TRANSFORMING TRANSPORTATION

September 12, 2016 § Leave a comment

The September 3 issue of the Economist has a lead story entitled Uberworld.  The piece dwells on the fortunes of Uber to an inordinate degree, but underlines some important trends in transportation.  All of these, provided they materialize, point to a world with drastically reduced car ownership.

autonomous-vehicles1

The first trend, private cars for hire in competition with taxis, is credited to Uber.  In fact, the first company to accomplish that was Sidecar, a San Francisco startup.  The Sidecar model was a peer to peer concept.  The app allowed riders to search for a driver heading in the direction they sought to go.  All financial transactions were only through the app.  Drivers were vetted by Sidecar and rated by riders.  A rider could reject a driver.  Sound familiar?  Sure, exactly the way Uber operates, at least on those points.  Sidecar’s misfortune was to come into being just a year ahead of competition, with no real barrier to entry.  No, not Uber, Lyft, which preceded Uber.  These two refined the business model to where the drivers were not on their way to anywhere at all; they were waiting to be called.  Not exactly peer to peer.

Today, Sidecar is gone, Lyft has 20% share and Uber has 80%.  What happened?  I have in other writings remarked that innovation in business models may be as (or more) important as technical innovation.  This one is a poster child for that sentiment.  Sidecar reputedly spent their investor money on technical innovation.  Lyft and Uber on market share expansion.  Uber came in a bit later and has swamped Lyft to date.  The price paid, of course, is negative profits on a USD 70 billion valuation.   Think Amazon, whose quarterly profit has been small to negative over the last 20 years since inception.

Aside from expansion, Uber has continued to innovate on offerings.  The latest is ride sharing for a price in the vicinity of half that of the conventional hire.  Starting to sound more like Sidecar.  This last may be the tip of the proverbial iceberg of improved asset utilization.  Especially with this twist, there is the promise of a cost per mile well below that of car ownership.  This increasingly begs the question: why own?

The second big trend, still at the toddler stage, if not infancy, is autonomous vehicles.  The promise is of a high degree of safety (the Tesla mortal crash notwithstanding).  But unlike the alternative taxi model of Uber and others, this one may run into problems with local regulations.  Furthermore, one of the hallmarks of the Uber business model has been the asset light concept.  Self-driving cars may require asset ownership, by some entity, if not Uber or Lyft.  But eschewing this avenue would not be wise.  Remember, there is no real barrier to entry other than sheer size and name recognition, which certainly count, especially the last.  Uber has almost become a verb, as did Google and Xerox.  But autonomous vehicles will be lower cost per mile, so Uber and wannabe’s cannot ignore it.  But the folks threatened by improved asset utilization (that shudder you feel: auto manufacturers) have taken notice.  GM has a USD 500 million investment in Lyft and hired the CTO and twenty employees of Sidecar.  An OECD study of Lisbon found that with large scale uptake of shared autonomous vehicles, the total number of cars required would drop by 80%.  But overall car-miles would increase by 6%.  The number of parking lots would fall drastically.  These may well become green space.  Sort of the reverse of the Joni Mitchell lyric from 1970: They paved paradise and put up a parking lot.  Autonomous vehicles are not yet here, and yet multiple players are jostling for pole position in secondary markets such as ride sharing.  Can you spell disruptive?

Vikram Rao

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