Ben Aris in Moscow -

Getting a taxi in Moscow in the 1990s used to be a scary business, at least for the uninitiated. Standing at the side of the road, holding out your hand, palm downwards, it would take less than 30 seconds for a crumbling Lada to screech to a halt beside you. Haggling over the price at the end of the ride, however, could take much longer.

But for the initiated, riding in such gypsy taxies was fun once you knew the rules. If you were familiar with the route, it was not necessary to haggle over the price - everybody knows how much it should cost to go from Pushkin Square to 1905 Gorod. The rest of the journey could be passed in pleasant banter about the weather, politics or the respective merits of Russian versus English literature.

Riding in gypsy taxis today remains a key Russian social experience, but their market is long past its heyday. Taxi services in Moscow and St Petersburg are rapidly starting to resemble those in the rest of Europe as hundreds of professional yellow cab companies have appeared in the last four years.

Russians do not pick up strangers looking for a ride any more. A few Gypsy cabs survive, but they are mostly driven by immigrants from Tajikistan, Uzbekistan or Azerbaijan, and you can stand on the street for up to 20 minutes until a gypsy cab happens to pass. Instead, it's become far simpler to take out your smartphone and order a cab that will arrive within minutes. 

Affordable ride

Russia has gone through a phase change that has turned taxi driving from a way to make a few extra rubles into a commercially viable business for several reasons. 

Firstly, with unemployment at historical lows of 5% and incomes that have risen by 10% a year for the last decade, official taxis have become more affordable. Moscow’s yellow taxis have been around since the 1990s, but they used to cost the equivalent of a week’s wages and take several hours to arrive because they needed to be ordered well in advance to battle through the gridlock in the centre of Moscow. 

Secondly, the City of Moscow has been incrementally introducing tougher regulations to discourage gypsy cabs as Mayor Sergei Sobyanin tries to move Moscow slowly towards a taxi system similar to other European capitals. However,  he has not banned gypsy cabs - which would be hugely unpopular - because it continues to act as a social support for many Russians and immigrants at the bottom of the income ladder.

As such, a licensing system has been introduced for taxis, but it is still not rigorously enforced. To get a licence you need little more than a yellow car and a photo (there is no fee). Nevertheless, the fines for driving without a taxi licence have risen slowly but steadily from a few hundred rubles ($10) to several thousand rubles ($100) recently. 

The number of registered drivers has climbed steadily from 10,000  in 2011 to about 55,000 today. Most European cities limit the number of taxi licences in order to ensure that drivers can earn a decent living. The same idea has been floated in Moscow and City Hall suggested that 55,000 registered drivers was a maximum, but so far the local government has yet to formally cap the number of licences issued and continues to hand them out to anyone that asks for one. 

Thirdly and most importantly, as Muscovites increasingly carry smartphones, several apps have appeared that allow the punter to order a taxi that will arrive in minutes, not hours. "Until 2010, stopping gypsy cabs in the street was still huge," says Grigoriy Dergachev,  head of development for Yandex.Taxi, the leading mobile phone taxi application. "The problem was official taxis could cost up to RUB1000 ($30) and they took at least an hour to arrive. From the north of the south of Moscow is a 30-40km drive and you had long traffic jams in between. People in a restaurant or bar in the middle of December didn't want to wait that long so they went and flagged a car down on the street." 

Yandex.Taxi is one of several applications set up to solve this problem. It has aggregated together more than 200 taxi companies – like Status Taxi, Cabby, Red Taxi, Euvrostandard, SMS Taxi and even Pink Taxi, which caters exclusively to women with exclusively female drivers – gathering together more than 10,000 cars online at any one time. 

Clicking open the app and the screen of your phone shows a map of central Moscow covered with little yellow dots, each one a free taxi. The dot closest to Yandex offices where we are holding this interview is literally just round the corner and if Dergachev were to tap his screen, the car would arrive here in a matter of minutes. 

"Usually a customer doesn't have to wait for more than five to seven minutes for a car to arrive," says Dergachev. "It's a revolution!" 

The efficiency has also driven down the prices. As the taxi has only to drive a few hundred metres, it is cheaper for them to pick up customers and fares have fallen as a result. The number of taxis has gone up 10-fold, while the fares have fallen three-fold over the last five years, estimates Dergachev. 

In reality the fares have fallen far further than this. In the 1990s it still cost the equivalent of $30 for a taxi ride, but as the average monthly income for most of the Yeltsin-era was about $50 this was a small fortune. Today the minimum fare with Yandex.Taxi for a 10-minute ride is RUB200 ($5), which is pocket change against the $3,000-plus a month average salary in the city. 

Creating the business 

The taxi business is still in a halfway house. Zhora is a Tajik immigrant and recently swapped his Uzbek-built Daewoo sedan for a yellow cab, but he says that he doesn't turn on his Yandex screen much during the day. "I still get enough people waving me down to keep me busy, but the main problem is the traffic jams," says Zhora, who did not want to give his last name. 

Moscow traffic jams are legendary, but since Mayor Sobyanin introduced expensive paid parking in the centre, which is rigorously policed, the jams have abated somewhat. "Yandex charges RUB25 per minute regardless of whether you are moving or not. So if you are stuck in a jam for 20 minutes, that's RUB500 ($12) and people don't want to pay. They know it is too much," says Zhora.

Because of the Soviet honour system, punters in Moscow are acutely aware of how much a ride should cost and the meter mentality has yet to take hold. 

Leader of the pack, Yandex.Taxi 

All the new companies rely heavily on the fact everyone has a phone. For example, SMS taxi attempts to cash in on the Russian obsession for texting. Sim card penetration reached 100% many years ago, but it is only in the last few years that Russians have been trading in their dumb phones for smart ones: smartphone sales have been growing by over 50% a year for the last two years, while sales of traditional phones is growing in the low teens. 

Yandex.Taxi was fairly late into the market, launching in 2011, but since then the service has been growing exponentially. To begin with it accounted for maybe one extra ride for a driver at the end of the day. But as Yandex is Russia's dominate search engine, accounting for just under two-thirds of all searches on Ru.Net, it has been a simple task to promote the service, which ties in neatly with the company's Yandex.Map, the leading map app in Russia. Today, an increasing number of drivers rely exclusively on Yandex.Taxi to bring them  customers. 

Yandex.Taxi is now the biggest online taxi service in Russia. There is some competition from the Israeli-backed GetTaxi, which in September took in fresh capital from Russia's leading private equity investors Barings Vostok Capital Management. Also Uber, the taxi app that has disturbed the taxi business in Europe, has also just entered Russia in the last month, offering minimum fares of RUB200 – half Yandex's minimum. 

But Yandex.Taxi will be hard to dislodge from its incumbency. The company is receiving over 630,000 orders per day just in Moscow, and already offers the service in St Petersburg, with plans to launch in the 11 milionki (cities with more than a million residents). Sales are still in the fast growth phase: this summer, when traditionally orders fall off, Yandex.Taxi’s order volume grew by 25% between June and August. And that is before the terrible autumn and winter weather sets in, when taxi orders traditionally skyrocket.