Buy Up All The Street Cars
How the shift to mobility-as-a-service will mirror the elimination of street cars.
We have all heard that history repeats itself. And that’s usually because as a society, we don’t learn from our mistakes. As our cities prepare for the transformation into “smart cities”, there is alot we can learn about transportation from the past. I am going to tell you a story about how the elimination of street cars will mirror the transformation of transportation as we know it.
STREET CARS IN CITIES
⬆️️ This is an electric street car from Columbus that served S. High St. The first electric rail car was installed in Columbus in 1888. It ran from Chittenden to the fairgrounds. Within 4 years, electrified street cars completely replaced horse drawn street cars. (Somebody was surely upset about their job being eliminated by “technology”) For years, these street cars helped the city of Columbus grow and thrive. We take our transportation for granted. We have so many options and they are all relatively convenient. But imagine living in a city that had no transportation and one day you could get from one side of the city to the other. This must have been an exciting adventure in the early 20th century.
ELECTRIC RAIL CARS
For years, electric street cars that ran on rails served as the main source of public transportation in our urban centers. Over time, the operations of the street cars were privatized. Some companies managed rail lines in multiple cities while others served just a single market. By 1920, over half of these rail car companies were bankrupt. One of the things that hurt these companies was a law passed in 1935 that prevented a company from selling power while managing transportation services, forcing companies to divest either energy sales or street cars. (The smart companies divested the street car business) Producing power for their own electric cars made the economics of the business work, but when the regulation was put in place it made it difficult for these companies to be competitive. These companies were purchased by a variety of companies. Some operations were continued but many were shut down and by 1950, a majority of the rail systems were replaced with motor buses.
CONSPIRACY and ANTITRUST
In 1948, 9 companies and 7 individuals were charged with conspiracy and antitrust. The biggest of these companies was General Motors. The companies charged were involved in various aspects of the oil, rubber, and automotive industries. Together they created groups that lobbied for policy changes and actively purchased rail car companies with the purpose of shutting them down. Is that a crime? Or is that disruption?
Public transportation services was impacted most by these companies working together to eliminate street cars. Street cars were not replaced with an equal or greater amount of mass transportation options and it forced demand for individual transportation. At the time, politicians claimed that the accused companies had developed the street car buy-back programs as a strategy to make American’s automobile dependent. History has disagreed and in my opinion, these companies were acting on economic and societal changes to build profitable businesses. It is business and there are always losers, even in blue oceans. Economic factors like the great depression and government policy had a far greater impact on transportation. The street cars were removed because they were unprofitable. In considering the future of transportation, we need to consider how individual vehicle ownership is inherently unprofitable (for consumers) when 95% of the time a vehicle sits idle.
Ultimately the courts ruled against GM and the individuals, but the Judge who was responsible for sentencing disagreed with the decision and handed down only a $5000 fine to GM and a $1 fine to 1 of the individuals accused. A slap on the wrist.
HISTORY REPEATING FOR MOBILITY-AS-A-SERVICE
The repeated pattern that will happen with new automotive innovation is the systematic elimination of legacy vehicle technology to accelerate the adoption of new vehicle technology. The media gets hung up on self-driving cars because its futuristic, controversial, and just awesome in its potential to reduce the number of automotive related deaths. That’s 1.2+ million deaths per year. While everyone is focused on new technology, the company(s) that can perfect the business model of buying back old vehicles and replacing them with mobility-as-a-service will win. Mobility-as-a-service is the SaaS equivalent that provides consumers with a pay-as-you-go or subscription service plan for transportation. Mobility-as-a-service will be a suite of options that will include ride-sharing, on-demand car-sharing, peer-to-peer car-sharing, public transportation, and other alternatives to owning your own car.
SAFETY vs ECONOMICS
While safety is a huge benefit, I believe that it is the third factor in determining when we will get self-driving cars. The first is economics. The second is experience and then safety. To achieve the economic benefit that will accelerate innovation, we need to achieve mobility-as-a-service. For those concerned with safety, we must continue to advocate for distracted-driving laws that are enforceable.
BUY UP ALL THE DISCONNECTED CARS
I believe that the next wave of transportation innovation will occur just like the elimination of street cars. Companies will develop programs, create consortiums, and lobby for policy to drive the adoption of new transportation services. We need to buy up all of the disconnected cars. Consider the disconnected cars to be anything manufactured before 2014 and connected cars are defined as any vehicle with its own internet connection. This will enable Vehicle-to-Vehicle (V2V)and Vehicle-to-anything (V2X). Think of the connected car as the biggest Internet of Things opportunity and the most disruptive innovation of our lifetime.
The answer is not another round of “cash for clunkers”. Financial incentives for purchasing new vehicles will lock consumers into another 1 or 2 cycles of vehicle ownership. We need programs that encourage exchanging an owned vehicle for access to a mobility suite. These programs could be government sponsored or privately managed by companies that will profit from consumers shifting to transportation services as their primary mode. It likely will need to be a combination of both.
Consider that the last car you bought could be the last car you ever buy. What would it take for you to give up owning a car?
At best, those who live near where they work (or work from home) will spend 9% of their annual household income on transportation. If you commute, you may spend upwards of 25% of your annual household income on transportation and the American family average is 19% of annual household income. Most people don’t want to know how much they really spend on transportation when you consider fuel, insurance, maintenance, and the many other costs associated with car ownership). Between your home and your car, that’s almost 50% of your annual earnings. Imagine the economic impact of a community that is able to reduce the total cost of transportation for their citizens by even 10%. It’s powerful.
Now we are all familiar with Uber and Lyft. These companies are paving the way through policy and consumer adoption to create the first forms of transportation as a service. Let’s say Uber is AOL and Lyft is Lycos (or another dotCom bubble company that was first but didn’t win). While these companies have a strong lead and huge valuations, I don’t think they will win (at least not to the point of monopoly). I think our communities will be the winner. And here’s how they will win.
We need community-based mobility suites that go beyond public transportation. They also need to be built on profitable business models that do not rely on tax subsidy for operation. Today, individual vehicle ownership is our #1 choice of transportation. Uber and Lyft are convenient services, but they don’t work if you live in the suburbs. As we look at what will differentiate a smart city, we need to consider how a community-based mobility service can effectively reduce how much citizens spend on transportation. To accomplish this, we need to combine public transportation, ridesharing like uber and lyft, on-demand carsharing like Car2Go and ReachNow, peer-to-peer carsharing like Turo, carpooling, and bikesharing. While Uber is trying to eliminate the drivers, a community-centric mobility suite will consider the needs of their citizens and what jobs will be created and eliminated. Communities will also take the responsibility of providing transportation options for niche groups, such as elderly, handicapped, children, immigrants, and medical transportation.
This is a big idea (some may even call it yuge). No one company will win because each community will have specific needs that create opportunities for companies to specialize and localize transportation services. The nuances of each city are such that its unlikely that any one company will be able to scale a mobility suite. Individual service providers that are private and public need to work together, leveraging each others strengths. When one company fails, another company can be plugged into the mobility suite. Imagine living in a suburb, like Dublin, Ohio, where you can carpool with your neighbors that leave at the same time in a shared vehicle that drives you to a public transit hub (and your vehicle is making money for you through p2p rentals when you are not using it). From there you take mass transit close to your final destination and rideshares take you to your specific place of employment for the last mile. This doesn’t require new technology or policy. This requires coordination and data, which are two major objectives of smart city initiatives like Smart Columbus.
By actively purchase the existing vehicles and replacing owned vehicles with a mobility-as-a-service suite, the innovation cycle in the automotive industry can accelerate because vehicle utilization will increase while the useful life of vehicles decreases. Use up a car faster and you can get the latest technology (you just won’t own it). While the transition to transportation services will happen much like the elimination of street cars, one major difference needs to be how we communicate the strategy to consumers. Instead of backchannels and alliances, we need to communicate a clear vision for why this change is in everyones best interest. It is not a conspiracy. It is disruption.
In conclusion, if we want self-driving cars, transportation services will need to replace individual car ownership. This will accelerate automotive innovation and allow for all vehicles to be connected. We can learn alot from how street cars were eliminated and this time around, we can ensure that better and more affordable transportation options are available.
About the Author
Ryan McManus is the CEO and Co-Founder of AVE AutoMedia, a software company developing connected car apps and mobility services. This topic was originally presented at the AutoTech CBUS meetup in Columbus, Ohio on February 9, 2017.