Navigant Research Blog

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.

 

Market Solutions for Transit Deserts

— September 14, 2017

When discussing new disruptive mobility solutions, comments on their effects on public transportation are often not far behind. Many believe that public transportation cannot compete with the convenient, on-demand, door-to-door service offered by transportation network companies (TNCs) such as Lyft and Uber. Some see TNCs and other mobility services as poaching transit riders. Others view these solutions as complementary to public transportation as they provide services to unaddressed transit deserts or other underserved communities.

Two areas that provide opportunity for growth for TNCs—and an opportunity to support public transit operations—are transit desert services and first and last mile (a term used to describe the portion of a commuter’s trip between their place of origin and where they connect with a mode of public transportation). A few pilot programs demonstrate their potential and provide insight into how best to execute these services.

Centennial/Lyft Pilot Program

The Regional Transportation District (RTD) of Denver has had great success in providing public transit services throughout the region. RTD has launched three rail lines and one bus rapid transit line in the past 2 years and is expecting to open a fourth rail line before the end of 2017.

To provide a solution to a lack of connectivity and decrease single occupancy vehicle trips, the City of Centennial partnered with Lyft for a 6-month pilot program that provided Lyft Line rides free of charge to and from the Dry Creek light rail station within the existing RTD Call-n-Ride service area. Centennial subsidized these rides and service was exclusively offered through Lyft. While the program duration was short and had underwhelming ridership, results suggest that mobility solutions provided by companies may work as a supplement to existing transit services.

Lyft Shuttle and Ford Chariot

Recognizing that many of the rides given between 6:00 a.m. and 9:00 a.m. and 4:00 p.m. and 6:00 p.m. are for work commutes, Lyft now offers a new pilot service in Chicago called Lyft Shuttle. Looking at trip data, Lyft identified common travel routes that exist in transit deserts, then created fixed routes where riders could reserve a seat via the app and walk to designated pick-up locations to catch a shared ride at a reduced cost compared to a Lyft or Lyft Line.

In 2016, Ford acquired the San Francisco-based startup Chariot. Chariot offers a service similar to Lyft Shuttle. Riders can reserve a seat on a Chariot shuttle via the Chariot app and travel along fixed routes in transit deserts in select cities. Chariot’s business model is unique in that any community can crowdsource interest in a Chariot route by having 50 individuals express interest in using a route if it was offered by the app.

Automated Transit Networks

Automated transit network (ATN) is a catchall term for self-driving shuttles, and there are several existing electric ATN pilot programs around the world. These automated services run on predetermined routes and carry anywhere from 4 to 24 passengers at a time. Notable ATN systems include 2getthere, Vectus, Modutram, and Ultra.

ATNs can provide users with an automated, high frequency mobility solution along fixed routes. Existing ATNs provide services for universities, hospitals, business parks, and airports, but other services have been speculated, such as replacing costly public transit infrastructure or filling in gaps in transit services.

Several factors are creating opportunities for a shift in the classic paradigm of private automobile ownership. As increasing urban density and traffic congestion drive consumers to look for new alternatives, companies are racing to provide them with new mobility services. The services mentioned above are just some of the market disruptors responding to this shift.

 

Ford’s Big Management Shuffle Is About Changing Perceptions

— May 23, 2017

It is often harder to be a century-old company with a record of profitability than it is to be a young one with potential. This sums up the difference between legacy automakers like Ford and Tesla. With only two profitable quarters in its 14-year history, Tesla’s most recent resulted from strategic timing of paying bills and delivering cars. Meanwhile, Ford—despite periods of losses over its 114-year history—has generated immense profits, including records in the past 2 years. Nonetheless, Tesla is the darling of Wall St., while now former Ford CEO Mark Fields and communications VP Ray Day lost their jobs over the weekend.

In the 3 years since Fields succeeded Alan Mulally, the company’s stock price has dropped more than 35% despite record profits. Pre-tax 2017 profits are projected at $9 billion, which is more than Tesla’s total 2016 revenue of $7 billion. Yet, Tesla’s market cap recently topped that of both Ford and General Motors (GM). Clearly, the markets are placing their bets on the perception of where these companies are going in the coming years rather than on the fundamentals of each business.

Fields has been on point in Ford’s effort to be perceived as a forward-thinking technology company since his 2007 CES debut with Microsoft founder Bill Gates to announce SYNC. Even with repeated Las Vegas keynotes by Fields and Mulally and countless investments in developing automated driving and mobility services, investors perceive Ford and other companies that manufacture and sell physical objects as laggards compared to software startups.

Ford isn’t alone in this perception battle. Most automakers are making the pilgrimage to CES to woo the tech community. While few have been hit as hard as Ford, none of the incumbents are getting the love shown to Tesla.

In our Navigant Research Leaderboard Report: Automated Driving, Ford, GM, Renault-Nissan, and Daimler scored highest and ahead of several technology companies. Waymo is arguably somewhat ahead on the pure technology front, but automakers have necessary pieces such as manufacturing, service, distribution, and support infrastructure to make viable mobility businesses. Additionally, automakers have a proven ability to deliver physical products—not just the components and software that control them.

Ford’s leadership team, including Executive Chairman Bill Ford, EVP Joe Hinrichs, CTO Raj Nair, and many others, all supported the direction the company was heading under Fields. However, investors didn’t seem to believe in it.

During a press conference with new CEO Jim Hackett, Ford and Hackett both emphasized that the overall strategy of transformation into a mobility services company is moving full steam ahead. Hackett, who comes to the role from being chairman of Ford Smart Mobility LLC, aims to reinforce the strategy and focus on executing the plans. The elevation of Marcy Klevorn from CIO to EVP and the newly created role of President, Mobility highlights this ongoing commitment.

While Hackett’s success or failure won’t be evident for several years, Ford still needs to change investor and public perceptions to boost its stock price and the sales of vehicles it has today. That challenging near-term task falls to Mark Truby, who moves over from Ford of Europe to replace longtime PR chief Ray Day. Day and his team have had successes on the product communications front, but changing the overall perception of the company among investors who have favored high flying tech stocks has been elusive. Whether Truby or anyone else can succeed will be crucial.

 

Autonomous Ride-Hailing May Hail the New Era of the Minivan

— December 22, 2016

CarsharingIt’s been more than 3 decades since Hal Sperlich and Lee Iacocca redefined the family hauler with the introduction of the minivan. Over the subsequent 20 years, the minivan segment grew to become one of the largest in the US market before being overtaken by SUVs and beginning a long and steady decline. However, as we move into the era of autonomous mobility services, we may also see a resurgence of what had been derided as the “soccer mom-mobile.”

While the minivan market isn’t as big as it once was in total sales volume, as these vehicles have gained useful amenities, they have become quite profitable. Starting in 2016, the companies that have stuck by this body style have begun introducing redesigned vans, including the 2017 Chrysler Pacifica and the 2018 Honda Odyssey that will debut at January’s North American International Auto Show in Detroit.

Vans On Demand

When Google decided it was time to expand its development fleet of self-driving cars, it struck a deal with Fiat Chrysler Automobiles (FCA) to purchase 100 Pacifica plug-in hybrid EVs (PHEVs) and equip them with its autonomous sensing and control systems. With the self-driving car project now spun out of the X research lab as a separate company called Waymo, it has also announced an agreement with Honda to discuss collaboration on development and possibly commercialization of autonomous technologies. In Navigant Research’s 2015 Autonomous Vehicle OEM Leaderboard Report, Honda was ranked eighth among 18 companies evaluated, so working with Waymo could provide a boost relative to the market leaders.

Since auto industry veteran John Krafcik came on board as CEO of what is now Waymo in October 2015, the program has apparently shifted its focus from developing complete cars to working with existing carmakers to supply its systems as well as potentially building mobility service platforms. As the shape of future mobility services continues to evolve, these platforms are likely to include a broad range of vehicle types to support different needs. One- or two-person pods may be adequate to provide first/last mile transportation in dense urban areas, while something more akin to a minivan can support families or larger groups traveling on a variety of routes that don’t have sufficient density to make mass transit viable.

Ford-owned San Francisco-based startup Chariot is already providing hybrid on-demand services in San Francisco and Austin, Texas with human-driven vans. As autonomous vans become available, they could be deployed in the same way. For these types of transportation services, the easier ingress/egress of a van would be much more practical than climbing up into an SUV.

Growing Trend

Volkswagen will also be joining in on the autonomous van trend at January’s Detroit show. The embattled German automaker will be unveiling a new battery electric micro-bus concept based on the same new modular electric platform that underpins the I.D. concept shown at this year’s Frankfurt Motor Show. FCA will be participating in the 2017 International CES in Las Vegas for the first time and will reportedly show a battery electric version of the Pacifica.

FCA’s program with Waymo only extended as far integrating autonomous hardware into the minivan and does not include system development. However, as one of the companies in the back half of the pack in the Leaderboard rankings, FCA would also be a good candidate to adopt a production autonomous package from Waymo or one of the larger Tier One suppliers such as Delphi or Continental. We’ll probably be seeing a lot more self-driving minivans in the coming decade.

 

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