How to build asset-light shared mobility ? Hint-Blockchain!
The article focusses on the post-UBER trends in shared mobility, particularly the micro-mobility solutions and their dependence on self-owned fleets. The author offers a solution based on blockchain principles and sets up the framework for a multimodal and fair marketplace of mobility
This article builds up on my earlier article on Micro & Active Mobility
I was recently having a discussion with the founders and investment advisors of a scooter sharing startup. It was not difficult for me to calculate that their latest round of growth funding and the impending launch meant 60% of their funds were immediately locked into buying the scooters (performing assests) at the onset. This gave them limited room to run the operations and made them highly susceptible to the actual performance of such performing assets-as relatively hassle free vehicles and also as revenue earning units. The funding required to set up such a business has to necessarily factor the asset acquisiton cost as an upfront investment.
Coming from bicycle sharing industry, it was a pain for me to see the company owned bicycle (or for that matter electric bike, scooter, hoverboard, car etc.) fleets being subjected to the forces of nature and human curiosity. A shared bicycle often gets hoarded, vandalised, stolen, and broken for parts. This is over and above the wear & tear and failure of parts resulting from common manufaturing defects and simply the amount of use a shared bicycle goes through from the sheer number and variety of users, every day. I have often wondered if it were not for the reducing utility in vandalism, theft and hoarding for a Homo sapiens aka Human (as against Homo economicus aka Econ), no shared micro mobility solution would have survived the light of the day.
‘Homo economicus’ is the abstract idea of a species of beings strictly behaving in economic rationality terms i.e. in their own and narrow self interest, perpetually.
Can airline industry be an exemplar?
Back to our problem of asset heaviness of shared micro mobility, an easy and apparent solution is of the kinds that exist in the airline industry- aircrafts are usually sold to a leasing company and lease rents are paid on such aircrafts/performing assets — this approach allows for, for example, a challenger brand airline operator to run a business purely on operational costs and revenues in an otherwise extremely asset heavy business. This approach of offloading the fleet to a third party has also been found useful in other transport modes like buses, bringing up the ROA of the industry up to nearly half of that of software business- an amazing feat indeed!
However, the largest airline in the world — American Airlines- has less than 1000 aircrafts while the largest bicycle sharing company as of the time I was writing this article-ofo-had no less than 10 million bicyles. While the shiny new 737 Max 8s of the airline cost no less than US$ 100 Million, a shared bicycle can be had for as little as US$100. The number of assets and the distributed risks are far too large and the (negligible) cost of assets neither justifies the administration costs per asset nor the ticket size of deals administered by leasing companies of the kinds that support the airlines of the world.
Moreover, the airline industry is highly standarised and regulated, aircrafts well maintained by trained crews, engineers and captains, and the lowest instances of loss of assets (accidents/thefts/vandalism) of all transport modes in the world. It will be fair to say that shared vehicles sit on the opposite side of the spectrum, thereby making it an extremely risky and unpredictible business.
What will the solution look like?
That said, there is high demand and potential for continued and accelerated growth in shared mobility-the fundamental premise for my solution.
I strongly believe that this inherent need for mobility by individuals and interested stakeholders can be leveraged as a way to create a more just marketplace that does not penalise the growth, and instead rewards the socio-commercial good being created. We, therefore, need a solution that absorbs the risks and capital intensivity while providing returns that matter to those who stand to benefit from the service.
In my opinion a good solution will have the following elements:
1. Value attribution to shared assets: The moment a vehicle enters a shared ecosystem, it loses value not in a linear fashion but immediately- a sparingly used and single owner vehicle is infintely more desirable than a car rigorously used by all and sundry.
That said, a vehicle in a shared platform (and possibly of the sharing spec) is of immense value to the platform users and every new vehicle added is an asset in a growing network.
Sharing Spec: Car manufacturers are making subtle changes to their sharing specification cars like a more comfortable rear seat, rear seat based controls for entertainment and HVAC etc.
The overall value of shared mobility is often not captured by merely the revenue streams (there being frictions that force them to leave money on the table) but possibly by the collective data of the service providers and users, and definitely by the ever increasing valuations of the leading shared mobility companies.
Pricing frictions: A major issue in pricing shared mobility is the willingness to pay per ride versus the willingness to pay for the convenience itself. E.g. one may want a shared bicycle to cost less than 12 Euros a month to make it cheaper than a self-owned bicycle in the longer run. However, one does not factor the cost in time and effort to carry a personal bicycle in public transport while sharing ones are there to simply pick and ride!
Moreover, I strongly believe that the best agents to assign value to a shared asset are the people and institutions that are directly affected/benefitted by it.
2. Distributed, continuous and collective ownership: If one expects the users and stakeholders of shared mobility to pick up the bill for the assets, the solution will have to necessarily be designed for collective ownership of such assets, and in increments of what each party is willing to pay (which can be lesser than the cost for 1 complete bicycle, for example)
3. Smart contracts based in collective rationality and decentralised consensus: Shared mobility still remains a young creature and invites the ire of lawmakers and regulators on regular basis. A platform that expands the ownership of such assets to the masses and interested parties has to therefore first be based on their general consensus and mutual understanding.
4. Safety from manipulation and retrogressive changes: If an asset has multiple owners and multiple users, there is always a chance of manipulation. We need a technolgical solution that is resistant to some individuals trying to game the system and break the equilibrium and trust achieved through smart and consensual contracts.
5. Factoring for future value of money/early & sustained contribution: In any collective corpus, the interest of early contributors and those who stay invested (or active on the platform, or both in this case) have to be protected through a reward system that acknowledges their contribution.
Why Blockchain?
As a technology that has come alongside shared mobility, there are several aspects of blockchain that can potentially enable and improve shared mobility. The following list corresponds to the 5 elements described in the section above:
1. Blockchain’s foremost application remains its conception as a ledger or store of value, sophisticated enough to handle a ‘big data’ of instances, quickly and without fuss. There are parallels in how cryptocurrency markets have developed as independent stores of value, driven by the network’s attribution of value to the currency. A shared mobility network will be driven by how people value the mobilty services and underlying assets therein, than the salvage price of such services and assets in an open market. A system that continiously creates value will keep distributing rewards in such a market.
2. Blockchain, by design, is resistant to retrogressive changes and manipulation.
3. Blockchain is a cryptography technology architecture that inherently supports decentralised consensus. An entity holds in the distributed ledger because all parties agree to it.
4. Blockchain, by the virtue of being more secure and resistant to manipulation, builds trust and basis for smart contracts . A good read on the topic, although of some antique and driven by early enthusiasm — “Blockchains: The great chain of being sure about things”
5. Bitcoin and its many cousins have shown that a blockchain based value construct can easily open up itself to trading, continuously variable value and in many cases fairly rewarding for those who invested and stayed invested. In this case the variation will be that the basis for such “coins” will be rooted firmly in the assets in operation. As long as there is shared use of every asset, assets will be rarer (or the revenues made on the assets will far exceed the price) but the marketplace itself can grow without the constraints of mining of coins from a limited pool as more and more assets will keep joining the network, enhancing the base valuation of the network itself.
Conclusion and Challenges ahead
To sum up, shared mobility solutions that are already not asset light can leverage the fact that their users are the biggest interest groups in keeping them performing as well oiled machines. Interested parties like city administrations — stuck in the conundrum of wanting a shared solution but also worried about lacking any control over such solutions — can join in as part owners, whereas the founders and investors can still be relevant with the amount of asset exposure that makes business sense than be compelled to own it all and bear all the risks. If such a network grows and performs, all parties will benefit. Moreover, the increasing value of the network will provide returns — both in revenue and equity/underlying value terms — to the shareholders that will positively cover for any frictions/money left on the table. Based on blockchain, such a network will be secure, future ready and well-designed for sharing principles.
That said, to implement such a network is the real challenge in itself. There is always a challenge to bring in new assets and new investors to such a scheme. Regulators and governments have to be turned from non-believers to invested stakeholders. Original investors have to come to terms with valuing the company on the network value than of that of assets and revenue streams. Finally, all this has to be communicated to the last user on the streets, in simple enough terms, for them to join in the revolution.
About the author
Rajarshi Rakesh Sahai is strategy and general management professional with expertise and experience in urban development, energy, transport/mobility, public policy, business strategy, new business development and business management.
He has had leadership roles in the largest bicycle sharing platform of the world — ofo and with a pioneer in MaaS- TRAFI. He has previously been a business strategy, smart city and international development consultant, serving a range of donor organisations, local and national governments and large private sector clients. He has recently moved to Amsterdam and is available for consulting and full-time roles.
