Let’s Uber It: Business Models for the Next Automotive Economy

Charlotte

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26th March 2015

Let's redefine some terms. I may let my daughter use my car; that's sharing. When I charge a stranger for a ride, that's business – a business that's already worth billions to Uber alone.

The great shift in patterns of car ownership and usage that's begun isn't about sharing. It's more akin to the software-as-a-service model that's taken over from the olden days when you bought a CD and loaded software on a PC. Now, we call this cloud services, and the cloud is poised to deliver mobility as a service, making access to vehicles more convenient while increasing utilization of individual cars.

"The total addressable market in the U.S. alone is hundreds of billions of dollars, based on how much people spend on gas," says Christian Fritz, area manager of the representation and planning (RAP) area at PARC, the innovation lab owned by Xerox.

If the operating cost of a personal car would be supplanted by mobility as a service, he adds, "That's a big pie that needs to be divvied up and fought over."

Julian Espiritu, managing director of Abrams CarSharing Advisors –and one of the founding executives of ZipCar – says there are three different models that get lumped under the car-sharing rubric: Taxi alternatives, including Uber, Lyft and Sidecar, enable individuals to provide taxi services using their private vehicles.

Car-sharing services like ZipCar are owned and operated by a third-party company. Peer-to-peers services, including RelayRides and Getaround, provide technology that lets individuals rent their cars to other individuals.

All these could reduce the need for personally owned vehicles – and there is even more competition coming. Google is reportedly working on an Uber-like system for letting people hail roaming autonomous vehicles, while Uber recently opened a lab with Carnegie Mellon to develop driverless cars, which seems like a step toward Uber-owned fleets replacing its current system of drivers using their personal vehicles.

In Boston, Bridj provides pop-up minivan routes that are built on the fly to accommodate people's real-time requests. Bridj trips cost slightly more than public transportation but less than a taxi, while guaranteeing a seat, no transfers and fewer stops.

As still another example, Fritz points to a project by Tekes, the Finnish funding agency for innovation, and Finland's Ministry of Transport and Communications, to foster mobility services.

"Their model foresees a new type of entity, mobility operators," he says. "They are risk-absorbers. They make guarantees to consumer that they will provide all someone's mobility needs with a service level agreement and a subscription model.

They would be the ones buying either the vehicle or buying services from other people. The question is, of course, are these the same as car companies? Or would those be different entities? I think both are viable options."

More sharing, less vehicles

Car sharing removes between 4.6 and 20 cars per shared-use vehicle from the transportation network, according to a study led by Susan Shaheen of the Transportation Sustainability Research Center at UC Berkeley.

Between 15 and 32 percent of members of car-sharing services sold their personal vehicles, while between 25 and 71 percent of their members avoided an auto purchase because of car sharing. This study only looked at data up until 2008, before the rise of taxi alternatives and peer-to-peer services. It's likely that more alternatives will lead to even further reductions in the purchasing of personal vehicles.  

Still, the growing use of car-sharing services in urban regions of developed countries may be balanced by increased desire for car ownership in other regions.

In its survey of 26,000 global consumers of all ages, the 2014 Deloitte Global Automotive Consumer Study found that, globally, millennial consumers are interested in owning or leasing vehicles. In fact, a very high percentage of those in emerging markets expect to buy a car by 2020: 92 percent in India, 90 percent in China, and 83 percent in Brazil.

That's more than 680 million new vehicles in India and China alone. Moreover, even in the United States, Deloitte found that 80 percent of millennials planned to buy a car within five years.

But those planning to buy cars could be swayed by the increasing availability of improved alternatives. Only 64 percent of U.S. millennials said a personal vehicle was their preferred mode of transportation. In China, that was 55 percent, and in India, 46 percent. Therefore, if mobility as a service can expand rapidly into those countries, they could put a serious dent in OEMs' expectations of global resiliency for car sales.

Espiritu thinks that the total number of vehicles on the road will continue to grow, even if the level of personal auto ownership falls. "I believe that the need will be the same, and growth will be the same, but ownership will be in other forms," he says. For example, car-sharing services may acquire more vehicles to meet increased demand.

Mobility as a service

Just as the enterprise software moved from on-premise installation to always-available in the cloud, the whole concept of transportation may change. Instead of the average personal car in the U.S. sitting idle 95 percent of the time, why not be able to access a car just in time?

The business model for providers of mobility as a service is clear: Make it cheaper and easy for consumers to find and rent vehicles, then take a little cut of each transaction. Maybe automakers could get in on that.

"It's becoming evident to Ford — and probably all other automakers — that the historical way we've done business — of selling people a car or a truck — is starting to change," says Dave McCreadie, Ford's manager of electric vehicle infrastructure and smart grid. "There's no hard and fast answer on the business model that works. We're still figuring this out."

Ford has been talking about a move to the concept of mobility for several years, and it was a big part of CEO Mark Fields' CES presentation this year. The company is working on an assortment of experimental projects, including a peer-to-peer car-sharing service for employees at one location; Parking Spotter, which makes use of existing sensors on vehicles to map open parking spaces; and Remote Repositioning.

In the Remote Repositioning experiment, people in Ford's Palo Alto research center can use real-time video streaming over cellular networks to drive golf cards located on the Georgia Institute of Technology’s campus in Atlanta. The technology could someday be used to reposition vehicles in car-sharing services or provide remote valet parking.

Says McCreadie, "There are a lot of potential services we could provide as a result." For example, in addition to typical valet services at restaurants, hotels, etc., it could be used to give rides to people who can't or shouldn't drive, including the elderly, disabled or drunk. When a bar patron overindulges, he says, "Someone could drive you home in your own car. There's a wide open space here that we think we could step into and provide some neat services."

Fritz notes that, while there are certainly those who love automobiles for their own sake, in many cases, people don't so much want a car as they want the ability to get from point A to point B. "What the buyer is interested in is an experience, not a thing," he says.

"Most of us, we care about a car as a means to an end. This means there is an opportunity here, instead of products, to sell services. The more people get used to the convenience of mobility as a service, he says, especially when we get to truly self-driving cars, "It's quite possible that at that point people might not want to own cars anymore."

Discover how automakers are reinventing themselves for 21st century at TU-Automotive Detroit (June 3-4).