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Monetizing Mobility As A Service

|Includes: Alphabet Inc. (GOOGL), SMAWF
Summary

Mobility as a Service is assumed to change the way we live and travel.

How can these companies monetize their services.

Who are the key players ?

Mobility As A Service

We often hear that humanity is on the verge of a fundamental shift in the way we live and travel. It is assumed that in the not so distant future car and home ownership (our societal mark of economic success) will be replaced by a temporary access to the resource "car" and "home" due to an unstable economic climate, increased urbanization, stricter urban policies, and declining birthrates. 

The hypothesis goes that many urbanites, have no desire for the buzz, status, and implicit sexuality of car ownership but would rather substitute the old self-driving experience for the newness and convenience offered by Uber, Lyft, Ola, and Grab.

So naturally one would conclude that vehicle sales would drop.

In reality, however car manufacturers are almost uniformly reporting record sales in 2017 (here, here, here). Well, one might argue that in the world's largest car-market (the US) sales went down. But only after a record streak of 7 years of continued growth. And then, even China had another fantastic year.

More surprisingly, following a McKinsey study (“Automotive revolution –perspective towards 2030”) from 2016[1], vehicle sales are expected to continue to grow albeit at a slower pace.

So what is going on?

The dilemma is, to phrase it simply, utilization. We don’t use our cars that much. And that is the problem.

Research results from Great Britain[2] suggest that cars are standing dormant most of time.

The average car is parked at home for 80% of the time, parked elsewhere for 16% of the time and is only on the move for 4% of the time

And that is a problem.

I believe that we are seeing a renaissance in car ownership because with shared economy services car ownership can be easily transferred into a profit center for the owner.

And thus, I would argue that new urban mobility services are changing the role of car ownership and will lead to an increased overall market volume for such services. And this market will be huge.

In the same study, McKinsey is proposing that only the mobility piece of the brave new connected world will be a tech-dominated USD 1.5 Trillion[1] behemoth of a market. So how will tech companies be able to benefit in monetary terms from this development?

It is important to understand that for all these services the API (Application Programming Interface) is the revenue driver since usually app downloads are free and the apps are ad-free.

An example for an API call is your mobile app sends your location details (longitude, latitude) to the drop!in API Server and receive an event recommendation nearby. The service offered by the API back-end is the machine learning enhanced aggregation of event data across several diverse data sources (the funnel) and filtering (the sieve) them to your preferences and situation[4].

Urban Monetization frameworks

There are several business models for companies occupying this industry to benefit. In the past we used to say “data is the new oil”. Now we know why.

DATA SALE MODEL 
The most common API business model has been created for the exchange of data. I.e., this type of data exchange business model is at the core of Facebook’s business model, where a 3rd party gets informed every time Facebook's API is consumed. The usage patterns are analyzed and sold for re-marketing. For example if you are looking at a house on Facebook and receive an advertisement or a mortgage pre-approval soon after.

TRANSACTION MODEL

Transaction-based models are popular in the payments space where every transaction has a measurable ticket size and the API supplier receives a share of the transaction for the services offered. The benefit for the supplier is a larger market size and higher transaction volumes even though they are the invisible “man in the middle’. Sometimes the transaction model is combined with a revenue sharing model or volume commission bonus on the new business generated.

PAY PER CONSUMPTION MODEL 
The most straightforward monetization models is the “pay per consumption " model. It is not that popular with API consumers because the costs are difficult to plan and track as they pay every time the API is consumed. Because of this the API needs to offer a clear value proposition. We usually see this type of model tiered to differentiate the different customer segments.

SUBSCRIPTION MODEL 
The subscription model or the “club membership” is a model where you pay a fixed price each month and during this time consume from the API. This monetization model is usually tiered as well to separate the market into different segments; usually “Basic”, “Premium”, and “Corporate”. Sometimes even a free layer is offered.

FREEMIUM MODEL

If you are just entering the API ecosystem, then the freemium model might be a way to start. It allows to attract developers to your services and then upgrade them to higher-tiered pay-per-consumption models. The Google Maps API is an example for this. Developers are free to integrate the service into their system but after 5,000 calls the developer has to upgrade to the higher tier.

Key players

These models are used by several key players in the Mobility as a Service industry. Alphabet through their daughter company Sidewalk Labs is  researching how connected smart cities can interact with their software as a service infrastructure. Sidewalk Labs is currently running a pilot in Toronto. Their spin-off Coord is taking this even further already offering, similar to Tenqyu, live-streaming parking API’s.

Daimler is another key player aiming to dominate this new market. They are offering Car2Go, Moovel , and are shareholder in mapping service provider Here. Especially Moovel is going into the Mobility as a Service segment through their Moovel on demand service.

Siemens, a long-time & established player in the Smart City space, is now entering this exciting field as well.

Clearly, for everyone living in a city,  vehicular traffic is a problem. A problem in terms of congestion, pollution, need for parking spaces, and safety. As a result urban planners want to make cities more livable, and many believe that means making them less vehicle-centric. Enhanced public transportation is a solution, but the experience today is far from seamless.Mobility as a service has the potential to exactly make this experience seamless by integrating among public and private means of transportation.

However, in the current state most of them are active but with comparably small user numbers. This gives new players the chance to further enter the market and move quickly to develop their market share. Tenqyu might be one of them.

[1]https://www.mckinsey.com/~/media/mckinsey/industries/high%20tech/our%20insights/disruptive%20trends%20that%20will%20transform%20the%20auto%20industry/auto%202030%20report%20jan%202016.ashx

[2] Spaced Out parking report

[3] http://www.uitp.org/sites/default/files/members/140124%20Arthur%20D.%20Little%20%26%20UITP_Future%20of%20Urban%20Mobility%202%200_Full%20study.pdf

[4] https://medium.com/@thisTenqyuLife/aggregating-the-world-of-events-c9f87b8394e5

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.