea has snowballed into a worldwide phenomenon that is threatening established hotels that have petitioned courts and city governments against what they call unfair competition.

It is no surprise that both Uber and Airbnb started out in the San Francisco area. Home to Silicon Valley, and full of young people willing to experiment with new ideas, this part of California has been the incubator of many transformative models. Even better for me, it has some great restaurants and food markets.

Published in Dawn, September 1st, 2014