Fall of Korea’s top carpool app amid financial struggle, regulatory hurdles

Published : Jun 21, 2018 - 16:58 Updated : Jun 21, 2018 - 17:05

South Korea’s top carpooling startup Poolus has laid off around 70 percent of its employees as part of business restructuring initiated by growing financial difficulties and regulatory hurdles that have weighed down on the app’s growth.

Poolus confirmed Thursday that its CEO Kim Tae-ho had resigned as of June 7 during a board meeting. The startup said it has been seeing “stagnant earnings and operational difficulties due to regulatory issues” and will “re-examine the viability of its business and undergo restructuring.”

As a result, some 70 percent of its workforce of around 50 employees have reportedly been fired as of this week.

However, Poolus stressed that its carpooling service platform will continue to operate normally, dismissing concerns that the firm may be terminating its business altogether.

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Launched in 2016, Poolus is a homegrown ride-hailing mobile app that connects drivers -- of regular, non-taxi vehicles -- with riders. It offered fares that were up to 50 percent cheaper than taxi fares, with an array of discount coupons and promotions.

Poolus had been a major player in the local carpooling platform space, garnering more than 750,000 users. It attracted some 22 billion won ($19.82 million) in series A funding from big firms including Naver, Mirae Asset and SK Holdings, most of which was likely used for marketing expenses.

The business model of Poolus and other carpooling apps is similar to that of foreign ride-hailing apps like Uber, but they they have faced operational limits to stay legal in Korea.

Korea’s Passenger Transport Service Act prohibits unlicensed vehicles from operating paid driving services. And for this reason, Uber’s flagship private ride-hailing service, UberX, was ruled illegal and suspended in 2015.

But the local law makes an exception for “commuting hours,” during which time, non-taxi drivers are permitted to engage in commercial driving activities.

Leveraging this window, carpooling apps, including Poolus, have been offering their services at self-designated “commuting hours” -- between 5 a.m. to 11 a.m. and 5 p.m. and 2 a.m. on weekdays only.

But in November last year, Poolus decided to push the boundaries by removing this time restriction, drawing severe backlash from the government and taxi industry.

Poolus introduced a new option in which a driver can freely select two four-hour slots out of the day’s 24 hours, allowing eight hours of carpooling trips per day. The driver can choose any five days, on either weekdays or weekends.

The startup introduced the option on grounds that “commuting hours” can be interpreted more broadly to reflect flexible work hours and diverse lifestyle patterns outside of the 9 a.m. to 6 p.m. work schedule.

Seoul City immediately shot back. The Seoul Metropolitan Government asked the police to investigate Poolus for breaching local transportation laws, claiming that carpooling services, if imposed around-the-clock without time limits, would be no different from commercial taxis and are therefore illegal.

Poolus’ new service also drew opposition from the taxi union, which staged multiple protests against the carpooling industry and physically blocked government-organized public discussion forums to work out differences on the matter.

Under such circumstances, Poolus said its new option has not gotten more users onboard for months, as drivers fear there could be legal repercussions due to regulatory issues, straining its finances.

With stagnant growth and hostile regulations, Poolus is said to have run out of funds to keep its business afloat, and failed to attract new funding from investors, according to industry insiders.

Adding to its future woes, Poolus will also find it hard to keep pace with its rival Luxi, another local carpooling platform app, which was acquired by Korean mobile messaging giant Kakao in February.

Luxi’s carpooling services are expected to be incorporated into Kakao’s mobility app Kakao T, as an alternative option to taxi-hailing during peak commute hours when there are not enough taxis to meet demand.

By Sohn Ji-young (jys@heraldcorp.com)