Uber Preps Relaunch in South Korea. But It’s Playing Catch-up

In cities around the world, the story is familiar – the aggressive Silicon Valley startup Uber wages a war against the taxi drivers, bursts into the market and steamrolls anyone or anything that gets in its way.

While it sometimes gains enough traction to win over the market, the strategy fell hard and flat in South Korea. The government, taxi unions, and a number of citizens railed against the foreign company for disregarding the country’s laws, while the startup wailed over how “behind the times” Korea risked becoming.

Parking. Photo credit: Anna Lee.

The US-based company rolled out UberBlack in mid-2013, followed by UberX and UberTaxi just over a year later. But UberBlack was limited by unusual regulations in South Korea that limit any paid chauffeur service to only certain groups of people, such as foreigners or people with special needs. That seriously limited its scope.

Uber launched in South Korea in June 2013, giving a ride to footballer Koo Ja-cheol.

UberTaxi had a rough ride too as it was overtaken by a homegrown rival app. Meanwhile, UberX proved to be explosively controversial, just as it and the comparable UberPop has in cities the world over.

After months of legal rough-and-tumble with the government and taxi unions, Uber slinked away from the limelight this spring by closing down its controversial UberX service, in which ordinary people shuttle around paying passengers. That meant Uber had all but shuttered in Korea.

As the dust settled, Uber began quietly rebuilding over the summer, partnering with local companies and turning former government enemies into friends. Last month, it announced a fresh, new push to relaunch its high-end chauffeur-hailing service UberBlack by year-end, this time with the government on board.

But the market is not the way Uber left it. It must not only battle the goliath messaging app KakaoTalk with the KakaoTaxi service that launched in Uber’s wake, but also attempt to win over Seoul’s jilted taxi drivers.

Rise and fall

From the beginning, Uber knowingly launched its service in Korea illegally, one source close to the company claims.

"Uber basically came in with a set strategy that involved them operating illegally," the source told Tech in Asia.

A street in Seoul. Photo credit: HB Kang.

Uber didn’t invent the wheel or the driver-hailing service. Korea’s daeri unjeon (literally "substitute driver") phone service had been bringing home intoxicated businessmen in their own cars after soju-swilling company dinners for years. Likewise, Koreans could dial a "call taxi" number to hitch a licensed cab.

But the driver regulations were dozens of shades of gray. South Korea’s law restricting rental car chauffeurs to serve only certain categories of passengers meant ordinary Koreans could not use such services. The law dictated that any paid chauffeur service, even ones bringing a hotel guest to the airport, was illegal. The law was largely ignored and the limo pickup practice became commonplace.

The Uber source says the firm was aware of the illegality but figured it wasn’t a law that was actually observed. Uber allegedly made a judgment call to join the club, making its quiet entrance into Korea in June 2013 with UberBlack.

For a while, it seemed to work. Downloads edged up starting in June 2014, according to App Annie data. But shit hit the fan after it introduced UberX in August that year, inviting anyone in Seoul over age 26 with a proper license, auto insurance, and a background check to be a driver.

"But when they started X, that was deliberate. They knew that was illegal," the source added.

An Uber spokesperson told Tech in Asia he is not in a position to comment on legal matters as there are still legal proceedings underway.

A Seoul taxi. Photo credit: Michael-Kay Park.

Korea went on the offensive against UberX. The Seoul government slammed it for violating the Passenger Transport Business Act as the company denied responsibility in the event of an accident and allowed drivers without taxi licenses to use the system.

Seoul municipal authorities vowed to find new ways to outlaw Uber, prompting the startup to argue that the city’s attack showed how "out of touch" it was and that it risked getting "left behind" in the global shift to the sharing economy of making money from spare rooms on Airbnb or giving rides to passengers via UberX.

News of an Uber driver’s sexual assault on a passenger in India at the end of 2014 sent shockwaves through Korea. Though the tech-savvy were gung ho over Uber’s innovative idea, some safety-conscious Seoulites were indignant.

"The people were divided. People were fighting with each other, and some people really hated Uber because they thought Uber […] didn’t care about local law and regulations," recalled Jungwook Lim, head of Startup Alliance, an agency in Seoul. "Many people thought that Uber was actually breaking the law, providing risky services. So what if there was an accident with an Uber car? Would the customers be covered by the insurance?"

The Uber Korea team’s offline bravado didn’t seem to help. Jungwook noted that when people asked these kinds of questions, Uber staff wouldn’t give transparent answers. He suspected cultural clashes between the local industry and Uber Korea – which was initially run by Korean-Americans who knew the language but perhaps not the local business culture.

In December 2014, Korea became the first country to indict Uber CEO Travis Kalanick, though he refused to stand trial in the nation. Seoul City poured on the pain the following month by offering a KRW 1 million (US$870) bounty as reward to anyone who reported an Uber driver. Even while Uber’s vice president flew to Seoul to defuse flaring tensions, rallying taxi drivers vowed they would never work with the company.

Uber barked back, calling Seoul’s ordinance a "predatory move" and even offering UberX for free in February this year to whet users’ appetite for the service while it negotiated with the government. But weeks later, the company bent to the mounting pressure and shut UberX on March 6 — two weeks before Seoul prosecutors charged CEO Travis Kalanick and nearly 30 other Uber employees for running an illegal taxi firm.

"Uber’s whole style was go to market, break the law, cause a big ruckus […] and the law gets changed," the source close to Uber said. "In a way they got their comeuppance in Korea."

While UberX remains suspended, the less controversial UberTaxi, which hails licensed cabs, has been operational and is currently the only service available in the Uber app. UberBlack continued to serve non-Koreans and a few special needs groups as the law permitted until the company halted the service completely on November 9 to prepare for the upcoming relaunch, according to an Uber PR spokesperson.

Local copycats

But Uber and industry observers widely suspected that the city was succumbing to pressure from the taxi union, known to have huge lobbying power in Korea. Uber blasted the taxi association as "disingenuous" for posturing as a poor victim whose business was being eroded while threatening to exercise its political influence to close Uber down.

Seoul jams. Photo credit: Dushan Hanuska.

"I cannot see how this ordinance serves the interests of Seoul citizens. It leads us to question that the City’s officials are bowing to pressure from taxi associations, which have declared war on competitors," said Allen Penn, head of Asia operations for Uber, after the cash bounty against Uber drivers was announced.

Nonetheless, the demand for app-connected car services was now clear to see. With the foreign competitor out of the way, the daeri unjeon call services were making their own apps, while multiple Uber copycats like Limo Taxi and Baek Gisa popped up.

In late March, the maker of KakaoTalk, Korea’s top messaging app, took over the game. Riding on its enormous popularity and good standing with the Korean business community, the web giant launched its KakaoTaxi app, letting mobile users anywhere in the country hail a yellow or silver cab, even one-upping the existing "call taxi" phone services by offering it for free. While met with some resistance from the chauffeur industry, KakaoTaxi usage immediately surpassed Uber’s South Korea peak to boast 180,000 drivers and 500,000 ride requests a day at present. That means nearly 1 in 100 people nationwide use it daily. Uber declined to reveal numbers for Korea, but according to app data from 7Park, its local usage has remained flat since peaking in October 2014.

Meanwhile, Seoul City went to work on creating a new category of taxi to allow high-end, unmarked limo services open to everyone and that can set their own fares – as long as they’re not hailed from the street.

The city said it would even pilot test its own premium taxi-hailing service, allowing luxury cabs to run without taxi signs or meters. While the taxi union hoped it would improve drivers’ working conditions, the city took flak for appearing self-contradictory.

That service has yet to be seen, but it did revise the transportation law in September, paving the way for companies to operate limo-hailing services not just for foreigners and other special categories, but for everyone.

In October, the messaging app company launched KakaoTaxi Black with a fleet of Mercedes-Benz E-Class cars (seen in the GIF above, from a promo video by the company), each driver wearing a suit and greeting passengers with bottles of mineral water and smartphone chargers. The new service contracts 200 salaried drivers, who are employed from taxi companies and receive a special course that includes foreign language and first-aid training.

Olive branch

After shelving UberX, the company was seen changing its tune. Behind the scenes, Uber was working with city and federal governments to revise the laws, according to an Uber spokesperson. Internally, somebody else took over the leadership of how to manage things in South Korea, the source close to Uber said.

In November, it announced the relaunch of UberBlack, now open to everyone, declaring that peace had been found with Seoul’s municipal government.

"They [Seoul and Korean governments] recognized the ability of services like Uber to benefit citizens and provide a reliable transportation option across the whole city, at any time of the day," the Uber spokesperson told Tech in Asia. "They’ve really helped us further understand local needs and requirements, and we’re really excited that their forward-thinking regulatory approach will enable us to better serve Seoul and its residents."

Korean media have pointed out that Uber’s new approach shows a softer, humbler side, as if attempting to undo the damaging image of an aggressive foreign company that expected the local market to bend to its will. It’s reflecting a company-wide change that’s starting with the alphas at the top mellowing out and recognizing their corporate responsibility, the source close to Uber said.

"The change in Korea was part of the change happening globally," the source said. "They’re no longer a snappy startup – they’re worth US$50 billion. So they’ve got to behave a little more corporate."

The local taxi union said it had "no problem" with Uber as long as it followed the rules, but noted that drivers still distrusted Uber and had no reason to switch from the explosively popular KakaoTaxi app.

David, not Goliath

With KakaoTaxi dominating the local market, Uber faces a steep uphill battle in Korea that risks little direct payoff. South Korea – with a population of 50 million, 10 million of whom are in Seoul – is just a piece of Uber’s puzzle, but perhaps a crucial one. Korea needs Uber, and Uber needs Korea.

Seoul vibes. Photo credit: Hyunwoo Sun.

The mayor and officials were "relieved" to have reached a solution with Uber, our source added. Many observers saw Uber’s brash strategy as justified because if it kept waiting for laws to change, the bureaucracy would have sapped its momentum. The debate came to circle around South Korea’s desire to raise its image as a tech power in the world. It would have tarnished the brand of twenty-first century Korea – Samsung! broadband speeds! 5G networks! everyone on smartphones! the sharing economy! – to have ousted one of today’s most disruptive tech companies.

"There was a real appreciation for the tech side of things. How can we be a country that’s kicking out Uber? We’re supposed to be a high-tech country," the source said, noting that academics, creative economy leaders, and the tech community were all enthusiastic about Uber’s presence in Seoul. "If Uber had left, moaning, ’Nobody can do business in Korea, they’ll steal your technology and kick you out,’ that would have been terrible PR for Korea on the tech front."

Despite all the brouhaha over Uber’s entry to Seoul, the service never really gained traction in the first place. According to the 7Park data, usage flatlined throughout all the turmoil and even after UberX was shuttered, regardless of KakaoTaxi speeding into the market.

Some believe Uber will resort to a niche consisting of foreign residents and visitors – for now, KakaoTaxi’s app is only in Korean – who will already be familiar with the app. But is that really enough to merit maintaining Korean operations? While Uber is unlikely to win over KakaoTaxi loyalists, Uber appears set to dig its heels into Seoul to maintain its global presence, no matter how sparse the local traction is.

Now Uber must play a game of branding to warm up to local passengers and, perhaps more importantly, the drivers and ensure them that the company is trustworthy and better than its rivals.

While KakaoTaxi Black uses imported Mercedes-Benz cars, Uber opted to go local by forming a deal with Kia for UberBlack drivers to purchase its luxury sedan, the K9, at a special discount. Uber declined to disclose the discount available to drivers who purchase the new car. The Kia K9 (known as the K900 in some markets) is reportedly so nice for backseat passengers that the Hyundai Motor Group chairman himself uses one to travel around Seoul. Uber plans to kick off the revamped and open-to-everyone UberBlack by year-end after initial recruiting and training.

Calvin Kang (left), general manager of Uber Korea, and Cho Yong-won, head of the sales division at Kia Motors, following the announcement of the relaunch of Uber Black.

Uber has also tried to make payment methods easier by partnering with PayPal, also a new entrant to South Korea, but that may benefit tourists more than local users who are growing fond of KakaoPay, another spin-off from the ubiquitous KakaoTalk. Some in the local tech industry expect Uber to come out with a lower base fare than its rivals.

Uber also announced that it was working with Seoul City on its "Taxi Happy Zone" initiative to ensure availability of transportation on Friday and Saturday nights around the hip Gangnam Station, a zone notorious for picky taxi drivers during high-traffic periods.

Uber’s spokesperson declined to give details about its marketing strategy but proclaimed the company has "gained a deep understanding of local needs" and will work to meet them.

"What we’ve found here and all the cities in which we operate is that word-of-mouth and rider referrals are central," he said. "And thus our primary focus is on ensuring the rider experience is first-rate and the service is the most convenient and reliable."

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