Taxis in Manhattan - Market Sizing

Problem Definition

An entrepreneur has come to you looking to disrupt the taxi industry in NYC. They are interested in determining the number of taxis in Manhattan, in order to understand how large their fleet would need to be to compete. How would you go about determining how many taxis exist in Manhattan?

If the candidate asks, you may clarify the following:

• This is pre ride-hailing technology
• That we are looking for total taxis NOT taxis at any given time. We would like an estimate of the size of the fleet
• Manhattan is 1 of 5 boroughs in NYC

Short Solution

Solution

The candidate may recognize that they can approach this problem with either a top-down or a bottom-up approach. If they ask which would be preferred, prompt them to think about which would make most sense to them.

A good candidate will have an answer between 4,000 and 25,000 taxis.

Importantly, their logic needs to take into account factors that would affect the frequency of rides, and break down the problem in a structured way.

Top Down

Note: Variations to this solution are acceptable as long as they are reasonable. For example, a candidate may opt to not calculate tourists.

Bottom Up

Difficult Questions

Q: Do you think the NYC taxi market is ripe for disruption? Why or why not?

A: It certainly is. Even though there are few competitors which could represent monopoly power, the inherent business model is inefficient. Taxi companies have had the exact same model for 30 years and have not evolved. They are severly lacking in a few key competitive areas: Cost (labor and car costs are very high), Customer Service (no online/app precense, unfriendly drivers, etc.), Revenue Model (sales only via rides themselves, no sell-on services such as in-car item purchases, product deliveries, etc. etc.)

Q: How would you devise a market entry strategy for this entrepreneur?

A: I would identify and take advantage of the major weaknesses of the NYC taxi market (see Q&A above). In particular, I would look to lower costs by implementing car sharing/switching (currently, every taxi driver owns their own car), and looking to make drivers cheaper (replacing with automous technology, or changing the pay structure). In terms of revenues, I would look to sell additional items (food, chargers, tv viewing, etc.) in the car as well as use driver idle time (i.e. when they're looking for riders) in other productive ways (delivering packages, food, etc.). Finally, I would improve customer service by having the ability to schedule and hail cars online and/or via an app as well as provide training + incentives for drivers to offer friendlier customer service (i.e. via ratings or bonuses).