Mobility as a Service is Largely Unprofitable — The Automobile Industry and Retail Are!

Evgeny Klochikhin
Jun 6 · 5 min read

The past several years have seen much excitement related to mobility-as-a-service (MaaS). Some enthusiasts even claim it could leave traditional modes of transportation as relics of the past, including private vehicle ownership.

The hype just isn’t commensurate with the results, however. Upon closer examination it becomes clear that MaaS might never be profitable. Until the industry can clear that significant hurdle, there is good reason to question how exactly the future of mobility will take shape.

Right now, MaaS just isn’t profitable. But mobility solutions that can capitalize on the fact of personal car ownership, the need for convenient parking, and the desire for retail shopping are poised for success.

Major MaaS enterprises are not profitable

Although Uber has now been around for a decade, it’s still not profitable, nor is its main competitor, Lyft. For years these companies have been kept afloat by major investments from venture capitalists who have essentially subsidized cheap rides for consumers. Now that both companies are publicly traded, that’s about to change.

The bigger problem is that there isn’t an easy path for these companies to become profitable. One option is to lower expenses by removing drivers from the equation. Given the significant negative attention that Uber and Lyft have attracted for providing poor wages to drivers, this solution has advantages. However, designing a fully autonomous vehicle has proven to be quite complicated. These companies — and their investors — can’t count on that solution within the next five or even ten years.

The other option, of course, is to raise prices for consumers. That’s quite likely to happen, but it’s not clear whether higher prices will impact the overall volume of rides. In many urban areas, taxi services are likely to become more competitive with ridesharing apps in terms of price. Many traditional cab companies are now offering apps for consumers, so Uber and Lyft can’t necessarily count on convenience as a competitive advantage.

Essentially, these companies are betting that they can become profitable by expanding their user base. But that isn’t going to be easy, even if prices remain low. According a 2017 survey from McKinsey, 67% of Americans prefer driving their own cars to ridesharing apps, and 63% aren’t interested in trading in their car for ridesharing even if rides were to be completely free. Clearly, we’re not going to get to universal ridesharing usage any time soon.

The major MaaS players aren’t profitable, and the same is true for other MaaS businesses, such as carsharing, micromobility, and public transportation systems. To get where they need to go, most people want and need a car to take them there, and it’s probably going to be a privately-owned vehicle for at least the next decade or more before we have autonomous vehicle fleets circling our roads.

MaaS enterprises might not be profitable, but the automobile industry is. People still want to buy cars, and the financing model can be very lucrative for automobile manufacturers and dealerships. This business model has existed for more than a century, so it’s not the most exciting thing around. But it works.

On-street parking creates profitability problems

Of course, there are other inefficiencies in our current transportation system. For that we need not look any further than on-street parking.

In many ways, on-street parking fits the MaaS model. People are essentially paying for a service — parking their car at a publicly available location — on a short-term basis. But on-street parking, like other MaaS business models, isn’t profitable. In fact, most cities make more money from parking tickets than they do on meter fees. This creates a backwards set of incentives for municipal governments. Many parking experts, like well-known Donald Shoup, believe that cities should actually charge more for on-street parking, especially during periods of peak usage.

There is, however, a parking model that’s quite profitable: parking garages. Garages are typically low-cost business operations that can process a high volume of transactions every day. As with the automobile industry, this is an old business model that continues to be profitable. Many financial and real estate industry experts have expressed a renewed interest in parking lots because of their profitability.

Brick and mortar stores drive mobility

So, people still want to own cars and they are willing to pay in order to park them in convenient locations. But that doesn’t really paint the whole picture. Ultimately, it all comes back to the fact that mobility is deeply connected to retail.

You might be saying, “Wait! Isn’t traditional retail dead thanks to Amazon?”

Nope. U.S. retail is a $4.2 trillion industry, and only 13% (or roughly $475 billion) of it is e-commerce. That leaves more than $3.5 trillion to our brick and mortar stores. People still want to shop in person, and it’s highly likely that they’ll be getting to the store in a privately-owned car.

Of course, mobility issues can present inconveniences for shoppers. 39% of drivers avoid certain shopping destinations because of worries about parking. The problem is particularly acute around the holidays — precisely when people are most eager to shop.

People want to make purchases in person, and they want to drive their own cars to the store. Therefore, there’s a great market opportunity for solutions that can more efficiently connect shoppers with convenient parking.

Retailers know this, and many are hungry to find new ways to attract customers to their doors. Many stores are eager to experiment with subsidizing parking for customers, or providing parking coupons, in order to bring new customers and keep them shopping. They understand that it’s parking and car ownership — not newer MaaS models — which can fuel their business.

Right now, MaaS just isn’t profitable. But mobility solutions that can capitalize on the fact of personal car ownership, the need for convenient parking, and the desire for retail shopping are poised for success.

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Evgeny Klochikhin

Written by

Evgeny Klochikhin, PhD is the CEO of Parkofon, a smart mobility company building a fully connected #MaaS platform. Innovation scholar, data scientist, engineer.

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