[Big Tech, Big Change①] KakaoT 'Call' 5 Years... Erasing 50 Years of Taxi Sa-nap-geum

Big Tech Changing the World
Naver and Kakao, which started as internet portal services, are infinitely expanding into mobility, finance, e-commerce, content, and more. This 'catfish effect' not only brings changes to traditional industries but also causes conflicts with existing industries. As the distinction between traditional industries and ICT industries becomes blurred and barriers between industries disappear, big tech represented by Naver and Kakao is shaking the framework of South Korea's industrial structure. Asia Economy examines the major industrial changes triggered by big tech in mobility, finance, e-commerce, and more.

[Asia Economy Reporter Bu Aeri] Since Kakao Mobility first launched 'Kakao Taxi' (now Kakao T) in March 2015, it has been breaking down the long-standing practices upheld by the taxi industry over decades. With information and communication technology (ICT) enabling driving data analysis, the 'fixed daily payment system' of taxi corporations has disappeared, and the culture of app-based calls has been established, reducing the 'cruising operation' of driving around empty to find passengers. Mobility innovation is rapidly sweeping through the taxi industry, with a noticeable increase in ICT-integrated franchise taxis.

◆Abolition of the fixed daily payment system after 50 years= On the 17th, Lee Jae-ho, head of the Digital Economy Research Institute at Kakao Mobility, cited the biggest change Kakao, representing big tech, brought to the taxi industry as the 'contribution to abolishing the fixed daily payment system.' Introduced in the mid-1970s, the fixed daily payment system required corporate taxi drivers to pay a fixed amount of 130,000 to 150,000 KRW daily to their affiliated company regardless of their daily income. To meet this payment, drivers had to work long hours, which ultimately led to a decline in taxi service quality and was considered a chronic problem in the taxi industry for decades.

Lee explained that although there had been long-standing controversies over the fixed daily payment system, its abolition was impossible because there was a lack of data to build trust between taxi companies and drivers. From the taxi companies' perspective, there was no way to verify where and what drivers were doing during working hours, so they insisted on the fixed daily payment system. However, with the advent of the Kakao T application (app), driving record data such as where and when a taxi driver picked up a passenger became available, changing the situation. Lee said, "There is now evidence to eliminate the company's distrust that 'taxi drivers might be idling,' which has existed for decades," adding, "Data through the app has played a role in building trust between taxi companies and drivers."

With these changes, the National Assembly passed the amendment to the Passenger Transport Service Act last year, mandating the implementation of the full management system (monthly salary system). In practice, companies that have franchised with Kakao Mobility are increasingly adopting the monthly salary system.

◆Reduced cruising operations... 9.4 trillion KRW income generated= Kakao T has also changed the taxi paradigm. The culture of hailing taxis by waving on the street has shifted to an 'app call' culture. Currently, Kakao T has 25 million users, nearly half of South Korea's population. This change has also reduced taxi drivers' cruising operations. Kakao T app provides a 'demand prediction map' using big data, showing in real-time the areas where passengers are expected to gather near where taxi drivers are located. This reduces the need for drivers to roam the streets looking for passengers.

According to Kakao Mobility, the cumulative transaction amount through the Kakao T app is approaching 10 trillion KRW. As of June 2020, the cumulative number of rides on Kakao T was 1,015,570,000. Multiplying the number of rides by the estimated taxi fare, the cumulative transaction amount of the Kakao T app reaches 9.4 trillion KRW. Kakao T has also contributed to increasing taxi drivers' income. A survey conducted by Kakao Mobility on about 10,000 taxi drivers showed that their average daily income increased by approximately 37.5% due to Kakao T.

◆Emergence of 'franchise' taxis= Franchise taxis supported by ICT companies' technology have also increased significantly. Kakao Mobility provides taxi corporations franchised with them not only the right to use the Kakao T Blue trademark but also comprehensive management systems including accounting, marketing, and driver training. Kakao Mobility's franchise taxi, 'Kakao T Blue,' currently numbers about 9,800 vehicles. The latecomer KST Mobility operates the franchise taxi 'Macaron Taxi,' which has surpassed 10,000 vehicles. Combined, the franchise taxis of these two companies account for about 8% of the 250,000 taxis nationwide.

The Kakao T app is also influencing the premiumization of taxi use. According to Kakao Mobility, the proportion of calls for premium, large, and black taxis, which are more expensive than regular taxis, increased from about 1% in 2015 to 15% in 2019. As the usage of services priced 1.5 to 2 times higher than regular taxis increases, it can be inferred that the overall market size is expanding. According to the Ministry of Land, Infrastructure and Transport, the current mobility market, valued at 8 trillion KRW, is expected to grow to over 15 trillion KRW by 2030. Lee said, "As convenience through call apps increases, accessibility to taxi services improves, ultimately leading to the expansion of the entire taxi market."

☞Big Tech: Refers to information technology (IT) companies based on internet platforms. Globally, Google, Microsoft, Facebook, and Amazon are representative, while in South Korea, Naver and Kakao are typical examples.