The Road to Mobility as a Service
The “mobility as a service” future is still a long way away, but the fight for control over the customer relationship has already started.
The pandemic was a double-edged sword for the auto and mobility industry. On one hand, COVID-induced lockdowns and stay-at-home orders significantly reduced people’s vehicle usage and the need for mobility services; on the other hand, the car also become a personal sanctuary for many people, providing a safe way to get out of the house and safely access “made-for-car” services like curbside pickups and drive-in theaters. Not a small number of people also moved out of big cities and found themselves in need of a personal vehicle. We may be going out less in the past 12 months, but our personal relationships with cars have only deepened.
The impact of the pandemic has also altered some car buyers’ future purchase intentions and preferred channels. During the pandemic, the heightened need for cars, coupled with reduced supply, pushed average new car price above $40,000 in 2020, as new car buyers coughed up larger down payments to make a purchase happen. Coming out of the pandemic, however, purchase intention may continue to shift, as the latest survey from Deloitte shows that among those who recently changed the kind of vehicles they are looking to buy, most are opting for cheaper and smaller vehicles. About 30% of car buyers now want partially or fully virtual ways to purchase their next car, and more people prefer to buy directly from manufacturers (aka auto brands) than from third-party retailers.
Coming out of the pandemic, economic recovery, in addition to the pent-up desire to “get back on the road,” will likely boost auto sales back to pre-pandemic level in 2022, and it will keep growing over the next few years. However, this growth trajectory won’t last forever. Looking at the larger trends happening in mobility, it is evident that, in the long run, this sector is moving away from an ownership-driven, lifestyle industry and gradually transforming into an on-demand, accessible, and sustainable service with the arrival of electric vehicles (EVs) and, down the road, autonomous vehicles (AVs).
In the long run, the mobility sector is moving away from an ownership-driven, lifestyle industry and gradually transforming into an on-demand, accessible, and sustainable service.
While the pandemic may have hampered the momentum of this emerging shift towards more on-demand service-oriented mobility concepts, the shift is still very much happening. The growing adoption of connected cars and EVs is bringing us closer to the vision of Mobility as a Service (MaaS) that will make transportation akin to a utility service, accessible and affordable to all. But it will take mass deployment of AVs and micro-mobility services to make it a reality for most people. It may look like a long road, but mobility brands need to prepare for that future today, especially when it comes to owning the customer relationship.
Mobility Services vs. Car Ownership
Before the pandemic, the dominant narrative was that for people living in dense urban centers with plenty of access to public transportation and on-demand mobility services, including ride-sharing apps, vehicle subscription services, and car rental services, car ownership was not a necessity. Primarily through studies based on rider surveys, Uber and Lyft have long claimed their services reduce car ownership because they act as a convenient alternative, along with public transportation and bicycling, to allow urban residents to ditch their cars.
However, a recent research from Carnegie Mellon University finds that the presence of ride-sharing companies, including Uber and Lyft, has been associated with a 0.7% increase in car ownership on average in US urban areas. Part of the increase may be due to elevated public hygiene concerns pushing people away from ride-sharing services, but the study primarily attributes it to the phenomenon that the people opting for the likes of Uber and Lyft over personal car ownership are being counterbalanced by people who buy cars so they can drive for those services.
So if the on-demand services alone are no longer moving the needle, what else is sustaining the shift towards the MaaS future?
Monthly car subscription services, either offered by auto brands themselves or car rental companies, were emerging as a popular alternative to leasing in recent years, but the pandemic also killed their momentum somewhat. GM’s on-demand car-sharing and rental service, Maven, shut down in April 2020 after four years of operation and Ford sold off its monthly car subscription service Canvas to Fair, a digital-native car subscription startup. The initial appeals of convenience and flexibility services like Kia’s subscription program and Porsche Drive had worn off before they captured the imagination of a critical mass of consumers. And the value proposition simply didn’t add up, making it difficult for prospective customers to rationalize the two-to-three multiple premium of a monthly subscription payment against conventional costs of auto loans and leases.
Monthly car subscription services were emerging as a popular alternative to leasing in recent years, but the pandemic also killed their momentum somewhat.
Car subscription services from rental companies, such as Hertz My Car, Sixt+, and Subscribe With Enterprise, usually offer more vehicle options and better customer services than the ones offered by auto brands. Still, they tend to suffer from similar value proposition issues just the same. Another hurdle to account for is the prevalence of car culture in the U.S., which further enhances the intimate relationship between people and their vehicles and prevents people from considering the alternatives.
The accelerating adoption of EVs and the accompanying cultural shift towards clean energy may help move the needle to MaaS somewhat, as it heightens the environmental responsibility of car ownerships and may make people reconsider their choice of mobility services. Limited range and a lack of charging infrastructure may also make some people wary of owning and maintaining an EV themselves and opt for on-demand services instead. Most on-demand services have started the shift towards EV, including Uber partnering with EVgo to electrify its fleet and Lyft committing to all electric vehicles by 2030. However, this effect is being offset by the growing EV sales worldwide, especially in countries with encouraging government policies and subsidies for EVs.
So, in the short run, car ownership will still very much be a default mode to get around for most people in developed countries. And it will take the eventual arrival of on-demand services powered by autonomous vehicles to truly challenge private car ownership.
Exploring Alternative Mobility Services
One of the biggest impacts that mass adoption of AVs will bring is transforming on-demand ride-hailing from a gig economy service to automated efficiency. No more human drivers means significantly less cost per ride, which may result in more affordable on-demand ride services that may be competitive against even public transport. And since AVs can drive themselves to the next rider, it also means there would be no more idle cars sitting in the parking lots. In addition, the high cost of owning and maintaining AVs and the need to constantly upgrade AVs for the latest hardware would make the ownership model less viable for most people, at least in the first decade or so of AVs’ rollout. When autonomous vehicles become a reality, MaaS would be the business model that makes the most sense for consumers, and that will be what they gravitate towards.
Even though the pandemic has accelerated the development of automated delivery vehicles to facilitate contactless delivery, it hasn’t done much to accelerate the development of passenger AVs. But just as the switch to AV won’t happen overnight, on the long road to AV-powered MaaS, there will be many new mobility services and business models that may help the mobility consumer mindset to make the transition and are therefore worth exploring.
On the long road to AV-powered MaaS, there will be many new mobility services and business models that may help the mobility consumer mindset to make the transition and are therefore worth exploring.
One such example is the micro-rental model. Today, on-demand car rental services like Zipcar or Enterprise CarShare already offer easy access to car rental by the hour or day, which offers greater flexibility than the monthly subscription or leasing programs. There are also some emerging car-share marketplaces, such as Getaround, which is now available via the Uber app, or the Google-backed Turo, that are looking to make peer-to-peer car-sharing a more accessible service. Still, these existing services are encumbered by unaccommodating car insurance policies and tarnished by frequent complaints about hidden fees. Perhaps it’s not much of a surprise that one of the popular on-demand services, Car2go, shut down its operation in North America in February 2020 in response to a limited yet competitive market.
Another possible near-future mobility model is one based on community-based co-ownership
One thing the Covid-19 pandemic has highlighted is that we don’t actually want to share a personal car, one of the most valuable possessions that many people own, with random strangers. Yet, co-ownership with people that we can trust may be a sweet compromise that sits in the middle of private car ownership and total MaaS.
Today, two people can co-own a car, similar to opening a joint bank account. One way to co-own a car is to purchase it together with another person. You can then put both of your names on the car’s title. Sharing a car with a family member is easy enough — simply add yourself to his or her insurance as a regular driver. The problem comes when you decide to share a vehicle with someone who isn’t a relative, since many insurance companies won’t spring for adding non-relatives to existing plans.
As car-sharing becomes more of a common staple in mobility services, shouldn’t there be new ways of sharing vehicles with people in your own communities? Whether it’s with people in the same residential community, the same co-op building, or people that are working in the same company and the same office building, management of those residential or commercial entities already offer a lot of amenity services that are accessible to their residents and employers, so what is stopping them from offering on-demand car rental as part of their amenity services, which could be either managed by the property management companies or, more likely, via partnerships with on-demand car rental services.
The Fight to Control Customer Relationships
On the long road to MaaS, all these aforementioned emerging mobility services are collectively laying an important groundwork to shift the consumer mindset away from private car ownership, as we patiently await the transformative arrival of mobility services powered by autonomous vehicles. Still, that doesn’t mean auto and mobility brands get to simply coast along. Besides the ongoing industry upheaval triggered by the shift towards EVs, there is also another issue that mobility brands are confronted with: in the future of MaaS, who gets to own the customer relationship?
In service industries, owning the customer relationship is paramount to success, as it is how service providers can offer the best possible customer experience via data-driven customization and building long-term relationships to earn the highest lifetime value. If a service provider does not own the customer relationship, it is disintermediated from the consumer touchpoint and becomes a commodified supplier.
This is the potential challenge that many auto brands are facing in the shift towards MaaS. Most established auto brands have historically relied on local dealerships as their customer interfaces, lacking the expertise in customer-facing services. Contrast that to the new EV makers like Tesla that have established digital sales channels and owned their customer relationships from the start, the disadvantages that auto brands have today are too big to disregard. Digitalizing the car-buying experience today lays the groundwork for the MaaS future, where direct interactions with customers will happen with each ride.
Digitalizing the car-buying experience today lays the groundwork for the MaaS future, where direct interactions with customers will happen with each ride.
Even today, vehicles are already becoming a key consumer touchpoint as connected cars become mainstream, and there is a tug-of-war brewing between auto makers and tech companies over the control of the in-car infotainment system as well as the data and media opportunities they generate. The winner will not only have a chance to directly build a long-term customer relationship, but also get to dictate the brand opportunities in connected cars.
OEMs may band together for joint development: For instance, three German OEMs formed a consortium to acquire a mapping business, then worked together to improve the system for automotive use. Meanwhile, new entrants may take a software-based approach to car design. which may reduce overall system complexity and development costs, with suppliers providing native compatibility with the architecture base across each component they provide.
Interestingly, on-demand mobility service providers have what the auto brands lack, and many of them are in need of a partner to succeed in the MaaS future. Car rental companies have the expertise in customer-facing services and local fleet management, and most have tried their hands at running an on-demand ride or rental service. Therefore, they could become acquisition targets for auto brands or tech companies, or valuable partners to them. However, it is the multi-modal, digital-native services that currently have a leg up in this competition.
Over the recent months, both Lyft and Uber sold off their AV units, signaling that their previous strategy of trying to own the full stack of MaaS is no longer attainable for them. Uber sold its AV unit to Aurora, an AV startup that counts Amazon as a key investor, while Lyft unloaded its self-driving car unit to Woven Planet, a subsidiary of Toyota. So already, the alliances are being formed and battle lines are being drawn in the race to make AV-powered mobility services a reality.
Even though Uber and Lyft are no longer looking to own the full technological stack of future mobility services, they could still own the customer interface and therefore control the customer relationship. As they continue to normalize their respective mobile apps as the primary interface to get a ride for millions of users, they are eagerly branching out into alternative mobility services such as bike-sharing, scooter-sharing, car-sharing, and public transportation. These moves and micro-mobility capabilities are what will put them above other single-modal car rental or car-sharing services, and prove to be valuable partners for auto brands and tech giants looking to enter the mobility markets.
Tech companies could make an integrated play into mobility services. The long-rumored Apple Car is about 2 to 3 years away from being unveiled, and about 4 to 6 years from coming to market. Like any other Apple product, we expect it to be fully integrated with Apple’s ecosystem and offer a seamless user experience that Apple fully controls, making it potentially very appealing to existing Apple users.
Besides Apple, all the major tech companies are heavily investing in mobility services and hedging their bets. Amazon is inching closer to test a robo-taxi service developed by its AV unit Zoox, in addition to being a major investor in Aurora, which bought Uber’s self-driving unit; Google owns Waymo, a leader in AV tech, and invests in the aforementioned Turo P2P carsharing service. Microsoft is a heavy investor in AV startup Cruise and is building an AV platform powered by its Azure cloud service with Volkswagen. Even Facebook bought a little-known “mapping and street-level imaging” startup called Mapillary last year, which could be used for mobility services.
The bottom line is, the mobility industry is becoming an intricate ecosystem. With new companies entering the mobility value chain, collaborations between auto brands and players in the extended ecosystem is unavoidable and critical to providing a great customer experience. Reinventing the customer experience in mobility services will likely take integration across multiple industries and services, and right now, few players in the mobility space will get very far if they go at it alone.
