Future of mobility: it's the business model, stupid!
The role of public authorities
Fully autonomous vehicles are likely to be too expensive for individual owners, and thus we'll probably rather see them be part of fleets (both public and privately run), at least initially. In this respect, Public Authorities play a key role to progressively introduce new technologies, such as EVs or AVs, into the public transport system, therefore educating users into the benefits of such vehicles, and leading by example. Public transport operators in several early adopter cities are paving the way by piloting pioneering automated transit services "“ albeit restricted to very specific, controlled scenarios, sometimes using dedicated lanes with limited interaction with other vehicles, most often having drivers sit in the vehicles to resume control in case of failure of the system, and running at an operating speed that is still far from desirable in order to be competitive.
Robots hold out the promise of being better drivers than we are, therefore contributing to meet crucial "societal KPIs", such as:
- [Road safety]: reducing accidents close to the zero vision (the majority of road crashes still stem from human error).
- [Environmental protection]: reducing congestion thanks to a more rational and efficient use of the road infrastructure (add the electrification layer and you'll be contributing to fight air pollution).
- [Increased global productivity]: as drivers will be able to use today "wasted" travel time for tasks other than driving.
- [Social inclusion]: of all citizens, especially those that have difficulties to access mobility, such as the elderly, and the impaired.
- [More liveable cities]: reclaiming parking spaces in cities.
While it is widely accepted that AVs have great potential to enable a future perspective of fewer vehicles on the road, improved quality of the air, and more inclusive and liveable cities; assuming these outcomes can indeed convert into significant global economic figures (indirect benefits) for cities, and hence justify huge public investments and supporting related policies, private stakeholders in the transportation sector are not NGOs, and are in the market to be profitable (as every company struggles to, by the way).
New (and not so new) players
In my view, the principal weapon of private players in the transportation game is not (not only) super-complex AI algorithms or high-tech sensors (embedded in vehicles, sensing "smart" cities, etc.), but their ability to stay profitable and generate good recurring revenue"¦ soon, and increasingly, with the inestimable contribution of automation.
Investors that have backed many of these companies have well understood this long time ago. It's the only reason I see for them to keep investing indecent amounts of money into unicorns, like Uber, that have yet to (and might never) deliver. I guess the Uber case deserves a whole separate in-depth article, but it seems quite evident Uber is pursuing global industry dominance in a "winner-take-all" approach. I have never been fond of the idea of domination in any form, and I tend to be sceptical about Uber's somewhat unrevealed strategy to turn the global transportation sector upside down by killing all their competitors, public transport included. I believe nothing of this will happen, neither with the help of driverless technology as the holy grail of it all.
At the same time, extremely interesting developments are taking place, in the transportation arena, with a more "democratic" spirit, such as "Mobility as a Service". With MaaS, different mobility services are to be combined, in a seamless way, so that end users have a wide array of possible combinations to get from A to B, including Uber and the like (in the markets where they are allowed to operate, in any of their different flavours). While some analysts assert that Uber's ability to capture customers and drivers from incumbent operators is mostly due to the 2 billion $ in annual investor subsidies (funding, among other, massive publicity and awareness campaigns), MaaS entrepreneurs should gain user traction and positive word-of-mouth by delivering a truly compelling mobility offering that includes car / bike / scooter shares, carpools, car rental, car leasing, demand-responsive transit services, etc"¦ and, ideally, public transport as the backbone. MaaS' Unique Selling Proposition is consequently not only about convenience of use (an Uber car in every corner of your city ready to be hailed at a tap might be convenient for many users), but also fair, affordable and transparent pricing of mobility. Hence public-private cooperation is fundamental, so that the interests from the consumers will be protected, and public policy goals fulfilled. Imagine a future transportation scenario that would be dominated by Uber under a kind of monopoly. It is very probable that users would suffer from an out of control surge pricing (urged by the investors claiming their money back"¦ multiplied by X).
No doubt an ecosystem approach for mobility is the best possible scenario going forward. With various Mobility Service Providers coming into play, and a MaaS layer on top - including easy trip management, booking and payment -, competitive fares and freedom of choice will be fostered, contributing to make users' lives easier. This way, the MaaS operator will become a new player that "connects the dots", generating value for the MSPs that are integrated under a given mobility offering (by attracting new customers to them), and naturally for the end users, by providing more alternatives for seamless mobility. The ultimate realisation of the MaaS business model would also include providing new complementary services to the traveller (such as location-based services).
Very interesting is how so-called new urban mobility services (and new mobility paradigms, such as MaaS) are being pitched by their promoters. Whim app, by the Finnish company Maas Global, is often presented as "the Netflix of Transportation"; the Ubigo MaaS pilot in Sweden was labelled as "the Spotify for travel"; Turo, the American P2P carsharing firm, market themselves as "the AirBnB for cars""¦ And there are dozens of "Uber for X" startups out there, too.
In an era where access over ownership is becoming a global trend, entrepreneurs in the mobility space have well understood how to "educate" users on the access to the mobility services they need by "comparing" themselves to well-known brands of the so-called collaborative economy. This is of course all marketing buzzwords, and it works well for this purpose, but the transportation sector has nothing to do with movies, music or renting apartments (I tend to think it's a much more complicated sector, but I assume I probably have a biased view on the subject).
Even if they are able to attract private investment, companies developing MaaS will struggle to thrive, partly because of the lack of money budgeted to update public transport legacy systems, old-fashioned procurement approaches and, more painfully, often due to a lack of a shared vision and political involvement towards future mobility, that should ideally combine privately-run mobility services with public transport in order to be attractive enough for the travellers. Moreover, revenue for MaaS operators will probably not come from future deals with public transport operators, which are most often loss-making and highly state-subsidized. The goal should rather be to get public transit authorities understand they should not avoid cooperating with other mobility entrepreneurs in order to stimulate the market of new mobility services, and for the ultimate benefit of the citizens they serve.
Image credit: Jiha Hwang _ Illustration from "The Car in 2035: Mobility Planning for the Near Future"
Driverless technology undoubtedly a promising technology but"¦
Back to driverless technology and adding to the "societal KPIs" mentioned before. Some positive factors or opportunities to consider, business-wise and from a MSP perspective, are:
- [Efficiency]: robots will be more efficient and rational drivers than humans are, will have close to no accidents, will have much lower "salaries", and will not complain if requested to work non-stop to satisfy increasingly personalized travel on demand.
- [Improved KPIs]: a key factor for MSPs to reach their sweet spot is the ability to improve their operational KPIs, such as, only to name one of them many, the occupancy rate of the vehicles. The Boston Consulting Group, for instance, predicts "a shared AV carrying three people could cost operators less on a per-mile basis than rail".
- [New use cases]: at the beginning, AVs will serve to address specific niche use cases, in strictly controlled scenarios. Later on, driverless technology will progressively go mainstream.
- [New customers]: AVs have the potential to facilitate access to more comfortable, on-demand and affordable mobility to "new" customers, such as impaired and elderly people, why not children travelling on their own, home to school and viceversa, for example. There are plenty of potential future new customers who will be willing to pay for MaaS-like offerings boosted by automation.
Notwithstanding, drawbacks or hurdles for the wide adoption of AVs are not negligible. Besides the commonly acknowledged legal, regulatory, safety, liability, data privacy, user acceptance, and technological issues, worth mentioning also are:
- [Infrastructure]: substantial upgrading to the road infrastructure will be required, for which significant public-private funds will have to be secured (typically involving painful, endless public procurement processes). This will be extremely challenging if there are not enough real users to justify a decent ROI (typical chicken and egg problem that we are also witnessing with the deployment of V2I technologies). Therefore, AVs will start to hit the roads that are already "compliant" today (provided the necessary legal framework and political endorsement are in place), and this will limit the number of feasible use cases, at least in the first stages. Design restrictions in urban environments will probably be even harder to overcome, in this respect.
- [Shared vision]: in many cases, the lack of a shared vision (and ambition), and solid business case that is valid for ALL stakeholders implied (and needed) in the deployment of AVs in a given setting will likely delay their widespread introduction. This is especially true with many public authorities, which very often have roadmaps that are not aligned with those of the MSPs in a given area, or are too influenced by the political chatter.
- [Cost]: driverless technology is today still very far from being affordable, and so we will have to wait until costs drop, so that we can get past "proof-of-concept" and pilots, and start seeing commercial services operate in real life (which is something that will occur sooner or later, in much the same way we see an increasing number of EVs on our roads thanks, among other factors, to a dramatic fall in the cost of batteries).
- [Collateral (negative) effects]: AVs will facilitate access to mobility for many more travellers, such as impaired or elderly people, children, and young generations that will simply choose not drive. Non-passenger km travelled will add to the total congestion, and possibly contradict one of the most repeated mantras that AVs will help avoid congestion (more on urban congestion causes: a recent study demonstrates how the success of ride-sharing apps, like Uber and Lyft, are direct contributors to increased traffic congestion in NYC).
After all, despite my criticism before about Uber's business model and overall growth strategy, I think it's great news this startup (now unicorn) popped up to revolutionise the transportation industry, pioneer and sort of lay the foundation of a more diverse, more technology-enabled, people-powered, user-centric and customized travel experience. The challenge will be to get users not to #deleteUber and public authorities to find a good fitting for all these new mobility services with an improved public transport system. Will that be MaaS? The business model will tell!
Automakers at a tipping point
It's little wonder that automakers aim at having a say on this all, too (let's not forget they have for long been the main providers of personal mobility!). The transformation of cars into electric and fully autonomous vehicles in the coming years, combined with the business model shift from car ownership to utilizing the shared economy is already upending not only the auto industry, but also have profound implications for the finance, insurance and real estate sectors. Automakers have well understood business is not any longer only (or mainly) in building and selling cars (plus some after-sales service), but rather in the provision of services around the "mobility experience", that is becoming much richer (there will be more to do and consume while travelling), more technology-enabled, less (privately-owned)-car-centric, and more intermodal. It all demands a fundamental mind shift for automakers to go beyond their traditional product and service focus, understand they are now part of a public-private mobility ecosystem, need to forge new alliances, and must play their (renewed) strengths in this new scenario, with new rules and more diversified players.
Automakers are embracing two main different strategies matching the demand of the connected consumers in this new level playing field:
- [Shifting into MSPs] by:
- [Creating brand new subsidiary brands] to develop and operate new mobility services, mostly designed for urban environments. These are companies that have little or no relationship at all with the guys at the assembly line, and strive to deliver in not the old way of automotive (i.e. extremely lengthy design processes and time-to-market) but in a more agile, startup-like way. Remarkable examples are Daimler's Moovel (including the well-known Car2Go pioneering free-floating carsharing), VW's MOIA, PSA's Free2Move, GM's Maven, Tata's TAMO, "¦ They all share at least one competitive advantage: if needed, their parent companies will provide the vehicles for operating many of such new services, or even design custom vehicles to meet specific requirements, for example to turn car seats into small business class pods for privacy in vehicles used for ride-sharing.
- [Creating or participating in startup incubators and accelerators]. Supporting, mentoring and early investing in high-potential startups developing mobility-related concepts and solutions. See, for instance, BMW iVentures or Mobility X recently set up by Daimler.
- [Acquiring or investing in consolidated startups] to rapidly grow their portfolio of mobility services (e.g. RideScout, MyTaxi, acquired by Moovel), or autonomous driving capabilities (some relevant related industry news: Ford investment of 1 billion $ in autonomous vehicle tech firm Argo AI; GM acquisition of self-driving car kit startup Cruise Automation for more than 1 billion $, and the investment of 500 million $ in Lyft; Intel 15 billion $ purchase of Mobileye, with BMW planning to integrate the technology in the iNext electric sedan). Also noteworthy is that Daimler, Audi and BMW collectively acquired Nokia's Here for 3.1 billion $ in an attempt to lead the driverless car revolution.
- [Establishing cross-sectorial alliances] to conduct interdisciplinary research and pilots on new urban mobility services. In Barcelona, the Cooperative Automotive Research Network (CARNET), which has been initiated by Seat, Volkswagen Group Research and the Polytechnic University of Catalonia (UPC), as well organizes hackatons among students, where the best ideas and demo implementations are awarded, and young engineering talent is early detected.
- [Providing vehicles to other MSPs], becoming suppliers to car-as-a-service fleets run by the Ubers out there, trying to secure some market relevance by partnering with them (risky move, as all SLAs and the interface with the customer, including payment for the mobility services, will be controlled by the MSP, with the car being not more than a "commodity", something to which automakers are certainly not used to, to say the least). If Uber, Lyft, Google and the like retain a good share of customers demanding mobility services, and if these imply driving (or riding in) cars, these cars will still have to be built by OEMs. Increasingly, OEMs are "obliged" to let other brands in "their" vehicles, interacting with "their" customers (not their sole customers anymore, I'm afraid). Users demand connectivity; they love their iPhones and Android phones, and are so used to their interface and favourite apps; and there you have CarPlay and Android Auto, as a result. It's very simple logic, in fact. OEMs want to retain customers, one way or another. And they will want you to use Uber in a car of their brand, not in a car of their competitors. With Uber (and Lyft, etc.) placing big bet on automation, OEMs will become providers for these automated fleets (because private drivers will not own driverless cars).
Autonomous vehicles not a fad
Automated cars hold great potential for generating new revenue streams. Following are some hints on what is relevant, some key factors or elements to put the focus on:
- [Time]: the most important thing that driverless cars will offer is time. And time is money. That's very simple business logic, isn't it? McKinsey has estimated that AVs will free up 50 minutes of drivers' time per day. For an urban commuter like me, this will be up to 2 precious hours given back, daily. These I will be able to use to work (aka the "portable office"), read a book, buy stuff online (which will have been previously advertised to me, based on my consumer habits and preferences), consume a bunch of in-vehicle, location-based services and customized infotainment (including video streaming of my favourite series)"¦ Or take a nap, if the car can safely wake me up when reaching my destination.
- [Data]: this plethora of new on-board services will be fuelled by data, which will soon be used by marketers to tailor their services to suit consumers' preferences and even anticipate their needs and wishes, generating huge business opportunities. Purchasing price of printers or Nespresso coffee machines are nothing compared to the recurring cost of cartridges and coffee capsules. Similarly, soon money will be mostly around services for AVs, with the car becoming a mere "tool" to get moving, and connect passengers with businesses. Customization will be key, so that users (including the now "idle driver") don't get overwhelmed with too much generic, unsolicited advertising, and rather get what they want or need on the move (even if they do not know, yet!), in a timely manner. I'm absolutely in love with the Spotify Discover feature, which learns from my taste as I listen to music, and that way generates tailored playlists for me. This gets me coming back to (and paying for) the service. Let's go one step further and imagine, for instance, the car will be able to "sense" my mood and play music accordingly. Such AI-powered "wow effects" will make the driverless car more fun to ride, not your average, boring, taxi ride. More traditional sectors, like insurance, are already using detailed driver style data to fuel pay-as-you-drive schemes. Countless applications will be possible"¦ If we assume data privacy is a delusion.
- [Safety]: "driving" under conditional (SAE 3) or highly automated (SAE 4) levels of automation will predictably generate unwanted negative side effects, such as drivers feeling bored, too disengaged from the driving task, distracted, or drowsy (and less skilled, in the long run, as we will tend to drive less and rely more on our car instead, especially for monotonous tasks such as parking or highway driving). The car being able to unobtrusively detect drivers' sentiments and physiological states (especially those that are not safe while behind the wheel), while constantly evaluating the environmental status, combined with adaptive HMI strategies to get the driver informed in every situation - on the "intentions" of the car, on eventual hazards, etc. - will be the basis for implementing intuitive transitions from manual to automated driving mode (and viceversa), therefore enhancing safety, comfort, and user acceptance. While the prospects of "freed time" and connected services to make your life easier, happier and more productive (this being not only restricted to mobility) are to be expected in any value proposition from OEMs marketing highly automated cars, these will still face initial reluctance or mistrust from the users, for obvious reasons. OEMs that excel at additionally providing real ease of use, and safe automated driving will make a difference. ADAS&ME is one of the H2020 EU-funded projects researching on these topics.
- [Cost]: who will insure self-driving cars? In Asia, Tesla has started to sell cars with an insurance product that is customized to Tesla. It encompasses the Autopilot safety features and the maintenance costs of the car. All included in one price. This is yet another clever move by Tesla, more than a bolt-on purchase incentive addressing an intangible that is particularly important for future mobility: providing peace of mind (from the "cost of mobility" perspective). Statistics from the NHTSA recently found that crash rates for Tesla cars have dropped 40% since Autopilot was first installed. If self-driving cars will reduce the number of collisions, there should consequently be a reduction in the insurance premium (similar reasoning behind PAYD schemes). Bundling services is one of the strategies possible so that customers can have mobility costs under control. Again, this is one of the "innovations" put forward by MaaS (complemented by pay-as-you-go). In a world of less vehicle ownership traditional "Total Cost of Ownership" will have to be progressively replaced by "Total Cost of Mobility", where clarity and easiness in all business processes will have to be ensured by MSPs, if they expect to seduce (current, and new) costumers. Business opportunities are countless (also, and very interestingly, for new players aiming at disrupting traditional business models).
All in all, if man landed on the moon almost half a century ago, then it's not really all about technology. Legal and policy stuff is ultimately about reaching agreements, and that's something that human beings have been doing for ages. The transportation of the future will be basically shaped around, and determined by business models capable of generating revenue while flexibly responding to the (new) needs and demands of the users. If the users get the mobility they demand, they will adopt new technologies, and pay for them. The necessary legal framework and amazing supporting technologies will no doubt follow, including super clever driverless vehicles to make our lives easier. Those that understand the rules of this game will succeed. So let's play!
Future of mobility: it's the business model, stupid!
Modified on Thursday 9th August 2018
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Future of mobility: it's the business model, stupid!