As I mentioned in my note about Apple’s automotive ambitions last week, central to our thinking about any potential shift in automotive is developing a philosophy of transportation going forward. While that is incredibly tricky, there are a few data points I’ve acquired recently from several reports on the ride-sharing economy which may prove helpful. But first a personal anecdote.
My family recently crossed another one of those child growing up landmarks. My soon to be 16yr old daughter got her permit and began driving as a part of her behind the wheel training. Now, while I appreciate that a rare few humans genuinely enjoy driving, I am not one of them. There are simply more interesting things to do than drive. Driving is a necessity to an end goal, and I’ve long theorized humans would much rather do something else than drive. I wrote about this some time ago (can’t remember the article) when I was pontificating on young people’s thoughts on driving. If you observe kids today, when they are driven around they are often on a smartphone or iPad watching videos or playing games. This, I theorized, is a much more entertaining way to travel and for those who grow up spending their commuting time being entertained, why would they drive if they had the choice?
After a few days of driving, I asked my daughter if she liked it. She said “it’s ok,” but when I pressed her, she would much rather be the passenger so she can do social media or something on her device to pass the time. While this is notably a survey of one, I feel her opinions on the matter are pretty representative of a much larger group of humans and even including adults. If a viable option to driving, perhaps a ride-share or autonomous car, presents itself it seems likely humans will adopt it quickly because driving may actually be a pain point for many people.
Ride Sharing Isn’t Impacting Car Ownership
One report, which contained a broad consumer survey, reported that even among those heaviest using ride-sharing services their intent to still own a car did not decrease. In fact, the survey showed that those heaviest ride sharing consumers were even more likely to still buy a car in the future than those not using ride-sharing services.
When it came to sentiment about ride sharing, 70% of those surveyed agreed with the statement “ride sharing will never replace car ownership.” The broader global trends and data tell an interesting story when it looks at how ridesharing competes with public transport. It seemed almost universally when given a choice, and public transportation seemed more popular than a ride-sharing service when it came to the regular commute. In cities where public transportation is efficient, ride sharing was a second option for when it was more convenient than public transportation.
The Unit Economics Challenge
Perhaps the biggest thing standing in the way of ride sharing is the unit economics challenge. While not cars, some fascinating data emerged about unit economics in one US market for scooters. Nathan Stevens shared some of this data on Twitter and it presents a fairly bleak picture of the shared scooter business. The key points were scooters life span in this city was less than 30 days, and the companies were not seeing enough rides per day to make money per scooter with such a short life span. From the public data, Nathan was able to estimate scooter companies were losing $200-250 dollars per scooter. Pretty shocking, but not terribly surprising.
Regardless of the platform, scooters or cars, the longevity of the product in the market is essential to recoup costs. But the key point that has to be understood is how venture capitalists have funded these companies to the degree that they are subsidizing these losses in the hope to gain users and market share. This is similarly the case with Lyft and Uber, where rides are being priced in a way that is cheaper than a taxi in most cases, but also at an overall loss in a hope to gain users. If the unit economics in both scooters and ride sharing was priced in a way to make an immediate profit, the pricing would not be competitive, and the user base would shrink dramatically.
While I don’t see how the scooter companies get around this, ride-sharing companies have to rely on two things in order to keep their ride costs down. The first is autonomous cars. Eliminating the human driver is step one. The second is advertising. Advertising is common on and in taxis as a way to keep costs competitive. You can imagine riding in an Uber or Lyft we will be inundated with ads on screens, on the windows then they inevitably become a display, etc. It will be a downright terrible user experience, but it will be cost competitive.
The two biggest factors the study highlighted for consumers choosing ride sharing was price first and convenience second. This demonstrates the importance of these companies keeping costs down. Every data point I’ve seen around shared transportation tells me the market views it as a commodity. Because of that, price will always be king, and that poses some significant challenges some many companies.
The Big Question
Unfortunately, no data points, nor common human behaviors we are observing on this matter are providing much help in developing a new philosophy of transportation for the next few decades. It doesn’t appear there is an impact on car ownership in the short-term. And the idea of fully autonomous cars is still many years away. Perhaps the next area of development we need to happen is Robo-Taxis. Perhaps when we have fully autonomous taxi solutions in the market, we can study those consumers and see what the experience of relying on an autonomous car for transportation provide.
We are likely not going to see the first broad robo-taxi deployment until 2021 or 2022 at the earliest. So it will be interesting to see if any behavioral patterns change or emerge. What is challenging the ride-sharing market right now is it is not growing quickly. There are huge lingering questions about the total addressable market for ridesharing solutions, and from the early investor decks I’ve seen from Uber and Lyft, it seems the market size may very well have been exaggerated. The underlying research and core behavioral patterns are not indicated a large enough TAM for the market to sustain that many competitors or to even recoup their costs with favorable unit economics.
All fascinating challenges to watch as Uber and Lyft inevitably go public in the next few years.