July 10 (Bloomberg) -- As Uber Technologies Inc. faces growing competition and government oversight in the U.S. and intense protests by cabbies from Boston to Berlin, even places that should be more amenable to the ride-finding service -- like Moscow -- are proving difficult.
For decades, Muscovites have simply put their hand out curbside to flag down drivers, bargained a price, and taken off. That unruly atmosphere, though, means both increasing regulation and greater competition for Uber, which in February arrived in the Russian capital with a high-end service using luxury cars.
Two established players, Yandex.Taxi and GetTaxi, have a head start of more than two years, and both work with thousands of cars in Moscow, versus just a few dozen for Uber.
“The taxi market is taken,” said Mikhail Zhuravlyov, a Moscow cabbie for the past 20 years. “No one will make space for a newcomer.”
Uber, founded in San Francisco in 2009 and valued at $17 billion in a recent financing round, has run into opposition as it expands across the U.S. and Europe. On June 11, cabbies in at least nine European cities tied up traffic for hours to protest Uber. And in New York, the company has agreed to limits on its peak-pricing tactics, while rival Lyft Inc. says it will start serving the city with 500 drivers tomorrow.
Moscow’s government is seeking to rein in a disorderly taxi market worth about $1 billion a year, according to Yandex.Taxi, owned by Russia’s largest search engine. With increased oversight, unlicensed drivers piloting anything from luxury sedans to beat-up Ladas have fallen to some 30 percent of Moscow cabbies, the city says, down from 90 percent three years ago.
“Uber depends on unlicensed drivers in the U.S. and Europe, putting pressure on legal taxis and prices,” said Shahar Waiser, founder of GetTaxi. “This model isn’t relevant for Russia where the illegal taxi market long ago brought down prices.”
Paul Faguet, head of Uber in Russia, declined to comment. The company said in a statement that its current high-end service is “just the first step.”
Moscow has urged unlicensed cabs to get permits, which cost nothing and entitle drivers to park in taxi stands and to use special lanes on busy streets -- though cars must meet minimum quality requirements and cabbies have to pay taxes. Licensed cabs have jumped to about 42,000 from 9,000 in 2011, and the city expects to have about 55,000 by yearend.
Dmitry Pronin, deputy head of Moscow’s transportation department, says Uber and similar online services are considered dispatchers, so they’re not subject to regulation. Yet he cautions that as they grow, they should only work with licensed cabs.
“If Uber uses drivers without a taxi permit it will sooner or later come to the attention of law-enforcement agencies,” Pronin said.
Of more immediate concern for Uber are the two entrenched competitors. Both companies serve as a middleman, charging licensed taxis to steer orders to them. Uber, by contrast, signs up individual cars online, sets fares, directly charges the customer’s credit card, and then pays the driver.
So far, it has focused on the top of the Moscow market with what it calls “Uber Black,” using luxury cars such as the Mercedes-Benz S-Class and BMW 5-Series. A ride from any of Moscow’s three airports to the center costs 3,500 rubles ($103) -- about twice what a regular taxi might charge.
While Uber won’t say how many vehicles it has, rival GetTaxi says Uber works with about 50 cars. GetTaxi, by contrast, has more than 8,000 taxis in its database, including some 500 in the premium segment.
Yandex.Taxi says it received $4.2 million in commissions from 3.5 million orders last year, with fares totaling $68 million. For now, Yandex.Taxi doesn’t view Uber as a competitor since the high-end accounts for just 5 percent of the market, said Grigory Dergachev, head of the Yandex service.
“Muscovites who are rich enough would rather employ a personal driver,” Dergachev said. “We don’t see much demand in this niche.”
To expand in Moscow, Uber should offer lower-cost cars like it does in the U.S. and elsewhere in Europe, said Karen Kazaryan, an analyst at the Russian Association of Electronic Communications -- though he cautions that such a strategy would expose it to greater competition and bring it more directly into the sights of regulators.
“Uber doesn’t have much time as Yandex.Taxi may become unreachable once it improves its service,” Kazaryan said.
Timur Khaydapov, a 32-year-old manager at a state-run company, says Uber’s mapping service isn’t as accurate as that used by Yandex, so drivers sometimes have to call to find his exact location. But he says he likes that Uber uses only high- end cars and well trained drivers.
Uber’s drivers “are always polite and know Moscow well,” Khaydapov said, “while with other taxi services the quality is inconsistent.”
And Uber has earned a strong reputation among some drivers. After the car service he worked for went out of business, Dmitry Kolosovsky tried driving a standard Moscow taxi -- and hated it. Today, he pilots a Mercedes for a company that has a contract with Uber.
“I have a high-class car,” Kolosovsky said. “It makes me feel like a personal driver again.”
--With assistance from Anatoly Medetsky and Anton Doroshev in Moscow.