Hailo chief: Most cities have a metro but Ireland's transport setup makes taxis essential
Hailo is merging with German taxi app Mytaxi, creating a dominant player in Europe. Chief executive Andrew Pinnington told our reporter why the business got it so wrong in the US, how carmakers are betting on on-demand transport and why Ireland cannot manage without taxis
I have a confession to make: I spend too much money on Hailo. The taxi ordering app is a reliable friend when I'm running late, bringing a car hurtling to my rescue in five minutes or less. Having looked through a recent batch of Hailo receipts I tell Andrew Pinnington his company has a lot to answer for.
The friendly silver-haired Englishman smiles like I have given him good news. The thousands of Irish people like me who have embraced the service are helping push his company to new heights.
Pinnington took the reigns at Hailo, which was founded in the UK in 2010 by a group London cabbies, around Christmas 2014 - a turbulent time in its corporate life. Hailo has had a rollercoaster two years. An expensive, failed attempt to crack the US was followed by carousel of chief executives, and then came the news of a major merger.
Hailo has just announced it is to merge with rival German app Mytaxi, creating the number one player in Europe. The combined entity will keep Mytaxi's moniker and have a presence in Ireland, the UK, Spain, Austria, Germany, Italy, Poland, Portugal, Spain and Sweden. Irish customers will be able to order taxis in those countries without modifying their accounts or downloading a new app. Pinnington will lead the group.
When he joined from Carphone Warehouse, Pinnington was Hailo's third chief executive appointment in as many months. Co-founder Jay Bregman, a serial entrepreneur who is now working on a drones business, was replaced in October 2014 by senior Starbucks executive Tom Barr - who was only in the job for three months before Pinnington got the nod.
The truth isn't as dramatic as that account sounds, he tells me from a boardroom at Hailo's Irish headquarters in an old Georgian building on Upper Mount Street in Dublin 2.
He is a great interviewee, every answer precise, considered and informed. At Carphone Warehouse he was chief operations officer and before that worked with Pepsi Co in the US. He has a history degree from Bristol University ("which was no use at all") and an MBA from the Wharton School of Business.
Hailo will be studied by business schools one day, he says. "This will be a business school case study at some point, about how to take something that was absolutely flying - keep in mind I'm saying this in hindsight...
"It will be one of those cases where people say 'I can't believe they took that decision and that decision', which in aggregate led the business to a place it should never have got to."
He is referring to the company's fruitless US invasion. "When Hailo first went to North America it was very much one of those technology shooting stars which had enjoyed tremendous success in its initial launches in the UK and Ireland, London and Dublin particularly.
"Like a lot of young companies I don't think they really understood at that stage what had made them a success. There was a sense of: 'wherever we go, we are going to be a success', without realising that there were a certain set of regulatory, competitive and cultural criteria that were the foundation stones of that early success.
"When they went to the States the landscape changed very quickly. Uber raised their first tranche of serious money and suddenly the rules of the game changed. At that stage, when Hailo first went to the US, on all of the performance indicators it was probably ahead of Uber. But Uber found a rich seam of investment and suddenly the game became about capital as well as a technology."
It all went downhill very quickly. "The business started spending money that it couldn't afford. It didn't have the depth of pocket required, and then made a couple of poor strategic decisions that exacerbated that money drain.
"For example, a decision was made to completely replatform the original technology. It was probably the right decision. But rather than going from a Morris Minor to a Ford Mondeo, they went from a Morris Minor to a Rolls Royce or rather, to a rocket that you could fly to the moon. "A huge amount of resources, financial, time and energy were put into that and it made the business stand still for 18 months in terms of product and development. And in this market, 18 months is a lifetime. That really hindered things."
The decision to abandon Hailo's US plans was taken around mid-2014. It came just a couple of months after the company had completed its biggest ever fundraising round of $52m. It has raised just a bit north of $100m in its lifetime, which looks tiny in comparison to the massive $8bn raised by Uber.
Hailo found it needed money again - but wouldn't get it as easily this time around.
"What became obvious at that stage was that the external financial community was still in quite a frothy place with regard to taxi hailing apps. Some of the indicators that Hailo was showing at that stage - whether it was cash burn, growth rate, whatever - weren't strong enough to attract the new cash that some other business were attracting at that time. It was obvious that something had to change within the business."
A two-part plan was implemented. The first priority was nursing the business back to health - "cutting it back a bit, really focusing on existing markets, massively reducing cash burn to demonstrate that this could be a really profitable business in the future."
Part two was figuring out what exactly Hailo wanted to become in the next few years. "What was happening globally at that time was you had this one really big dominant player that was attracting a lot of media attention and commentary. But then underneath that you had the emergence of regionally dominant players.
"If you started to analyse where all the energy and investment was going, it was going towards emerging regional winners - a clear leader in South America, a clear leader in India, a clear leader in China, a clear leader in South East Asia.
"But when it came to Europe… although Hailo had the aspiration to be seen as such, just playing in Ireland, the UK and Spain doesn't give you the right to say you are a European leader.
"And so we set out our stall to say: that's the next stage. We wanted to take what we were doing in Ireland, the UK and Spain and expand it into the rest of Europe and become that clear European leader."
As it turned out, another European company had exactly the same idea.
"Without going into too much detail, it became clear that Mytaxi's approach was virtually identical. With one exception, they play in completely different markets to us - we overlap in Spain. But other than that, our two markets are totally complementary.
"That's when the discussion started. It just seemed like a very obvious way of us both getting to our goals quickly and giving us a great platform to really grow out and dominate Europe."
Mytaxi is owned by German car manufacturer Daimler, the group which also owns Mercedes Benz. The merged entity - which is being created via a paper deal, with no cash changing hands - will be owned 60pc by Daimler and 40pc by Hailo's shareholders. Daimler is also an investor in car club Car2go and chauffeur app Black Lane.
Daimler isn't the only carmaker investing in taxi apps; manufacturers are throwing money at the e-hailing and ride-sharing industries. General Motors has invested half a billion dollars in Lyft in the US, Volkwagen has pumped $300m into Israeli platform Gett, Apple - which everybody knows has vehicle ambitions - has put $1bn into Chinese player Didi.Toyota, meanwhile, has invested in Uber.
"What they are starting to hedge their bets on is urban mobility and on-demand transportation," says Pinnington. "What they are seeing is that increasingly, over time, the likelihood of you or I owning a big piece of metal that sits by the side of the road or at the end of your driveway, idle for 95pc of its life, is perhaps going to be a thing of the past. It's going to be much more about on-demand transportation."
It will probably come as a surprise to most Irish people that Hailo has had a difficult time in the past two years, because the company is so successful here. It has managed to fend off Uber and other competitors in Ireland, by far its most lucrative market per capita.
One of the reasons for this success is Ireland's poor public transport networks, which have made taxis a necessity rather than a luxury.
"Most capital cities will have a metro or underground system or other forms of public transport. Because of the way the city has evolved here, [taxis] are an absolutely crucial part of the public transport system and part of the culture. So even though Ireland is a small country in the EU sphere, it's the fourth biggest taxi market in the EU."
Another reason for Hailo's success is that it plays ball with regulators, Pinnington says. "We have worked within the existing infrastructure here to improve it, we haven't smashed it and said 'we know better'.
"Consequently we got a lot of support from drivers and built up a big supply base, which means that when a passenger requests a vehicle, they generally get quite good service.
"Our phrase is 'constructive disruption', rather than 'destruction', and that has been very, very helpful and applicable in the Irish market."
He is talking about Hailo's commitment to only using licensed drivers, as opposed to Uber and other platforms which use unregulated drivers in markets where it is legal to do so.
Uber is advocating that Ireland's regulatory regime be relaxed to accommodate this model, though the regulator appears to have little appetite for this. A strong taxi lobby also stands in its way.
"Things like pooling [customers sharing cars with strangers to split costs] could well happen in the not-too-distant future - but it will be pooling within a licensed vehicle" says Pinnington.
"Hailo's approach as well as Mytaxi's approach has always been to work within the regulated infrastructure."
How long will this last? Uber fans will tell you that the days of licensed taxi drivers are coming to and end. In cities like San Francisco, where the law permits anyone with a driving licence to offer rides for money, people have abandoned taxis. As more and more of us embrace the "sharing economy", the days of a professional taxi driver being the only one who can sell a lift are numbered, some argue.
We employ unregulated service professionals in positions of trust all the time - cleaners who come into our homes, for example, or babysitters who look after our children - why should drivers, once they have proved they can drive, be any different?
"I think it will vary market by market" he says. "All of the research we have done suggests that both passengers and drivers don't particularly like that model. Part of it of it is cultural, part of it is regulation, part of it is resistance to change… I don't think there is necessarily an inevitability that it is going to smash the existing infrastructure, the way Europe operates today."
Regional companies, and not Uber, pose the biggest competition, he adds. "We regard Uber as a very powerful, very well funded, very well run and operated competitor, so clearly we take them into consideration wherever we go. What we've found, though, certainly outside London in the territories we operate in today as the combined business - they are not necessarily our major competitor.
"That's not to stay that won't change, particularly as they turn more of their attention to Europe. I daresay they will find cleverer ways to access the European market than they have to date."
The other strategy which worked well for Hailo here was giving the local office autonomy with marketing.
"If you look at our marketing here, it's very Irish. That really helps to imbed it in the local community. If you went to London or Spain, the tone and feel of the brand is completely different than the one here."
The Irish office is led by Tim Arnold, a rising star in Irish business circles aged just 29.
Its success in Ireland became the biggest concern when it was decided the newly merged entity would be called Mytaxi rather than Hailo.
"Over 15pc of the Irish population has downloaded the Hailo app and the brand has over 90pc recognition in Dublin, which is pretty astonishing when you consider that it's only four years old. When I announced the deal to the team here, that was their first thought - 'what about our brand?'
The Mytaxi moniker was selected because it means something to people across almost all languages, while Hailo "means nothing to anybody outside of the Anglosphere".
The money Daimler are prepared to put into the business (which is not being disclosed) will enable investment in technology, meaning new features. One example - already available on the Mytaxi app - is a function which allows users to select a favourite driver.
"If you're a regular user you might build up ten, 20, 30 favourite drivers, and then the technology will look for them first when you next search for a taxi... It becomes more than just a transaction." A subscription pricing model is also being looked at - you might pay €200 a month for an unlimited number of trips.
The new entity intends to push into new European markets. "The obvious next two would be France and Greece and then potentially Turkey, the political situation notwithstanding. Then there are some very interesting markets in Eastern Europe which are high volume but low value."