< Part 3: New mobility bundles
While consumers can be transactionally irrational, businesses tend to be far more pragmatic. Suppliers leverage a range of strategies and technologies to lower costs and improve the efficiency of their services. There are two areas for mobility operators to focus on: the dynamics of their trip marketplace and the fleets of vehicles that operate within it. Over time, strong competitive forces and constant customer feedback are forcing rapid evolution to better mobility platforms and experiences.
The trip economy is a set of marketplaces for mobility. Each operator has a range of levers it can adjust to more effectively meet demand, and in particular manage demand peaks when supply is stretched. There are three strategies for doing this.
The first option is to change the structure of the demand curve. When more demand can be served with the same fleet of vehicles and pool of labor, the cost of each trip is lower.
This can be done by pooling different types of demand, using the same fleet to serve it. For instance, Uber drivers can choose to do UberX and Uber Eats rides at the same time. This means that each trip - a ride or a food delivery - can be assigned to the closest driver from a larger pool of drivers, improving the efficiency of the trip. Since the demand peaks for UberX and Uber Eats are different, the overall demand curve is smoother, while the supply pool serving these trips is larger overall, making it less expensive to serve the peaks.
Expansions into adjacent services - such as DoorDash's DashMart and DoorDash Drive offerings or Amazon's grocery delivery service - are driven by this logic. So too are mergers of fleets serving overlapping demand pools such as Uber's acquisition of Careem or DoorDash's purchase of Caviar.
Beyond just smoothing the demand curve, it is also possible to flatten the curve by combining different trips into the same ride. The clearest example of this is UberPool, in which two or more people heading in a similar direction travel together for a portion of the ride. Transit works according to the same principle: people need to reach a transit line, but along these routes trip costs are lower because many trips can be combined into one. Batching similarly frees up supply for delivery and it is even possible to combine outbound trips moving people with inbound trips carrying cargo. However, high trip density is required for all these services to maintain short wait times and a good customer experience.
This kind of bundling rewards a diversified set of trip offerings so long as the marketplace has sufficient scale and technology to support the increased complexity to allow effective matching and routing. Overall, as markets consolidate, demand and supply can more efficiently be matched, but competition is required to make sure that consumers rather than businesses capture the benefits of this increased efficiency.
Suddenly it starts to rain and everyone wants a cab or to order in food. These kinds of demand spikes happen periodically in trip marketplaces and some of them can't be predicted or controlled. When demand exceeds supply, supply needs to be rationed in some way to cover the shortfall. Ridehailing companies have done this by increasing price. This so-called "surge pricing" primarily reduces demand, ensuring that those most willing to pay for an immediate ride can get one. It also induces more supply, and to the extent that it does this, it significantly improves service quality in comparison to fixed-price taxis.
The idea for Uber was born when a Parisian snowstorm made it impossible for the founders to hail a cab. Consequently, the company was built on a philosophy of zealously addressing such market inefficiencies through price signals and it embraced confrontation in achieving this mission. But surge pricing is very unpopular and the optics have been particularly damaging to the company. Having prices spike during a hurricane or a terrorist attack is not a good look; there are ways to restrict demand without evoking accusations of price gouging. And a breakdown of trust can add up.
Over time, mobility services have become better at framing surge policies, for instance by giving customers an alternate option to book a cheaper ride within a longer time window or reducing the service area for food deliveries during bad weather. Ridehailing pricing has increasingly been tailored to each trip using algorithmic pricing which also helps to smooth demand. But it is better for both customers and trip marketplaces when things are predictable.
Trip economies tend to be seasonal in nature, with repeating patterns based on weather, holidays and a range of other factors. Over the long term, it is possible to build increasingly accurate models to predict future demand and adjust the supply and demand side of the marketplace accordingly. Ridehailing companies have analytics teams that model market dynamics across cities for various days of the year (e.g. New Year's Eve) that marketing and operations teams use to create targeted incentives to align supply and demand. Meanwhile scooter sharing companies are doing similar forecasting to determine promotions (e.g. free unlocks during winter) and to plan when to move scooters off the streets or between cities as seasons change.
Visibility into the future matters even on shorter time horizons: pooling rides is much easier to do when demand is scheduled in advance or repeats regularly. This matters for shuttle bus services and carpooling, but is also baked into incentives such or Uber's "favorite route boost" which gives bonus loyalty points for trips between favorite locations.
Mobility marketplaces are composed of trips performed by a fleet of vehicles. The fleet must be sized to meet the scale of mobility demand. The properties of these vehicles drive demand to the extent they meet the needs of consumers and tie directly into the cost of providing the service (see trip decision matrix in Part 1).
Technology plays an increasingly important role in improving the functionality of all types of vehicles. There are a number of ways in which the power of technological building blocks is amplified within fleets.
Mobility services rely on digitization to enable trips. Smartphones are the primary interface for users, and also for drivers and couriers in three sided marketplaces such as ridehailing and food delivery. But to the extent that the vehicle is the product and the fleet operator directly controls the fleet, connectivity to the vehicle is essential. For instance, a key part of shared scooters is the telematics unit that allows users to locate vehicles and the operations team to know when to service them. Software also allows trip specific controls such as geofencing and speed limiting which tie into regulatory considerations. Functionality can be improved and issues can be addressed by updating this fleet software over time. Lights and screens also help communicate important information directly to users including battery charge level and availability and even turn by turn navigation. It can also support payments through NFC allowing transit cards to be used to unlock vehicles (such as Lyft's Motivate bikes) and remove the need for a smartphone as an intermediary for a trip transaction.
Digitization also supports centralized fleet management, giving operators greater control of marketplace dynamics. By knowing precisely and reliably where each vehicle is located allows positioning and routing to optimize both inbound and outbound trips. This is particularly important for complex logistics supply chains, in which fleet management systems such as Geotab and Samsara can track driver performance and coordinate docking schedules. Amazon has been able to leverage telemetry into a better customer experience, allowing a package to be tracked when it is out for delivery. In industrial fleets, companies such as Scania and Komatsu have also been focused on bundling digital solutions into fleet management software that improves the value proposition of their vehicles.
Mobility services have had a complicated relationship with labor (more about this in Part 5). Labor is a major input into the cost of these services and relatively low labor costs have helped these marketplaces become viable (a challenge since consumers undervalue their own time spent driving). Operators have a strong incentive to keep labor costs in check, and in a practical sense the independent contractor categorization for most trip economy workers has been helpful to this end, independent of questions of its legal viability and political challenges. Covid has amplified these questions since it has highlighted the "essential" status of these workers as well as the unique risks they are exposed to enabling the movement of people and goods.
Autonomy combined with teleoperation presents a way to significantly reduce costs and thereby broaden the appeal of trip marketplaces. A flurry of investments has been made by carmakers, tech companies and especially trip marketplace operators such as ridehailing companies to create the kind of autonomy that can fully solve their labor cost challenge. Uber made waves in 2015 by establishing an autonomous research team in Pittsburgh and subsequently acquiring Otto, but a fatal accident and other issues have led the company to offload its autonomous vehicle unit. Lyft and Didi have also started autonomous vehicle development projects (although Lyft has since sold its AV division to Toyota). Amazon also acquired Zoox and invested in Aurora, both startups developing autonomous cars. And Google's Waymo, GM's Cruise subsidiary and Aptiv and Hyundai's JV Motional are also key players.
However, mobility marketplaces reward more prosaic fleet-based solutions that solve discrete challenges in the nearer term. Cute delivery robots like Postmates' Serve and Amazon's Scout are being tested, traveling at low speed and sharing sidewalks with pedestrians. When they run into issues, they can stop without blocking a road and teleoperation serves as a reliable fallback. Similarly, Spin is piloting scooters with three wheels that can reposition themselves with the help of remote control. AGVs are being deployed in ports and forklifts are being automated in warehouses to perform a range of functions. Autonomy is also being applied to yard trucks and to autonomous rail cars. In all these cases, the goal is to create systems that integrate into larger workflows safely and reliably while reducing costs.
Another way to reduce costs is by switching to electric vehicles in high utilization use cases. Micromobility is almost synonymous with electrification and currently there's a focus on using battery swapping and public recharging to reduce costs.
But electrification is coming quickly to all kinds of fleet vehicles. The autonomous vehicle projects mentioned above for the most part use fully electric and if not, at least hybrid electric vehicles.
What's especially interesting is the trend of fleets ordering custom-built electric delivery vehicles: Amazon invested in Rivian and ordered 100,000 electric vans while UPS ordered 10,000 EVs from Arrival. Amazon is also planning an aggressive rollout of smaller electric vehicles in India.
The power of technological building blocks is not just that they create discrete cost savings that appeal to fleet operators, but that they can be combined in ways that create meaningful synergies.
The Amazon and UPS orders show how vehicles are increasingly being tailored to a specific use case - not just the powertrain but the entire vehicle. This reverses a key aspect of how vehicle manufacturing has operated until now: instead of vehicle makers creating products and convincing consumers to adopt them, fleet operators are defining product requirements directed at a specific use case for manufacturers to produce. This shift in power towards operators not only weakens manufacturers and the power of their brands but also the value of vehicle distribution networks like dealerships, making it easier for new manufacturers to enter the market and scale on the back of large fleet customers. This shift is supported by simpler powertrains, cheap electronics and modular components that make it less difficult to create completely new products and adapt to specific utility requirements.
Many new manufacturers aren't making cars but rather new "right-sized" form factors since smaller vehicles are often a better fit.
E-bikes are faster than cars at food deliveries in denser cities while being cheaper to operate. Zoomo has partnered with delivery companies like DoorDash on e-bike subscriptions for couriers while RAD Power Bikes is partnering with Domino's. Meanwhile, the SUV of micromobility, the e-cargo bike, is increasingly being used in logistics networks such as DHL's pilots in Europe and now Miami.
Such delivery use cases are also a more forgiving context for autonomy since cargo is less likely to complain than passengers. Autonomy also allows the overall form of the vehicle to be reimagined with a different relationship to labor. Autonomous delivery vehicles ranging from Nuro's larger R2 to Postmates' adorable Serve remove traditional vehicle elements such as the steering wheel, pedals and side mirrors and are shaped around the cargo they carry while human intervention is mostly remote.
In all these cases, purpose-built design and right-sizing strip the fat from decathlete vehicles, optimizing their utility while reducing overall operational costs.
While Uber has advantages relative to traditional taxi fleets enabled by technology and lower labor costs, it lacks one efficiency advantage taxi fleets have: owning their own supply. Since taxi fleets can negotiate large vehicle orders, purchase fuel collectively and centralize maintenance, they are able to save on these costs compared to individual vehicle owners (including those driving for Lyft and Uber). Uber and Lyft and delivery services such DoorDash and Instacart are limited in what they can prescribe to their workforce given their independent contractor classification. As a result, these companies have not been able to bring significant improvements to the fleet of vehicles that power their service. This is in stark contrast to micromobility operators which have already iterated several generations of vehicles with increasing range and durability and therefore lower total cost of ownership.
Didi, which has a strong lock on the Chinese ridehailing market, has moved towards greater vertical integration of its vehicle supply with the launch of the D1, a vehicle developed in partnership with BYD, tailored for the ridehailing market. Besides its electric powertrain and distinctive avocado green coloring, features include sliding doors (which help prevent hitting cyclists when passengers get out), an especially comfortable driver's seat and driver assistance technology (likely collecting data to support Didi AV development). As the ridehailing market grows and matures, carmakers are likely to offer products to drivers more fitting to this use case, but for operators it is important to find ways to accelerate this process. Didi is doing this through a marketplace it operates to lease vehicles to drivers. This platform offers vehicles from third parties but also gives Didi a channel to distribute its own customized vehicles.
Such subsidiary marketplaces are a way for companies to increase the rate of innovation and improve efficiency without necessarily owning the vehicle fleet themselves. Uber and Lyft have similarly tried to secure leasing supply for their drivers, although doing this in-house has proven expensive. They are now partnering with rental fleets such as Hertz and Avis to offer leases (Lyft's solution is called Express Drive and Uber's is called Vehicle Marketplace). Beyond this, they have tools to nudge drivers to shift to newer and cleaner vehicles, such as Uber Green which allows drivers to earn more driving electric vehicles. Uber drivers with higher ratings also qualify for fuel cards, roadside assistance and maintenance discounts - a way to leverage scale to reduce costs for drivers while improving retention.
Parallels to the supply-side integration that we see in ridehailing are happening in the logistics market as well. The segment of ground logistics which most closely resembles ridehailing is digital freight brokerage, the likes of Convoy and Uber Freight.
These players act as digitally-enabled dispatchers in what is known as the “spot market” (spot meaning “get me a truck now!”) for ground freight, giving businesses in need of shipment quick access to a fleet of truckers at the tap of an app. Digital brokers are similar to ridehailing players thanks to the highly fragmented nature of the spot market for freight. In any given corner of the US, the spot market is served by thousands of individual “owner-operator” truckers. This is in contrast to the much larger “contracted” freight market, where businesses plan out long-term shipment supply with their own fleets or contract with large carriers.
The small owner-operators are, like individual Uber drivers, sole proprietors and have little negotiating leverage when leasing their trucks, paying for fuel, or buying maintenance. In exchange for these costs (and the vagaries of not having long-term contracted work), owner-operators at least get freedom. They can take jobs from anyone and be their own boss.
The digital brokerages know this, and to reduce the cost structure of the owner-operator supply base and encourage loyalty among drivers on their platforms have taken a leaf out of the ridehailing marketplace playbook by offering carrier partners incentives such as savings on fuel, tires and phone plans.
Massive players in the logistics space such as Amazon are also finding ways to leverage independent drivers to fill their middle-mile operations which span the full value chain. The company leases out vehicles it owns to freelance drivers through a new program called Amazon Freight Partners. These drivers exchange freedom for convenience since Amazon finances and maintains the vehicles, giving it greater control of its fleet while locking in supply. Indeed Amazon is increasingly vertically integrating its fleet across its logistics network (tractors, trailers, delivery vans, planes), combining assets it owns with technology like telematics and driver monitoring in an effort to improve coordination and efficiency.
Though not all fleets are vertically integrated, CATs are dexterous because they are fed by self-reinforcing processes:
The combination of these factors results in second order processes that rapidly accelerate the rate at which vehicles evolve. The "DOG years" of owned-vehicle update cycles is amped up to something closer to the lifecycle of an iPhone.
Shared vehicles move through the world more akin to Theseus' Ship with layers updating at different rates: an electric powertrain might last the lifetime of the vehicle, but the seating or telematics units could be replaced every year and the battery swapped daily. Meanwhile data is much easier to collect with a more sophisticated and updatable electronic architecture and software stack which can interface with every other level of the vehicle.
This applies equally to e-bikes, mopeds, cars, vans and whatever new vehicle form factors emerge from this accelerated evolutionary process. It also makes it increasingly easy to incorporate new technological building blocks into vehicles, whether it is electrification, connectivity, autonomy or whatever comes after.
Infrastructure runs on its own, rather slow, update cycle, but vehicles that update quickly and can mediate interactions through software are able to adapt to the physical world and conform better to regulatory requirements. For instance, sensors and software mean that micromobility can be geofenced including restricting speed in particular areas and recording bad user behavior. This means that infrastructure can be optimized while minimizing how much needs to be changed in the physical world.
In this way and many others, CAT speed allows fleets of vehicles to be aligned to specific business priorities and for new value propositions or service offerings to be created. Faster update cycles work like a centrifuge, separating physical from digital and making the most valuable dimensions of the platform move most quickly so that the greatest value can be distilled.
The Apple Watch Series 1 in Rose Gold retailed for $17,000, yet it seems unimpressive alongside the $429 swimproof aluminum Apple Watch Series 3 with a barometer and the ability to make calls directly from the device. Meanwhile, that seems kinda dull alongside an always-on display and blood oxygen monitor in the Series 6 plus all the functionality and new apps that run on the latest silicon and OS. This is the democratizing effect of technological update cycles: new functionality trumps luxury.
Similarly the recalibration of vehicle update cycles has democratizing effects. An efficient fleet is a relatively uniform one in which standardization creates efficiencies. Software, which is dramatically more flexible, coupled with scale, allows differentiation on what matters most in shared use: improved experience and lower cost. Because software depends on silicon, hardware generations matter more than physical differences such as materials and workmanship.
This democratization effect extends beyond the fleet of vehicles and into the trip marketplace: In most ways, UberX is a better product than Uber Black since wait times tend to be shorter and therefore convenience and flexibility are greater.
Just as the Apple Watch creates a problem for Rolex, even more so do shared, digitized fleets create a problem for premium carmakers. The functional equivalent to the Apple Watch is a Tesla - both are intended for a single user. But even Tesla faces a challenge given the relatively long lifetime and therefore update cycle of its vehicles (at least until the promised shared Tesla fleet vision becomes a reality).
Rapid update cycles for shared vehicles do have the potential to trickle down to new owned vehicle offerings. For instance, e-bikes and e-cargo bikes work well in shared use cases, but are proving even more popular as privately owned vehicles, especially in Europe. These products could serve as everyday mobility solutions for some and as a part of the trip economy for others.
This is already taking shape in micromobility as Bird seeks to lease its vehicles to customers and Tier recycles its used scooters for sale. Meanwhile, telematics systems honed in shared scooter fleets are finding their way into premium e-bike brands such as Vanmoof and Cowboy that boast advanced theft prevention and crash detection. Subscription business models that combine the convenience of ownership with the reliability of a fleet backend are also catching on quickly through platforms like Swapfiets.
As supply evolves it shifts how and what demand can be served in ways that weren't possible before. Thus far, we've outlined the following ways in which trip demand is satisfied:
There is one additional category for thinking about how rapid supply evolution changes what is possible for trips.
The trip economy improves journeys. Instead of having to drive, someone drives you and you can use the trip to do other things. On scooters and e-bikes, when users drive, the journey is often more fun; in some places, the primary use of scooters is for taking joyrides. Either way, trip experience is a key aspect of the trip economy.
Real estate and transportation are two separate categories and the role of mobility is primarily to connect consumers between different physical locations, whether for living, working, transacting, socializing or engaging in recreation. Digitization has shifted the role of real estate. For instance in retail, the location of fulfillment centers and not just the positioning of stores is becoming critical as e-commerce grows. Remote work has also shifted the importance of commercial real estate, even before the pandemic but especially after it. As form factors become more flexible, the marginal cost of mobility labor decreases and consumers have more free time in transit, real estate can shift in another way: literally.
Places in motion combine the freed-up time of trip takers who no longer have to invest their labor into driving with something else to do during this travel time. In the process, they make trips more relaxed and enjoyable. They also create the possibility of monetizing journey time in a way similar to how social media monetizes time spent on apps through advertising, referrals and integrated marketplaces. This kind of mobile space can be augmented by digital elements to leverage some of the benefits of virtual places. If such places in motion are sufficiently comfortable or effective in satisfying consumer needs, they have the potential to reduce the friction of travel allowing destinations and journeys to exist on a continuum.
For places in motion to serve a meaningful purpose, internal vehicle space will need to be flexible, have a good technological backbone and tie into broader digital ecosystems via smartphones, wearables and possibly VR and AR as these technologies mature. Here are some ways this could play out or is already taking form.
Employers often cover the cost of transportation. Historically that has meant car ownership and car rentals during work travel. However, ridehailing services free up travel time which may be more valuable to employers than the additional cost of paying someone to do the driving.
Business class on planes and trains is built on the idea that work can get done in transit if the conditions of travel are optimized for it. It can be quite a lucrative strategy: airlines make most of their money on business class seats. People already use travel time to take work calls, but they're limited since driving remains their primary focus. When it no longer is, a lot more can be done, although the adverse effects of motion sickness will need to be mitigated. There are probably ways to further optimize these spaces for getting things done, whether with external monitors and power outlets or green screens to look your best on video calls. Cars could also act as in-person meeting spaces, whether moving or parked. In Japan for instance, people are already using stationary rental cars for working, recharging phones, napping or storing bags.
Podcasts already bundle learning with travel, allowing serialized audio information to be consumed in transit. Radio preceded podcasts and is also optimized for the regularized but preoccupied nature of commuting. How do these products evolve as travel time becomes time more ripe for engagement? Online education providers like Udacity and Coursera probably see opportunities not only because these programs are seeking new ways to monetize but also because both companies were founded by autonomous vehicle pioneers.
Trips are a context in which to shop. Duty free is a mainstay of air travel and onboard restaurants are part of the fun of intercity trains. The startup Cargo brought a vending machine experience into ridehailing vehicles, although replenishing inventory proved unsustainable (in spite of a partnership with Uber). Digital advertising bypasses this challenge while offering a way to subsidize the cost of rides. Ads are finding their way into ridehailing apps and onto the roofs of vehicles. The trip economy allows ads to be clicked-through in a literal sense since vehicles can take you to a physical store, although this only makes sense for products expensive enough to justify the cost of this trip. Beyond this, luxury brands might find interesting ways to tie trip journeys into a broader ecosystem of experiences. Since experiences and vertical integration of the customer journey are the cornerstones of luxury, places in motion give a way to do this quite literally.
Meanwhile, inbound trips can bring the store to you. For instance, Chinese company Neolix is deploying autonomous vending machines in the UAE and Saudi Arabia in partnership with Noon. Over time, brands like Starbucks and Burger King could adapt their products to this form, serving as satellites orbiting closer to consumers to accelerate delivery or induce demand, while saving on real estate and parking costs.
The key in merging retail and mobility will be to find tasteful ways to build these experiences that balance unit economics against the reasonable desire for users to feel comfortable and in control.
Ambulances treat people in transit, but health systems are more effective when they treat people before they get sick. Wearables such as the Apple Watch can collect information about fitness and wellbeing, but trips might offer ways in which that information is combined with more sophisticated sensors and screening technologies to make health tests more a part of daily life rather than an excursion from it. As is always the case, privacy and regulation will be barriers to rapid innovation on this front, but there do appear to be some interesting possibilities.
Pokémon Go showed that movement combined with augmented reality can create an engrossing gaming experience; it seems a lot more can be built around the right kind of vehicle experience. There could be new ways to improve movie watching, especially if motion is part of the plotline. And vehicles that don't need drivers might offer private and comfortable spaces to simply hang out in.
The final frontier for places in motion is for the home itself to become mobile. RVs already offer this possibility, but in our fancy autonomous future, these vehicles could be taken to a whole new level and a lot more people might start living in them. It could be possible to travel across a country while sleeping or have your home pick you up from work. Since our worlds, including the trip economy, are centered around the home, transforming the start or end point trips into a never-ending journey will significantly change the geometry and experience of urban living.
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