Why Ride-Sharing is Different in Japan – Ryo Umezawa – Hailo

Ride sharing works differently in Japan. Hailo lost the global market-share war to Uber and Lyft, but Hailo won the battle in Japan. Today, Ryo Umezawa details Hailo’s Japan market entry strategy and explains how they were able to succeed where Uber has failed.

While Uber vowed to disrupt transportation by taking on both government and industry, Hailo worked within the system. They designed and launched a platform that was completely legal and made life better for all major stakeholders, including the taxi companies.

This was a battle between Uber’s disruptive innovation and Hailo’s sustaining innovation. On the global battlefield, Uber won. Uber is the world’s most valuable startup and is still growing fast, while Hailo had a cash crunch in 2016 and was acquired by Daimler.

In Japan, however, Hailo won. Hailo’s sustaining innovation soundly trounced Uber’s disruptive innovation, and Hailo remains significantly larger than Uber in Japan.

Of course, as you probably suspect, both companies had very different strategies in Japan than they did in the rest of the world, any Ryo explains it all in the interview.

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Transcript Disrupting Japan, episode 68. Welcome to Disrupting Japan, straight talk from the CEOs breaking into Japan.

I'm Tim Romero and thanks for listening.

Today we once again turn our attention to ride sharing, but surprisingly, we won’t be talking about Uber—at least not very much. No, today we get a chance to sit down and talk with my old friend Ryo Umezawa, who is responsible for Hailo’s market entry. Now, listeners not familiar with Hailo, let me explain. Hailo is, in a way, Uber’s quiet and somewhat neglected little brother. Hailo did not make the same impact as Uber worldwide, because they followed a very different strategy. While Uber vowed to disrupt transportation by taking on all-comers, both government and industry, Hailo had a different approach. Hailo wanted to work within the system. They wanted to design a platform that was completely legal and that would make life better for all stakeholders, including the governments and taxi cab companies.

In fact, their model involved working with taxi companies directly. This was very much a batter between Uber’s disruptive innovation versus Hailo’s sustaining incremental innovation. And on the global battlefield, Uber won. Uber is the world’s most valuable startup and is still growing fast, while Hailo ran into a cash crunch in 2016 and was acquired—for quite a healthy sum, mind you—and it’s still an ongoing concern.

In Japan, however, Hailo won. Hailo’s sustaining innovation soundly trounced Uber’s disruptive innovation and Hailo remains significantly larger than Uber in Japan. Of course, as you probably suspect, both companies had very different strategies in Japan than they did the rest of the world. But Ryo Umezawa tells that story much better than I can. So let’s hear from our sponsor and get right to the interview.

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[Interview]

Tim: I’m sitting here with Ryo, the former country manager of Hailo. You’ve since moved on from Hailo, but we’re going to back up a couple of years because I think your experience with Hailo is something that a lot of people who are coming into Japan now can learn a lot from. Thanks for sitting down with us.

Ryo: Thanks for inviting me to speak.

Tim: Hailo is very popular in Europe and it made a good run in Japan, but I think a lot of people in the U.S. aren’t familiar with it. So can you just give a brief overview of what it does?

Ryo: Okay, sure. Hailo is a British company started up in 2012. It’s a smartphone hailing app. So we basically connect drivers and users who want to ride a taxi through the app and we also help drivers basically raise revenue by utilizing our unique algorithm to efficiently connect users to the driver. And then for the consumer side of the experience, we help them hail the taxis very easily.

Tim: Okay, so it sounds very much like Uber but with one important difference. You guys were dealing with actual cab companies?

Ryo: Yes. So we only work with licensed taxis. So for example, in London, it’s a black cab. There are 6 founders in the company. 3 of them are black cab London taxi drivers, so they wanted to create more revenue while driving around and create efficiency doing their job because their time is limited.

Tim: So, back in 2013, I believe is when it came into Japan, right? What was Hailo’s main motivation for coming into Japan? What did they see in the market?

Ryo: Actually, I’m the second person for Japan, so there was a predecessor before me. In Japan, yearly, there is about 1.8 trillion yen market size. This includes taxis and private vehicles. But in Japan, taxi companies own most of the private hired vehicles. That’s why the market basically size is 1.8 trillion yen, as big as the entire Europe market put together. So it’s a very big market and it’s actually twice or three times bigger than the New York Taxi market.

Tim: Okay. So it was simply the size of the market; they knew they had to be there. It wasn’t a particular trigger event.

Ryo: Yes, and also in addition, Hailo tends to focus on market that has high number of concentrated taxi in that area, and then in addition, the average fare is higher than other cities where we look at.

Tim: That makes sense. How did you structure the market entry? Was it holding a subsidiary? Did you set up a joint venture?

Ryo: In the beginning, when they came in with the predecessor, he came in with 100% subsidiary, so it was a wholly owned subsidiary of the UK headquarters, but when I was taking over as the new country manager/president, we had a lot of difficulties acquiring new drivers because penetration from the smartphone, where our business was, it launched also from the beginning. The penetration for the smartphone drivers was about 10% because our driver’s age was about 50 years old. So by looking at all this data and then looking at the speed of acquisition of drivers, I was thinking that we need a Japanese local name that can kind of vouch for us in order to create our brand, as well as get trust, because trust is very important. And when foreign companies come in, in some cases, in some industries, people see us as a black ship coming in, just like wartime. So my strategy was to basically change the black shit to either grey or white, by raising money from a conglomerate, the company called Hikari Tsushin. We kind formed a type of joint venture.

Tim: So Hikari Tsushin invested in the subsidiary or you created a new entity for them?

Ryo: We created a new entity for them, that we can jointly put money in.

Tim: And what was the split, was it—how much did Hikari Tsushin own and how much did the parent company control?

Ryo: I can’t disclose, but we had the majority of the shares.

Tim: Meaning Hailo?

Ryo: Yes, Hailo has the majority of shares.

Tim: Actually, before we get into some of the marketing techniques you used and how you built up some of that trust that you said is so important, I’m going to take a quick step back. You made some big changes to Hailo when you came on since Japan’s CEO. What was the reason for the change?

Ryo: Most of it was that we weren’t seeing the growth that HQ projected or predicted in the beginning, and also our business is all about platform, so matching drivers and users. And it’s always chicken or egg in these kind of platform businesses. You might have a certain point of time, more taxi than users, more users than taxis, but in this business, I thought having more taxis was more important because the user acquisition could be done online but all the taxi acquisitions are done offline.

Tim: Well, yeah, also, since you’re working with the taxi companies, you can do one deal with a company and get a few hundred taxis on the service. Okay, so to set the scene, how big was your team at that time when you were just taking over?

Ryo: When I was just taking over, I think the team was about 10, 12 people.

Tim: So not small for a new company coming in. Did you make changes to the team as well or did you make just strategic changes when you came in?

Ryo: Yeah, I made changes to the team and strategy. We weren’t doing that many rides a day but we had actually full customer support.

Tim: Well, customer support is important in Japan.

Ryo: Sure, but back then, we would have one customer support for few rides. Of course, I think they were looking at the scalability, but the service works. The service started in 2012; we were in Dublin, Spain, Singapore, and we even had a US operation, like we were operating in New York and it was proven that this really works. Of course, customers are thought of as kings in Japan, but in the beginning—I’m more of a startup guy, so I am happy to pick up calls from customers and I was actually picking up calls from drivers as well because I really want to know what is going on and what their concerns are, rather than hearing it from customer support. Of course, they will probably have a better voice and better service than I do, but market entry in Japan, I just thought it’s better as a lead startup to have more flexibility.

Tim: And I’m sure the fact that they are talking to the Japan CEO carries a lot more weight, even if you are not doing support perfectly correctly, right? Knowing they have that attention is far more valuable to them. What sort of changes did you make? How did you go about acquiring both the supply side, acquiring those taxis, and on the demand side, acquiring users?

Ryo: So originally, our operation was based in Osaka.