As a recent explorer of Italian scenery and a venture investor with a focus on digital disruption, I was particularly excited about an opportunity introduced by one of my business partners: to delve into the VIP transfer market in Italy. This particularly aligned with my personal interest and professional expertise in urban digitalization.

The idea was to create an aggregator that caters to both passengers and drivers, ensuring a comfortable experience for all. However, venturing into new markets requires a thorough understanding of local nuances, and the transportation industry is no exception. Focused on the implementation of technology in daily processes, we aimed to assess the feasibility of launching a chauffeur service in Italy (with a planned subsequent expansion into the Swiss market, although we did not get to that). To make a proper estimation of profitability and relevance of such a project, my team conducted a comprehensive market research.

I cannot emphasize enough the significance of thorough market study in strategic decision-making. The need for comprehensive research to assess project viability is crucial for success. Especially so, since it helps one to avoid spending resources on an unfit investment. Despite promising opportunities, the decision not to launch this particular project stemmed from the challenges identified during the research process that didn’t align with my aspirations.

The study progressed through various stages, including immersion in the subject area, interviews with experts and stakeholders, strategy preparation, hypothesis formulation and economic model development.
Our initial research indicated a high probability of launching a profitable aggregator model. The aggregator, with a price determined by the carrier, seemed to align well with the Italian market dynamics. The potential to attract B2B clients from competitors, coupled with the possibility of reducing the average commission size, presented an enticing opportunity. Considering that the average commission size (Take Rate) is about 30%, it is possible to reduce it.

Additionally, we identified a strategic avenue for market expansion through the democratization of travel, similar to successful models like Uber Black or Get Transfer. Following the comparative analysis, this seemed like an only viable option since a democratized concierge service that organizes transportation and can negotiate with the carrier the price of a complex service or changes in the travel process presented a relatively vacant niche.

To validate these hypotheses, we outlined specific areas for further study, including driver surveys and an in-depth exploration of B2B client segments and their challenges.

However, the accomplished study plan steps gave comprehensive results at the stage before full completion. Acquiring a unit economics draft and research report summarizing the main findings as well as competitive analysis of the scene allowed us to make an informed decision to not proceed with the launch of such a project at the moment without having to conduct further research and go through thorough and costly hypothesis testing. It simply seemed unreasonable for the perceived aspirations of introducing a demanded digital product in a niche, as justified by the proper research results in the following paragraphs.

This segment aims to unveil the multifaceted nature of the Italian taxi market. The focus shifts to a detailed examination of its dynamics and pricing structures, providing a comprehensive understanding of the factors influencing the decision-making process. As a venture capitalist, it is important to not only unravel the current market conditions but also strive to shed light on the trends, challenges, and opportunities that define a local sector of interest and its relationship to a global scene.

The Italian taxi market is valued at $1.44 billion, with 80% of revenue originating from offline orders and direct connections with drivers. The resting 20% falls on online services, with the majority of contribution introduced by the cheaper trips with an average revenue per user of 53 EUR.

The market is projected to experience a decline of 1.5% over the next 5 years. However, there is a trend of a natural increase in switching to the online segment. With the main online services entering the market from 2012 to 2015, the market volume was at its peak in 2017, 20-30% higher than now. Forecasts say the market will not grow to pre-Covid levels.

Fleet owners market players currently include 880 registered transport service providersThis is a significant number in comparison to Italy’s 55-60 million population. Within the realm of VIP transfer services over 80 companies are present online in some way. Among them, 14+ aggregator companies operate in various market segments, 2 of which are only present in Milan and surrounding area, 5 across Europe, and 7 providing services globally.

The lack of clear pricing rules in the market became apparent when analyzing partner prices for fleet owners and aggregator prices. Partner prices exhibited significant variations for the same trip duration and car class. Aggregator prices, often indicating the "price from" bar exclusively, showed a wide range within the same car class and service.

Partner prices for fleet owners

As indicated in the graph below, there is no detectable correlation between trip duration and cost per kilometer. We can see a 33% variation in price for rides with the same duration and the same car class. Logically, the graphs are supposed to show a correlation between the cost per kilometer and the duration of the trip, with the cost per kilometer slightly decreasing as the duration of the trip increases. However, this is not the case for the current state of the market.

Based on collected data, surveys and customer feedback, it was concluded that the price calculates less mathematically, depending on the location and the timing of the ride order, as well as the status of the client, all drawn and assessed from experience-based estimation of the driver. This also results in a possibility of an unexpected extra charge on top of the initial price. Another important practice is collective establishment of accepted price ranges that occurs in drivers’ communities. In such cases, agreements are based on professional solidarity.

Aggregator prices

Aggregators in the Italian market solely indicate the lowest bar of the price range. This “price from” may subsequently change and does not operate as a fixed number. The cost of one kilometer in different aggregators can vary with a 4 times difference within the same class of cars and service.

For example, an average Business class ride ranges from 2.30 to 5.20 EUR per km, and a Premium class ride from 3 to 11 EUR per km. The average aggregator commission is 30% of the ride cost.

In the realm of chauffeur services, understanding the distinctive profiles of both aggregators and fleet owners is crucial to determine the rivaling niches and its potential vacancies. This section explores the unique characteristics and strategic maneuvers of both aggregators and fleet owners, unraveling the intricacies of their operations in the current state of the Italian transportation industry.

The digitalization of the Italian transfer market amounts to roughly 20%, which predicts a future trend for further implementation of online solutions. However, the pace might not be as rapid as on other territories, since there is a general predisposition to use traditionally established ways of getting service, i.e. personal acquaintance with the driver or transfer provider. The most established local fleet owners have been operating on the market since the 1990s, serving Italian clientele exclusively and living up to culturally-specific demand, like extensive car service for major events with a lot of guests, such as weddings or funerals that are traditionally attended by most members of extended families. It makes for a rather closed market that is relatively hard to infiltrate. Most of the revenue for companies that operate less locally is generated by tourism, with the majority of users choosing familiar global providers that are present in their home countries.

With this summary in mind, let us proceed towards the profiles composed over the course of the market research.

In Italy, not all of the aggregators even develop digital products for B2C clients. Most orders are made through phone calls and websites, with the majority of corporate clients still relying on phone calls since such direct contact makes for a faster arrangement. Automation of the whole cycle is a costly task that is available exclusively to the biggest companies, usually the ones that are operating globally. An exclusively local market doesn’t currently provide a profitable soil for such an investment since automated transfer orders are not widely used.

The biggest aggregator has 45 000 monthly active users acquired through internet services. With the highly competitive field that is car transfer, the conversion is not expected to be that high, so the final number of clients that eventually purchase a ride would sum up to a couple thousand people monthly. This proves that the majority of revenue is generated by corporate clients and touristic companies.

Delving into the specific features that characterize major aggregator services in the chauffeur industry, we uncover essential insights that shape their market positioning and client engagement:

General Features

1. The main volume of clients and revenue for the aggregator comes from the B2B sector, with a strategic focus on clients from two countries where the aggregator holds a substantial market share.
2. Clients catered to are of a specific type, including corporate clients, travel agencies, event organizers, hotels, and concierge services.
3. Partnership agreements are established with affiliate prices, fostering collaboration with travel agencies, hotels, and other tourist-related companies. A referral program incentivizes these partners with commissions for attracting clients.
4. B2C customer traffic through search is limited, with a high cost of attracting each B2C client, amounting to up to 100 euros per acquisition. Minimal advertising efforts are employed through social networks or paid channels.
5. The primary services offered by the aggregator include transfer and hourly car rental with a driver.
6. The aggregator primarily serves as a billing system, handling transactions and financial aspects of the services provided.
7. The aggregator lacks its own pricing policy, relying on the car owner's set prices.
8. Non-transparent pricing emerges as a significant user complaint, highlighting challenges in recalculating and changing costs during the ordering process.

Market strategies present in major companies

1. Get Transfer: This aggregator adopts a strategy of dumping prices to expand its market presence, particularly targeting the B2C client segment. Notably, it holds the largest share of traffic in this sector. Order auctions, starting with low prices, are a distinctive feature.
2. Uber Black: While attempting a similar market expansion strategy through price adjustments, Uber Black differentiates itself by offering its own pricing policy driven by an algorithm.
3. Booking, Tripadvisor: These aggregators, although not explicitly mentioned in the overview, also operate in the chauffeur service domain. They leverage their platforms to advertise VIP transfer services.
4. Blacklane: This company secures a significant share of trips in Italy, primarily fueled by its own clients in the US and UK, showcasing a unique approach to international market influence.

In contrast to the digital frontiers explored by aggregators, local fleet owners navigate a landscape deeply rooted in personal connections and community ties. This section sheds light on the specific features that characterize fleet owners' operation.

Analyzing the market strategies employed by local chauffeur service companies unveils unique approaches tailored to regional dynamics:

General features

1. The primary clientele and revenue stream for the service come from the B2B sector, establishing a robust foundation for business operations.
2. Clients predominantly hail from the country of origin of the company owners, allowing targeted marketing campaigns in local languages. This strategic focus is especially convenient for attracting tourists traveling outside their home country, since Italy is a popular destination.
3. Small-scale companies thrive with a limited list of clients, often relying on personal connections, kinship, and community networks for client acquisition.
4. Verbal agreements replace formalized partner price contracts, emphasizing flexibility and personal relationships in the business model.
5. B2C clients attracted through SEO constitute less than 50% of the client base, primarily sourced from 1-2 countries.
6. The core services offered include transfer and hourly car rental with a driver, with additional offerings such as shopping tours and trips to attractions, essentially structured as hourly rentals.
7. Instability or a lack of customers through conventional channels is compensated through orders sourced from aggregator platforms.

Market strategies present in local companies

1. Small owners of multiple cars thrive by primarily relying on aggregators for their main traffic, showcasing a symbiotic relationship within the transportation ecosystem.
2. Despite low car load, these owners maintain profitability through a high average bill per transaction, demonstrating the economic feasibility of this model.
3. A keen interest in cultivating regular customers characterizes the strategy, with occasional price adjustments during peak seasons to maximize revenue.
4. Tailoring services for local clientele, such as offerings for weddings and funerals, caters specifically to the needs and cultural nuances of clients from Italy.
5. Moveolux, a concierge service, emerges as a prominent player in the local market, specializing in organizing transfers and additional services for events and trips, showcasing a holistic and client-centric approach.

A notable outcome of the Italian chauffeur market research was a draft model encompassing the calculation of investment costs and the payback period for an aggregator project of the kind we were thinking of launching.

The foundational principles of the model were derived from insights obtained through similar taxi markets, Statista portal data, and expert evaluations acquired during the study. Investment size is primarily driven by market share, although it doesn’t exert such a substantial influence on profitability as the % Incentives GMV subsidy rate does.

The main difference between Premium Taxi and other service classes is the cost structure for procuring orders. In the former case, primary costs revolve around customer attraction, while in the latter, it involves attracting both customers and drivers. The business's distinctive trait lies in its high pricing and the absence of the need for additional payments to drivers, with only minor subsidies to boost activity or retain them. The calculations were specifically tailored for the basic class E and an average full-time driver.

The model's profitability indicators are significantly impacted by the % Incentives GMV. In the initial year, this figure can peak at 30%, with the inverse indicator positively affecting the Take Rate economy. According to current assumptions, operational profitability can be achieved when the Take Rate exceeds % Incentives by 10 percentage points, not surpassing 30%, which serves as a market limitation imposed by Uber and other taxi companies. Upon reaching around 1,200 trips per day, the service attains self-sufficiency, factoring in a minimum 11 percentage point difference in commission rates. Operational break-even transpires when the commission and % Incentives GMV are equal.

Market potential Concerning market potential, the market price, averaging at a 33% overestimation, presents an opportunity for market capture and expansion by reducing prices. Drivers are amenable to this pricing, considering their willingness to operate at similar rates in other aggregators, such as Uber and GetTransfer.

Driver Economics Delving into driver economics, the unit economy calculation factored in 50% of the driver's idle mileage, along with the operational costs of the car and the base commission of the taxi fleet.
Driver economics enable an average 30% reduction in prices while simultaneously allowing drivers to earn with the service.

Although dismantling a viable approach, this modeling is what ultimately guided the decision to refrain from entering this particular niche. The thought process behind it is waiting for you in the concluding section of this case study.

Contemplating the creation of a chauffeur service aggregator for the Italian market, driven by the vision of making life easier for drivers, was exciting. The concept aimed to ensure that they receive their hard-earned income faster, creating a system that streamlines the entire process. However, a notable drawback surfaced – the prolonged wait for funds from the aggregator. The necessity to address pricing intricacies became evident, marking a crucial aspect for consideration.

The viable plan to carve out a niche in the market would imply focusing on about 5% of the fragmented landscape. The catch was that achieving further share meant considering such strategic moves like acquiring existing companies, a move that demanded a larger initial investment than originally expected. The market complexities demand to invest significantly to find the perfect product-market fit and then patiently wait for a shift in demographics, where younger generations would embrace digital services more. Marketing studies reveal that in Italy only around 7 million people, including tourists, are using digital services. Compared to some other potential markets, this is not much to start with. Especially since despite the anticipation of natural growth in digitalization driven by demographic changes, today the majority of disposable income in the market lay with the older demographic, less inclined towards embracing digital solutions in the chauffeur service domain within Italy. That simply means the moment for outbreak hasn’t yet come, so such a project would be a long waiting game rather than riding the wave of introducing a great solution that will find its fair share of audience.

Recognizing the pivotal role of thorough market research, our venture investment team made a crucial decision. Choosing a more strategic and profitable investment direction, we opted not to move forward with the chauffeur project. This case study underscores the importance of digging deep into market realities when making informed business decisions.

Reflecting on this case study, I am planning to stay committed to data-driven decision-making in future ventures. The lessons learned underscore the need for adaptability in the ever-changing business landscape. The Italian chauffeur market, though full of potential, nudged us towards more promising paths, showcasing the pivotal role of thorough research in guiding venture investment decisions.