Added incentives

In response, app companies started to adjust their strategy but many have shut down, unable to adapt to the changing market.

Lyu Chuanwei, CEO of kuaidi taxi, said recently that about 40 taxi app providers have gone bankrupt because of stringent government rules and rising promotion of fares. "The end of 2013 will be a watershed for China's taxi app companies," he said.

To encourage taxi drivers to install their app, these companies have spent a lot on accessories, such as phone holders, car chargers and prepaid phone cards. Some even provided drivers with a free tablet PC. Passengers are also rewarded, with some companies sending 10 yuan bonuses to newly registered users.

To add more incentive for taxi drivers, kuaidi pays taxi drivers who remain logged onto their app for a fair amount of time 80 yuan to cover their mobile Internet fares.

Shen Lei, a post-doctoral fellow at Renmin University of China, said: "This is a typical phenomenon in the Internet industry. In the first days companies don't make any profit. Losing money is a stage you cannot avoid, but competition will allow the powerful ones to emerge. They may survive growing pains with venture capital poured in.

"Once user habits are established, they won't easily shift to other apps. For the major players in the taxi app sector, the priority is to seize enough users and foster market share. The profit model should be resolved in a later date."

Seeking partnerships

In April 2013, didi collected $25 million from Tencent and in May, kuaidi reportedly received several million US dollars from Alibaba.

Zhao Dong, COO of Kuaidi taxi, said it doesn't expect a profit in the next two years and is focused on optimizing its apps and services.

He also hoped the government will open up more traffic data for companies like his to upgrade the user experience. "The most effective use of taxi apps is to resolve the idling rate. When we can get hold of more traffic data, users can spot on our app which taxis nearby are idle or not," he said.

While app companies called on the government to open up new solutions, Beijing's transport authority said it will introduce a pay-in-advance mechanism onto the taxi app platform. Call fees will be temporarily held by a third party, and be sent to the driver after receiving positive feedback from the passenger, or when the passenger does not show up as promised. A review system will also be introduced.

In the meantime, the major players in the taxi app industry are also seeking new partnerships and more resources to extend their online-to-offline business. Kuaidi last month announced that it will be integrated into Alipay — China's leading online payment service — to allow mobile payment. Yaoyao taxi has started cooperating with Pod inns, a chain hotel operator. Its rooms are equipped with iPads with a preinstalled yaoyao app.

Shen from Renmin University said, "These efforts show that both the companies and government have started to make moves based on how to create trustworthy, high-quality and easy-to-use services."

More taxis needed

However, apps and new technology may be part of the answer to quicker city mobility, but hailing a cab is still not easy.

According to the Beijing Commission of Transport, the number of taxis within the city, 66,600, hasn't undergone any drastic change in the past few years, and is not likely to change before 2015.

The government has been controlling the number for many years and this number, 66,600, was established in 1993.

Two decades later, the demand has surged amid greater urbanization.

According to the Beijing Statistical Information Net, the permanent population in Beijing 20 years ago was about 11 million, and in 2012 the number was more than 22 million.

Yan Yiqi in Hangzhou contributed to this story.

Time to share in the US

Taxi apps may be the rage in China but the US has seen rideshare startups, such as SideCar, Lyft InstantCab and Uber, move into the fast lane.

These apps are also facing a stricter regulatory climate, but they have billing functions that users can handle through their bankcards.

However, taxi companies have accused the app operators of acting illegally and endangering passenger safety.

In November, the California Public Utilities Commission issued cease-and-desist letters and $20,000 fines to these ridesharing startups.

But drivers and passengers protested the decision in front of City Hall in San Francisco. A commission of inquiry was set up, and the fines were suspended.

The commission gave a green light in July and created a category called Transportation Network Company, which specifically refers to these startups.

They will remain in operation as long as they can get a license from the commission that mandates criminal background checks on drivers, zero tolerance on drugs and alcohol, a driver training program and a minimum of $1 million per incident insurance coverage.

China may be their next stop.

Uber started a test program in Shanghai in August, focusing on limousine services.

Zhang Lei