The business model of Mobility as a Service (MaaS)
Is MaaS the Netflix or StraightTalk Wireless (MVNO) of transportation?
As a self-proclaimed gearhead, and someone who dreamed of being behind the wheel of a car long before I was issued a license to drive, I genuinely understand why people love cars — the design, power, emotional connection, and flexibility and freedom offered by being able to walk out the door and just go. However, as I got older (and wiser) my priorities changed, and I realized that car ownership may not be sustainable for our future. About a year ago I sold my car and have been solely relying on the TTC, ride-, and car-sharing, carpools, taxi and Uber to get around. I won’t take a bike anywhere in the city because I think it’s too dangerous on account of Toronto’s poor bicycle lanes and distracted drivers (hopefully this change with the city’s plan to redesign streets with safe and more accessible bike lanes). Since I got rid of my car, it feels as if a weight has been lifted off my shoulders. I can read or learn a new language while riding the TTC, I walk more, which is great for my health, and I don’t have to worry about parking when I go to a friend’s house or appointment. I’m a bit surprised to say that I don’t miss my car.
Recently, I’ve been spending a lot of time talking to people as I’ve researching commuting, Intracity/Intercity travel, and the transportation industry. I’ve quickly learned a few key things — most importantly, the consumer is far from rational. Someone living in the city could easily hail a cab or order an Uber and still end up with more money in their pocket than their neighbour who insists of driving around in their car — yet this isn’t reality. Additionally, planning any journey, let alone a multi-modal trip, takes up too much time and effort — the entire experience is fragmented, and a user is required to carry multiple membership cards and download dozens of apps. I’ve also learned that people are not keen about running on someone else’s schedule. It seems as if aggregators and transport providers focus on how people get somewhere, not why — this does not solve the entire user problem.
Trying to solve the ever-growing challenges of transportation in cities is a challenge, but it’s a different challenge than the obvious. The challenge is neither logistics nor is it a political or partnerships challenge — I’m confident that those can all be overcome. The hardest thing to solve for is human desires, fears and habits related to traffic and the freedom that comes with owning a car. And, as if this wasn’t hard enough, remember that the city traffic planning was built around infrastructure and not the ease of getting around without a car and self-expression of freedom to move about.
MaaS as a concept, and in practice, is so beautifully simple, and that’s why I fell in love with the idea. (If you just landed on this article and aren’t generally familiar with MaaS, please check out the prior article I wrote on the subject — “What is Mobility as a Service”). You may not want to admit it, but currently, it is slower, more expensive and more annoying to own and drive a car in a modern city. Not to mention that from resource allocation it’s plain crazy: if you own a car in Canada, over 60% of your costs are just keeping the car on the road (maintenance, gas, insurance), and do not include the actual car payment. In a city like Tokyo, more than half of the cars are used less than once a week. And, in Toronto, there are 1.1 million private cars on the road. Now, imagine that instead of owning a car and dealing with all the hassle that comes with it, you could just download an app that takes care of all your transportation needs. Imagine that this app could, in addition to getting you around, create the same feelings of freedom, social status, joy and safety as a private car. Did I mention you can have unlimited use of many transportation modes in one simple, easy monthly subscription?
Ok, you can stop dreaming now. MaaS companies are already doing this in other parts of the world. For example, MaaS Global, the developers behind the WHIM app, have already launched in cities such as Helsinki, Vienna, Birmingham and Antwerp. UbiGo has done the same in Gotenberg, Sweden as the pilot city and is about to re-launch in Stockholm. Companies like WHIM and UbiGo are not aggregation platforms like Citymapper and Transit that merely display the findings according to based on the user’s wishes. This is how you find hotels, restaurants and plane tickets, not go from going from your home to the office, and stopping at daycare along the way to drop off your kid.
Let’s change gears slightly. Before I dive into business model I think all parties involved should consider how MaaS businesses actually operate, which is pretty simple on the surface: they use an old fashioned model of buying the individual parts and then packaging them together and branding them to meet their customers needs, and then charge for the value they create to the customer. This means buying bus, streetcar, taxi and bike rides and car rentals in bulk at wholesale prices and then bundling them into “packages“ that they sell back to users in the form of subscriptions. Some may think it’s similar to Netflix or Hulu, but I think there is much closer alignment to the telco/broadband industry, specifically, MVNO’s (Mobile Virtual Network Operator) — MVNO’s are commonplace in most of the world except for Canada; however, this is already changing and I expect dozens of MVNO’s to pop up inside of 10 years. Not sure what an MVNO is? Read the section below.
What is an MVNO
A mobile virtual network operator is a wireless communications services provider that does not own the wireless network infrastructure. An MVNO enters into a business agreement with a mobile network operator to obtain bulk access to network services at wholesale rates, then sets retail prices independently. An MVNO typically uses its own customer service, billing support systems, marketing, and sales personnel. MVNOs then set their own retail prices — filling gaps at both low- and high-end sectors of the market. In Canada, we have resellers in the broadband sector but not in Mobile Wireless Technology. If you are like me and live in Canada you might not be familiar with MVNO’s. And thanks to the CRTC (Canadian Radio Television and Communications) you might not for a while; however, one of my oldest friends, first boss and mentor, Pat Arlia (Co-Founder of Sugar Mobile) hopes to changes this.
Think of this like assembling a car. A car is not just its parts, and the price you pay for the vehicle is not a sum of the cost of the parts. When a person buys a car, he or she buys it for the brand, the status, and benefits received, and pays accordingly. Buying individual parts and packing them is simple and it’s been done for a long time. Traditional carmakers have been great at creating an experience of value. If you really must own a car, you could easily do with one that costs $20,000 or less, yet quite many opt for vehicles that cost more than $35,000, and the sky’s the limit. One of the most desirable cars at the moment, a well-configured Tesla Model S, will set you back $120,000 or so. When people buy cars, they do not necessarily think about what it costs them, they think about the perceived value it brings.
Ok, back to the Netflix analogy. At times MaaS companies even refer to themselves as “the Netflix of Transportation” — sometimes it’s just less confusing since Netflix is often used these days describe new subscription based businesses models (i.e., The Netflix of “blank”). But, just because MaaS companies bundle multiple modes of transportation services into a single monthly subscription doesn’t make them “the Netflix of transportation.” Companies like Netflix partner with networks and TV content creators, enter into license agreements and then sell a subscription to customers; whereas, MaaS companies buy transit services in bulk at wholesale prices and package them into varying monthly subscriptions. These packages are designed to meet the different demand profiles and focus of each user to create an experience that equals or beats owning a car. Put these packages together for the user and sell them for profit, control the marketing and operate the business— sounds a lot like MVNO to me. Because of this, MaaS companies should be called VMO’s or Virtual Mobility Operators and all the companies involved in MaaS, specifically on the infrastructure side, need to rethink their strategies and follow the Un-Bundled business model. Just look at telco companies such as Bharti Airtel, one of the world’s largest telephone service providers — one of the first to unbundle. Traditionally telcos have competed on network quality, but now, they are striking network sharing deals with competitors, outsourcing network operations altogether to equipment manufacturers, or selling all of their infrastructure. Why? Because they realize their key differentiating asset is no longer the network — it’s their brand and the relationship with the customer. For MaaS to truly work, and work well, I think it is essential for all parties involved, especially transit providers, to look at how telcos and MVNO’s operate together. In this scenario, WHIM, UbiGo and new entrants in the MaaS space become the VMO and the Ubers, Zipcar and public transit companies own the infrastructure, which in this case, is the digital platforms with open API’s. So what does Un-Bundled mean and how would it work?
Un-Bundled Business Model
There are a couple of important people you should know about: John Hagel and Marc Singer. They coined the term “unbundled corporation/” Two others, Michael Treacy and Michael Wiersema, suggest that that there are three unique and very different types of businesses: Customer Relationship, Product Innovation, and Infrastructure. Their thought, that I agree with, especially as it relates to MaaS, is that each type of business has very different economic, competitive, and cultural importance. Sure, they might be able to co-exist in a single company, but in a perfect world, they are “unbundled” into separate businesses — to avoid conflict or undesirable tradeoffs. Both Mobile Telecom and Private Banking are two types of businesses that fall into the Un-Bundled category.
Treacy and Wiersema describe the role of Customer Relationship businesses as finding and acquiring customers and building relationships with them. Similarly, the goal of product innovation is to develop new and attractive products and services, while the role of infrastructure businesses is to build and manage platforms for high volume, repetitive tasks.
Now, let’s unbundle the transportation industry to give this some context.
The role of an infrastructure business is to build and manage high-volume, repetitive operational tasks. MaaS companies, such as WHIM and UbiGo, do not operate or maintain the modes of transportation that they offer to customers, they are outsourced to Public and Private transportation companies HSL (in Helsinki) or their version of the TTC, Hertz, Uber, and Toyota (Car Rental). The transport providers can run at the lowest cost mainly because of government subsidies and companies like Hertz and Uber have economies of scale. If transport providers focus on what they do well, which is infrastructure and platforms, and leave the customer support, billing, marketing, up to MaaS companies, everyone will benefit in the end.
Customer Relationship Management
The role of a customer relationship business is to find customers and build relationships with them. Because MaaS companies would not have to worry about infrastructure, they can focus on branding and segmenting customers and services. Customer relationships are their core business. By concentrating on customers and increasing the share of wallet with current subscribers, MaaS companies can eventually leverage investments made over the years acquiring and retaining customers. By taking this burden away from transportation providers, this also allows them to focus on improving their key assets — the infrastructure.
Product Innovation Management
The role of a product innovation business is to think of attractive new products and services and figure out how best to bring them to market. Innovation requires creative talent and speed, which smaller and more dynamic organizations typically do a better job at attracting. For product and service innovation, the Un-bundled public transport providers can turn to MVO’s or MaaS operators, and smaller, creative firms. Public transport providers can work with these companies to assure a constant supply of new technologies and services such as modern payment platforms like contactless payment/NFC and integrated services like as en-route grocery delivery to transit stations. MaaS operators can even outsource platform and UX development, similarly to what UbiGo has done with Fluidtime.
So where does everyone fit in? Personally, I think Transport Providers need to focus on building the best infrastructure (Rideshare Platforms, Carshare Vehicles, bicycle-friendly roads, subway lines/stations) and let MaaS companies be VMO’s and focus on Customer Relationship Management — Product Innovation should be a joint effort between 3rd party technology apps/platforms and lead by MaaS companies and integrated via API’s.
Ok, back to the operations of MaaS businesses. How do MaaS companies even start putting together packages and pricing? They must first understand how many trips an average resident makes in a day, the length of the journey and daily travel time. Secondly, when products are packaged together MaaS companies have to look at two things: first, the desirability and the willingness of a user to pay for a service, which has to compete with owning a car; secondly, the company must be able to influence how the different modes of transportation are used within the service (incentives/rewards, discounts, etc.). If the two of these are correctly aligned, MaaS companies are selling for more than they are buying, and when this happens at scale, they become profitable. Getting to scale is easier said than done and requires some deep pockets and operating at a loss for a period of time. Public transit businesses are heavily subsidized by the Government to offer affordable rides to customers. MaaS companies will have to take a similar approach. Similar to when Amazon enters a new category (think Whole Foods acquisition) and slashes prices of goods to conquest customers from competing businesses, MaaS companies are heavily discounting subscriptions to pull people away from traditional car ownership and those already purchasing trips directly from the transport provider and full price.
MaaS is massive beyond anything we’ve experienced in digital services to date. If you look at how much an average user is worth to Facebook, it’s around $0.30 a month, while a mobile phone or a broadband user may be paying somewhere around $90 a month. However, if you own a car, you are paying somewhere around $550 every month, plus operating costs. That’s the price point that makes building a Mobility as a Service operator such a profitable idea. Could the next step be Life as a Service (LaaS) where everything is “as a service” and combined into one app? While we’re dreaming… imagine browsing for a restaurant on a single platform, booking a reservation at that restaurant, hailing your Uber to the restaurant and then paying for your dinner all in a single app and then heading to your AirBnB that was also booked in the same app. That’s about the only thing bigger than MaaS in my opinion.
References: MaaS Global, Statistics Canada, ‘Unbundling the Corporation”, HBR., “The Discipline of Market Leaders: Choose your Customers, Narrow Your Focus, Dominate Your Market”, Business Model Generation, Yozzo.com, Pat Arlia, SugarMobile, CBC.ca