Navigant Research Blog

Sharing Companies Shouldn’t Get Free Rides

— February 6, 2018

One of the big themes of recent years has been the emergence of the so-called “sharing” economy. Unless we were raised by hardcore Ayn Rand acolytes, chances are that as children we were taught that sharing is good, and I certainly subscribe to that philosophy. However, the kind of sharing I learned was about splitting cookies or letting other kids play with my toys. It wasn’t about business, it was for free in an altruistic manner. What we increasingly experience today is a freelance gig economy that has little to do with that kind of sharing, and has everything to do with commerce.

The Capitalism of Sharing

Why is this relevant? Many of the shared economy startups claim to be enablers of sharing when in fact they are independent business enablers. Not that there’s anything wrong with that, but we need to recognize these companies and their products for what they are and treat them accordingly from a policy standpoint.

Instagram is, or at least was before it was taken over by “paid influencers,” a place for users to share photos with friends. Uber and Lyft are platforms that enable freelance taxi drivers to give rides to strangers for pay. AirBnB is a platform to let people rent rooms, apartments, or houses to strangers for pay. Turo is a platform that lets individuals try to become Hertz by making their cars available to rent.

Dictionary definitions of sharing don’t rule out commerce since we buy fractions of companies and other products and call them shares. But the messaging from these companies always seems to focus on sharing in the altruistic context. This framing of the message is often used as part of the argument for circumventing regulations that govern the traditional form of the industries these new businesses are trying to compete with.

Safety in Sharing?

While there are undoubtedly plenty of rules in the taxi, hospitality, and rental businesses that are outdated and in many cases simply protectionist for incumbents, there are others that provide a public good. Background checks for taxi and livery drivers aren’t a terrible idea when it comes to public safety. Ensuring that homes being rented out to travelers meet building safety codes is ultimately a good thing. Managing where people pick up rental cars or hail rides at airports or in cities is crucial to safe and efficient operation for everyone. Yet some upstarts seem to think they get a free ride from regulations by playing the sharing card.

In late January 2018, Turo was in a dispute with the City of San Francisco about permitting at the San Francisco International Airport. The rules are meant to help pay for upkeep of the airport and manage traffic congestion. Turo claims it is not a rental company on the basis of it not owning or renting the physical assets, similar to the arguments made by Uber, Airbnb, and others. While the operational details differ from incumbent to incumbent, the end result to the customer is effectively the same as with those established players. They make reservations and payments using the startups portal, pick up their rental, and drive.

Compliance with reasonable business rules will be increasingly important as we transition to automated mobility services. Navigant Research’s report, Market Data: Automated Driving Vehicles, anticipates nearly 5 million such vehicles being deployed by 2025. If cities cannot manage where they go, congestion is likely to get worse rather than improve. We need to find a cooperative balance between overregulation and being completely laissez faire if we are to solve our transportation problems.

 

Detroit Auto Show Stars Fund Future Promised at CES

— January 18, 2018

For many of us that keep tabs on the automotive industry for a living, the first 2 weeks of January are among the most grueling of the year. The North American International Auto Show in Detroit has kicked off the year for several decades. And in the past 10 years, International CES in Las Vegas has become an increasingly important addition to our schedule as the two events run back to back. The announcements at 2018’s shows illustrated some of the crucial interconnections between the growth of technology and the transportation business.

For automakers, CES has largely been a place where they talk about future technologies and try to shift the media’s perception of them from being old-fashioned metal benders to forward-thinking visionaries. They rarely show actual new products, instead focusing on automated and connected concept vehicles. The Detroit show, like most other auto shows, targets consumers that are buying vehicles in the coming year.

For an industry that is facing the biggest transformation in more than 100 years, this is a crucial time. While many recent auto shows have highlighted new plug-in and hybrid vehicles, there were almost none in Detroit this year. Instead, the biggest announcements came from the Detroit-area manufacturers, and they were all pickup trucks—mostly full-size. Fiat Chrysler unveiled the redesigned 2019 Ram 1500. Chevrolet brought out a new from the ground up Silverado, and Ford launched a diesel version of the F-150 and a midsize Ranger pickup.

Profit in Pickups

Pickups are a segment that is likely to be among the last to gain highly automated driving capabilities, as discussed in Navigant Research’s Market Data: Automated Driving Vehicles forecast and its Leaderboard reports. However, those automation technologies were a major topic of conversation in Las Vegas, particularly in the context of whether manufacturers will build new business models around these costly, complicated, support-intensive vehicles.

That’s why pickups are so important to Detroit. They are the profit engines that keep this industry humming along while indirectly funding R&D efforts that will create the next big things. Part of why Ford is bringing the Ranger back to North America is that the average selling price of an F-150 is now more than $58,000. Pickups and large SUVs generate far more profit per vehicle than any small car and they sell in far larger volumes than any other segment in the American market. Ford is projected to make a full-year 2017 profit of more than $9 billion, largely thanks to sales of nearly 900,000 F-series trucks. Even the third place Fiat Chrysler sold more than 500,000 Ram pickups in 2017.

All three manufacturers are adopting fuel efficiency technologies such as 48 V mild-hybrids, dynamic cylinder deactivation, diesel and active aerodynamics in order to meet fuel economy requirements, as discussed in Navigant Research’s Automotive Fuel Efficiency Strategies report. However, until they all figure out how to make sustainable profits in the new age of mobility, we can rest assured that they will continue pressing ahead with enhancing the customer appeal of these trucks in order to keep the cash flowing to develop the promises made at CES.

 

Automated Driving at 2018 CES Is All About Business Models

— January 11, 2018

Ten years to the day after my very first ride in the automated Chevrolet Tahoe that won the 2007 DARPA Urban Challenge, I was in Las Vegas yet again for the 2018 International CES. In the very same parking lot where I took my first driverless ride, I climbed into the backseat of a BMW 5 series sedan sporting the logos of Aptiv and Lyft for an automated round trip from the Las Vegas Convention Center to Caesar’s Palace. As has been the case for most of the past decade, automated driving is the main automotive topic at CES, but now it’s more about the business models than the core technology.

For the second year in a row, General Motors (GM), the company that started the automated driving land rush at CES, is not here even in an official capacity. Supplier Aptive and several of the automakers that did return to Vegas have turned their attention to how they are going to transform their business models in the coming years as we make the shift away from buying and driving our own vehicles. Aptiv is just one of several companies—along with Waymo, Ford, GM, and Jaguar Land Rover—that have partnerships with Lyft to deploy automated vehicles.

The Hunt for New Revenue Streams

However, ride-hailing isn’t going to be the only application for automated vehicles in the coming decade. Automakers are keenly aware of the reality that shared, automated mobility will likely mean that there will be far fewer vehicles in the coming decades. With reduced revenues from sales, they are looking to services to generate new revenue streams. Given that, automakers need to maximize the utilization of these vehicles because the number of people in need of rides is hardly consistent during the course of the day.

While many surveys have asked consumers if they want to buy automated vehicles in recent years, it’s really the wrong question. For the most part, consumers will be unlikely to have the opportunity to purchase these vehicles. Instead, they will be owned and operated by manufacturers and other providers and made available on-demand.

Platforms Evolve, Targeting New Applications

The architecture of the vehicle will change from the traditional cars and SUVs we know today to something more flexible that can accommodate everything from passengers to pizzas to packages. Toyota unveiled a concept at CES 2018 called the e-Palette specifically targeted at these multimodal applications. It will be built in three sizes to accommodate different use cases.

Along with the vehicle, Toyota announced the e-Palette alliance to leverage the company’s Mobility Services Platform. Initial partners include Amazon, Didi, Pizza Hut, Mazda, and Uber to work on developing the vehicle, applications, and verification activities.

Ford CEO Jim Hackett also announced several business model initiatives to accompany the bespoke automated vehicle the company is launching in 2021. With its partner Autonomic, Ford is developing a transportation operating system cloud platform that will be available to cities to provide a range of non-competitive services like payments, authentication, and coordination.

On top of that, Ford’s transportation as a service platform will handle the logistics and deployment optimization for partners that want to utilize Ford’s vehicles. A pilot of the system will be launched this year in a city yet to be named along with Dominos, Lyft, and Postmates.

The business of mobility is changing, and the industry is trying out a range of solutions in the hopes of making both itself and the cities it operates in sustainable.

 

Disney vs. Netflix as Analogy for Auto Incumbents vs. Uber and Lyft

— January 2, 2018

TV and movie businesses may not seem like the best analogy for the automotive industry and the future of transportation, but if you consider the evolving relationships, there are some fascinating parallels. The relationship between two of the world’s largest media companies, incumbent Disney and insurgent Netflix, is becoming increasingly tenuous as both look to leverage disruptive technologies. In the mobility space, we are seeing a surprisingly similar dynamic between major automakers and ride-hailing companies like Uber and Lyft, with Alphabet and Apple on the periphery of the battle.

The Evolution of Entertainment as a Service

It’s now been a full decade since Netflix began its pivot from mailing plastic discs to customers to streaming video over the internet. Until a few years ago, Netflix was completely dependent on the willingness of content creators like Disney, Fox, Warner, and others to provide the materials that it mailed or streamed to subscribers. The studios did this in exchange for licensing fees because they saw it as advantageous to get in front of viewer’s eyeballs on the new distribution channel.

At first, the number of people watching Disney content on Netflix was relatively low and the studio saw it as an interesting experiment. The revenue numbers were small and had to be split with the distributor. Now, as it has become increasingly apparent that consumers are shifting away from paying to go to theaters and paying for cable TV services in favor of direct streaming to TVs and mobile devices, the idea of splitting that revenue pie has lost its appeal.

Disney’s Step into the Streaming World

Thus, over the course of 2017, Disney announced that it will launch at least two of its own streaming services, a sports oriented channel for Disney-owned ESPN, and an entertainment channel. When the latter launches in 2019, much of the Disney content that has been so popular with viewers will disappear from Netflix, including Marvel and Star Wars. Disney acquired a controlling interest streaming technology company, BAMTech, and its late 2017 bid for much of Fox’s entertainment business will give it control of rival streaming provider Hulu.

Meanwhile, Netflix has been reacting by investing billions of dollars in creating its own catalog of proprietary content. While the company has managed to generate net profits, it has also been burning cash at the rate of nearly half a billion dollars per quarter. As content from Disney and other studios disappears over the next couple of years, Netflix is likely to struggle to retain subscribers and its financial position may get significantly worse.

How Will the Auto Industry Respond to the as a Service Momentum?

Meanwhile, in the transportation space, ride-hailing providers have grown at an even faster pace than Netflix while continuing to lose billions of dollars per year. Automakers have taken note of the growing popularity of mobility as a service and see the threat to their core business of selling cars, just as streaming has eaten into Disney’s core distribution channels.

Most of the big automakers are actively developing ridesharing services that will increasingly leverage disruptive automated vehicle technologies. Just as Disney no longer sees the need to share the revenue from its creations with Netflix, GM, Daimler, Ford, Volkswagen, and others may eventually want to stop giving Uber, Lyft, and Didi a cut and instead compete with them directly.

Navigant Research’s Mobility as a Service report projects annual ride-hailing revenue of nearly $1.2 trillion globally. An ever increasing proportion of that is likely to go to the companies that build the vehicles that move people and goods as well as those that operate their own services.

 

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