One of the best things about my job is that I get to witness entire markets being totally transformed right in front of my eyes. And right now I am fortunate enough to be in the front row witnessing how software is eating transportation and logistics and it’s eating them fast.
The idea of a transportation-led revolution is not new. We all know how the advent of canals, railways, and roads altered both transportation and industry at large. But the current revolution in transport and logistics could be even more exciting than ones before.
Transportation and logistics are becoming a utility
I am confident that logistics and transport companies will become utilities; just like electricity, gas, or water. You will be able to ‘press a button’ and an object, or person, will appear on your doorstep. If not instantly (teleportation is not yet here), then at least automatically, and in minutes.
If this sounds like witchcraft, then it’s worth remembering that the flushing toilet also sounded like magic a few hundred years ago. A network of sewers and cleaning stations superseded crews of night-soilmen. Now, you wouldn’t expect anything other than sophisticated sewage. The same will be true of instantaneous delivery.
Most of the elements of this future already exist: autonomous vehicles, networks of sensors, warehouse management software, drones, a ‘human cloud’ of delivery people, fleets of cars, fleets of robots… Each independent company is working on one particular aspect of the problem but all of these elements will blend to provide a fluid and utility-like solution.
The basic elements of a new mobility stack
- An upgraded infrastructure: It may not seem obvious but there’s plenty of innovation happening in the infrastructure layer. Sensors in the streets, “smart” street signs, robots to park your car automatically, smart parking with wireless parking door openers, networks of charging stations and vehicles for public or private car sharing solutions (Autolib in Paris, DriveNow and car2go in Germany). And If roads are not enough then drones are maybe paving ;-) the future of logistics. This will create a need for different types of infrastructure. You can also think of Hyperloop working on a new physical network of tubes to move people and things faster across longer distances.
- On demand / delivery services; the human cloud of transportation: I think we all noticed the explosion of on demand services that enable you to order food, a driver, grocery shopping and more, directly from your smartphone. Deliveroo, Uber, Postmates (just to name a few of the already big players). At large, these companies have created an entire workforce of on-demand delivery drivers that did not exist five years ago. Walk down the busy street of any major city and count how many delivery people you can spot in a 5 minutes walk.
- Warehouses : Warehouses are clearly a huge part of the logistics stack. Not only are warehouses becoming highly automated and filled with sensors but the availability of the human cloud of delivery is also transforming the way logistics flows are organized and redefining what and where warehouses are. Some restaurants without brick and mortar “front end”, or industrial kitchens (like Frichti or Blue Apron) are opening every day in large cities to serve those on demand food services. But it goes beyond food. Once you can plug into a logistics flow any shop becomes a local warehouse. Even Uber car trunks are a new kind of locally moving warehouse.
- Freight : In the past 2 years we saw a lot of companies going after the larger freight market : from container marketplaces (NOT the Docker’s one) to truck marketplaces where customers can book a truck on demand and follow its path. I think I can name at least 4 companies per European country working on different bits of the road and sea freight market (SaaS solution integrated with ERP, marketplaces, mobile app for truck drivers, pricing engine, peer to peer van solution…). There will definitely be a consolidation in this field but they are all currently accelerating this infrastructure transformation. We also see company emerging between Freight and parcels for a consumer / smb market working with small vans (Trusk, Anyvan just to name 2 different exemples).
- People transportation : Uber is the mother of all companies in this sector but it is far from being the only one. There are companies all around the globe either competing directly with Uber or working on specific part of the market (the young with Heetch, the commuters with Via…) and different models ( ride sharing with blablacar, car sharing and shared fleets of cars...).
- Pooling algorithm and peer to peer network: this is part of most of the people transportation business but this has a real direct value. Any tool that will allow you to connect supply and demand and optimized both. Uber pool, Blablacar but also shuttle players like Padam, or Charriot : they all created a specific software dispatch tool that is the real liquidity maker (market maker in fincance). The quality of the tool will directly impact the platform bottom line, and the more data you have the better it is to predict routes, supply and demand. It is also true in logistics world, where several food/grocery delivery companies are working on creating peer to peer network and pooling mechanism.
- Consumer facing apps : Citymapper (disclaimer : Balderton is an investor), GoEuro, Capitaine Train are great example of consumer facing apps that are just on the information and data level but that play a vital role in this industry. If you are the unique interface between the liquidity pool of mobility and the users you definitely have an important role to play in the equation. You monitor the flow and can also predict the demand volatility.
- Startups focusing on the friction points of transportation : Valet parking startups, robots that park cars or on demand gas delivery are also shaping the future mobility stack. Those companies are all part of the movement of logistics and transport towards fluidity, making sure the flow never stops.
- Incumbents: As a footnote to this list, it is not wise to rule out the incumbents in such a large, established market. Logistics and transportation companies have been around for a long time, and they have created a network of assets. On-boarding facilities such as warehouses, airports, train stations; delivery services such as Fedex and UPS; and the industry-wide knowledge of the demand side (peak time/busy periods), will not disappear over-night. They will clearly be part of the new stack.
The Magic Wand : Automation
Automation is clearly the ingredient that can drastically accelerate the pace of change in this mobility stack.
- Autonomous vehicles : Progress in this field has been really impressive in recent years, and will be the major factor of the new mobility revolution. Most large car manufacturers now have an autonomous vehicle program, as do the majority of tech giants. Uber obviously, but also Google and Apple. I also wouldn’t be surprised if Amazon were working on something similar. The trend will not stop with cars, we will also see autonomous shuttles, trucks, and buses. The autonomous vehicle market creates other opportunities around it: sensors like LIDAR, cameras, and computer vision software. The need to map the environment is also crucial so that the vehicle not only can see where it is and what is around it, but can also anticipate what is coming. All the big players are working on their own mapping/data gathering solution. More detail on this here.
- Drones : that could be another entire blog post but yes drones are coming and will definitely serve part of the mobility stack.
- Delivery robots : if this sounded like science fiction less than 2 years ago this where we are now and it is just the beginning.
From Tech Giant to Logistic Giant
It seems that the big names — Uber, Tesla, Google, Amazon, Apple and the established car manufacturers — are going after the ‘full stack’. In other words, they want to own every layer in order to provide an end-to-end (utility-like) experience. Of course, entrepreneurs will continue to start companies that aim to ‘solve’ one problem, and therefore only own one layer of the stack. My prediction is that this will lead to a large wave of acquisitions, with large players cherry-picking the best startups to construct their own ‘full stack’. As always, there will be an open-source alternative offered by companies like OpenStreetMap, the opendata movement ( open database of 3D points collected by LIDAR), and, one of my favourite, open source vehicles.
Look how most of the recent tech giants are putting together the building blocks of this infrastructure :
Alphabet : Waze + autonomous cars + drones + Google maps.
Tesla and car manufacturers : they have the ability to put on the market large fleet of vehicles. They can also consistently gather data
Microsoft is also going after this market by partnering with car manufacturers
Uber : last mile efficiency, granular network of people and data, mapping solution, autonomous vehicles…
Amazon : I believe amazon will be a big winner in this market. Amazon is already a logistics giant with incredible efficiency. Right now they are really strong inside the warehouses but they are gaining experience in the warehouse to warehouse market and last mile delivery. I wouldn’t be surprised to see Amazon acquire a big last mile delivery capability company (Postmates or lets be crazy Uber… ).
Apple is said to be working on an autonomous vehicle.
It is funny to notice that Facebook is not really active in this market. But I would say they are also going after this with the virtual reality push that may also change our mobility habits. But that’s another story…
So will we see one king of logistics emerge? A single company managing the world flows of people and merchandise? I doubt there will be one unique winner and you will have a lot of hybrid models and a large number of players will manage to be big with different approaches :
Territorial coverage : Should we cover all geographies or focus on a specific one? It seems that there will be specialized players for each type of environment. Competition in mobility is not only taking place vertically in the mobility stack but it is also a territory game; you can try to own a specific territory. Players in this market usually have one strong territory. Dense centres and airports for Uber (the taxi and subway market); large city to large city commutes for BlaBlaCar (the bus, train /domestic plane market) etc. Some players are starting to win the suburbs / less dense areas, others are on the longer distances…
Data war : Maps and geo data are clearly a number one priority but traffic data, driving habits, and population flows are also key data to own ( Google’s recent acquisition of Urban Engines). Tesla, Uber and Google have a good head start on the data front.
Autonomous vehicle fleet : Top down (creating new vehicles) or bottom up (using existing vehicles)? Should I push my own cars on the streets (like some car manufacturers or doing with car sharing scheme) or should I leverage a network of existing vehicles? Google seems to have adopted the dual approach with its own fleet of google cars but also by leveraging the crowd with Waze. Uber is a hybrid player since it doesn’t own the fleet but the fleet is highly homogenous and managed by a central software. Lyft CEO recently wrote a great post about the transportation revolution.
Why does owning the logistics and transport stack matter?
Logistics and transport businesses are in a huge volume low margin market. You need to have large enough infrastructure to provide enough liquidity across a territory. You then need to optimize processes and flows in order to maintain a positive margin for each job of delivery or human transport. I believe the combination of Autonomous vehicles + mobile phone (= granular data) + machine learning will change the margin structure of this market, driving costs down and optimizing demand. If it follows the utility market we will surely see a subscription model emerge (to be plugged into the network) plus a commission model (based on weight and distance). If the processes get really optimized we may also see the “all you can eat” subscription model (just like what Uber has been trying with Uber Plus )
And once you own the logistics stack you have a gigantic new playground in front of you and a lot of businesses could be built on top of it at marginal costs. Everything that has a high level of recurrence will become a huge business built on top of those mobility infrastructures. Eating and commuting are two obvious use cases because we do need to eat three times a day and we usually need to move at least two times a day. Look at how Uber and Amazon are easily entering the food delivery market with Uber Eats and Amazon restaurants, then imagine all the other business they could build on top of this! Be ready to witness a lot of new businesses and creative destruction happening once the new mobility stack becomes totally fluid.
As an investor I think this market is really exciting. Not only will we surely see plenty of billion $ companies created as this mobility stack is being built (there are opportunities at all the levels of the stack I described), but once it is built it becomes even more exciting with all the businesses that could be totally transformed or created on top of this new framework.