Thoughts on an equitable and efficient MaaS business model: Part 2

The answers to the big mobility questions today and in coming decades will be shaped by one factor over any other: the business model.  MaaS requires one that balances financial practicality (MaaS must attract innovators and entrepreneurs) with access (mobility must be inclusive, as all need it). This balance must be attained for MaaS to succeed. This ideal state, this equilibrium, is possible with the right business model, and by holding all parties to accepting compromises based on the promise of good things happening when they do, negative things happening when they do not, and the acceptance of a referee to adjudicate. 

In Part 2, I present a possible business model for MaaS, one that borrows elements from a system many use today to plan vacations, but with the added element of the ‘referee.’  I end with a case for moving beyond talking and doing something to advance a version of MaaS that works for stakeholders in North America. I suggest an organization, the purpose of which is to investigate and inform the development of the business model and provide other tools and services that enable participants to create MaaS platforms that reflect their unique regional needs and the goals and principles I present below.

MaaS requires a business model that balances financial practicality with access...

All business models are shaped and bounded by the goals and principles the developer of the model wants to encourage or achieve through that business.  The same holds for MaaS: if one group wants to maximize profits, and the other wants to move everybody, everywhere, at any time for modest prices, those two goals force very different business models.  Each party would push for a MaaS platform that channeled the market in its own direction – at the expense of the other.  


The MaaS Business Model presented here – one I suggest best enables a successful MaaS ecosystem – is also bounded and shaped by six principles and goals, to include: 1) inclusiveness (because we all need and deserve mobility), 2) sustainability (financially), 3) low friction (services are easy to understand, use, and draw repeat business), 4) low barriers to entry (for providers), 5) low externalities (from an economics standpoint), and 6) permitting the orchestration of subsidy in order to move the most people and goods.  In more detail:


Inclusive - The direct role of transportation is to enable the movement of people and goods.  But indirectly, if you cannot move, you cannot contribute.  Economy and quality of life stagnate.  I regard mobility as a right and the ability for people to get around a central human value as well as an economic must.  MaaS systems should thus enable more movement, by more people and goods – not less.


Sustainable – Financial viability is critical to the ultimate success of MaaS.  The environment is very important too, but the need for mobility is more immediate.  Also, other, more effective actors are addressing the environment more directly. The ideal MaaS Business Model, because it enables a variety of mobility service options, will produce and offer users ‘green’ mobility services that address environmental externalities.


Low friction – Academically, friction is any process that removes energy from a system over time.  When your system has friction, you must continue to add energy to it to keep it moving at the same rate, which is inefficient.  Removing friction by, say, making an app clear and easy to download, having numerous mobility options, and making it simple to buy a service, etc., you can increase ridership, then with the added revenues, quality and efficiency. Removing even small amounts of friction from your value delivery processes can generate major improvements in adoption, revenues and profit.


Low barriers to entry – Barriers to entry, a form of friction, are obstacles that make it difficult for a startup or existing company or organization to enter, expand, or improve their performance in a market.  Such hindrances include government regulation, IP, technology, data access and licensing.  The requirements to enter a MaaS market should be clear and not favor incumbents or dominant players.  For example, as infrastructure development decisions impact millions for decades and cost billions, the best decisions are based on inclusive and readily available mobility user data so, data should not be walled off.     


Low externalities – the MaaS Business Model must acknowledge that the public – as representative stakeholders in and owners of their infrastructure – has a say in how private enterprise extracts profits from the system.  The model must safeguard against rent-seekers that do not pay their fair share of ‘rent’ for use of the infrastructure.  In a similar vein, the MaaS Business Model recognizes the need for accountability from the public sector, thus safeguarding other stakeholders from unfettered subsidy. 


Permitting Subsidies – A subsidy is a form of financial aid or support extended to an economic group (business or people) to promote some economic or social policy. Consumer subsidies reduce the price of goods and services to the consumer, again, to meet some higher policy goal. MaaS requires that we permit the orchestration of subsidies, particularly in dense metropolitan areas with limited ability to increase capacity. Subsidies, with accountability, is important to move the most amounts of people and goods. This, in turn, contributes to the overall health of a city.

Imitation is the sincerest form of flattery: the MaaS Business Model that may best enable a successful MaaS ecosystem emulates another successful as-a-service business model: the Online Travel Agency / Meta-Operator model used in vacation and inter-regional travel planning. Rather than retype that long term, I’ll simply refer to it here as ‘Vacation as a Service,’ or VaaS.     

Before explaining how VaaS is a fitting template for a MaaS Business Model, know that others have written about OTAs in the MaaS context.  They take it only so far, however.  The model explained here reflects a more intricate and, I suggest, correct view of travel planning systems – and one more applicable to MaaS.  Effectively explaining it is also more likely if I first break down the terms a bit:


The first thing about ‘MaaS’ people may notice is that it is one variant of the “as-a-service” family of terms, the first example being SaaS.  From Wikipedia: “Software as a Service (SaaS) is a software distribution model in which a third-party provider hosts applications and makes them available to customers over the Internet.” 


As it goes with SaaS, MaaS is also a distribution model in that MaaS providers basically distribute mobility services to users via the internet by means of an application or app that presents a variety of mobility choices and service levels at once – an assortment matching the various demands, preferences and values of the user. This is what an OTA does – only in context of vacation and regional travel.


In the VaaS model, there are three main components: 1) Online Travel Agencies (OTA), 2) Meta-Operators and, 3) travel facility owners and operators.


The Online Travel Agency was born to eliminate friction from travel planning and does this by removing what is perhaps the biggest pain point for travelers: the inconvenience of making travel plans (which include price comparisons).

Booking.com, Hotels.com, Orbitz and Expedia are OTAs that came to the US scene in force in the 2000s, but today, globally, there are hundreds of OTAs. And they totally disrupted the travel industry – particularly hotels.  What they did was genius: they took the sale of hotel rooms away from hoteliers’ control and in the process, put downward pressure on prices by making comparison shopping easy.  Hotel operators and facility owners have billions of dollars of hard assets, high operating costs and stiff competition.  OTAs have software.  They use other people’s smartphones to sell things. They have exclusive and closed sets of data and information they aggregate and present to the shopper.  Their overhead is comparatively very low.  Yet as testament to the power of making something convenient, and then grabbing market share (for hotel booking), the typical OTA charges the typical hotel 12-20% of the retail hotel room price you see online.


Next in the VaaS Model is the Meta Operator. In theoretical physics, the word meta-operator is sometimes used to refer to a specific operation over a combination of operators, as in the example of path-ordering.


Why did the meta-operator come about? The world of OTAs grew so much (I suggest the 20% cut had something to do with it) that an opportunity rose to help people compare one OTA’s list of hotels and hotel prices against another’s.  Enter the meta-operator.  Trivago is an example.  Where “Booking.com” is an OTA you use to find all the hotels in, say, Chicago as well as their prices on a specific date, “Trivago,” the meta-operator, aggregates the data from Booking.com, Hotels.com and other OTAs and shows you what each OTA is selling that specific Chicago hotel room for that day.  In a way, the OTA sits somewhat subordinate to the Meta Operator, but meta-operators do not earn revenues through commissions – they earn money through ads.  Trivago’s revenue was about $600 million last year, but the revenue of Booking.com and its affiliates was around $5 billion last year.


Last but not least are owners and operators, the companies who provide the rooms, the rental cars, the tour packages and such. In the VaaS model, this group has advantages and suffers burdens.


On the one hand, for these entities, particularly small ones with little negotiating power, the OTA commission is perhaps their single biggest operating expense.  Add the ability to easily comparison shop and the owner/operator suffers lower prices and lower margins as well.  On the other hand, being a part of an OTA network gives the owner/operator access to a huge population of potential clients without the need to invest in expensive marketing efforts to reach them.  Hotels can thus focus on core competencies and how they differ from their competitors. 


Regardless of those advantages though, I believe the VaaS model is out of balance.  People love the convenience of OTAs, but the model has harmed the hotel industry (more than has, say, AirBnB): OTAs, in my view, take too large a cut relative to the value they provide back to the VaaS system, making them rent-seekers.  There are also monopoly and some monopsony effects going on: many of the OTAs you use, as well as the meta-operators you use to compare them, are owned by the same parent companies.


With VaaS, there are thus aspects of the model that MaaS wants to copy, and others MaaS should avoid.

In the MaaS Model, the equivalent to the OTA is the MaaS Network Operator (MNO). 


Like OTAs, MNOs do not own the modes or means of the services being provided – they amass, aggregate and present mobility options to the user and they enable the payment, ticketing and integration of services for the individual, based on their preferences and near-real-time information about the performance of the network at the time of the scheduled trip from door to door.  Just as with OTAs, in the MaaS Business Model there would be more than one MNO in any given city or metropolitan region so that each MNO can customize their solutions and offer their own sets of value-added services that best meet the needs of various classes and clusters of users.


Like in VaaS, the relationship between an MNO and the individual service providers would be governed by an agreement that spells out each parties’ rights and responsibilities (you can see a ‘VaaS’ version of this here).  An important liberty in the MaaS Business Model is that individual service providers do not have to work with an MNO.  And if they do, they do not have to make available all of their mobility capacity to one, many, or any MNO.  Just look at VaaS: hotels that sign with OTA’s allocate their rooms across different ones. Hotels also have their own websites and do other things to persuade you, the traveler, to book directly (thereby saving the hotel the 20% OTA commission they pay).  Hotels can limit how many rooms they allocate to a particular OTA and may favor one if that particular OTA works better for them in terms of selling more rooms at higher prices while asking lower commissions.  Mobility service providers in the MaaS model should have the same options.


Regarding funding, the MNO makes money like an OTA – via commissions paid by individual service providers who are part of the network. That 12-20% is somewhat rent-seeking to me, so I propose the fee be lower and factor in other variables that would lessen the burden for operators with certain characteristics (e.g. they may be a non-profit entity or provide services to “mobility deserts” (areas that for some reason or another, are unprofitable and thus underserved). 


In the MaaS Business Model, a city or region will have several MNOs and will have dozens if not hundreds of individual service providers.  What happens if there is a dispute between an MNO and a service provider?  How do you ensure that each MNO plays fairly with other MNOs and other stakeholders (as described in Part 1 of this article)? How do you make sure the MNO operates in accordance with the principles and goals the Business Model was designed to achieve?  You have that MNO/Service Provider contract of course.  But you need more.  You need a referee.  


In the MaaS Business Model, the equivalent to the Meta Operator is the Public Mobility Commission (PMC), the entity that acts as the referee. 


The concept of the meta-operator in the MaaS context – particularly the distinctions of this role in the MaaS Business Model framework vs that of VaaS – came from discussions with Jack Opiola, Principal, Mobility Plus and Jason Barnes, Principal, Occam’s Envoy.  We agreed that the meta-operator in MaaS – the PMC – is significantly different from VaaS’ meta-operator, as the latter has no real authority and serves little if any compliance function.  Why I believe MaaS needs such a more powerful entity stems from personal beliefs and recent observations.


On the personal level, I view mobility as the hub and the common socio/politico/economic connection of a successful city.  MaaS platforms are thus like town squares which are essential to facilitating public dialogue.  MaaS is too important to be left to either profit-focused or subsidy-dependent entities, both of which can be unaccountable to the actual client – people. 


Regarding my observations, they came from reading about the behavior of particular social media platforms.  A question posed in a recent article I thought related well to MaaS, so I vary the question slightly and ask it here: “Is it time to consider non-commercial ownership of MaaS platforms – including nonprofit or some form of public ownership?”  Well, I say “no” in the case of MNOs, but as for the referee, the PMC, a non-profit and jointly-owned commission or body seems ideal. 


A PMC must also be a proactive step too, as the need for it will ascend anyway, either because: 1) a particular interest group that is very strong will take over MaaS, or; 2) that same interest group will take over because the rest of the interest groups are very weak. 


What does the PMC do? In essence, they balance interests.  They are the court.  And I thought the word ‘court’ applied well here after I read an New York Times piece about creating an internal court of sorts to guide the actions of a popular social media platform and its use of people’s data.  The article read:


“In theory, a court has at least three virtues. The first is due process: such a court can allow people to argue that mistakes have been made, and the court can then publicly explain its final decision. The second virtue is representation: the justices can represent different segments of society, bringing diverse perspectives and expertise to the difficult questions that they must answer. The third virtue is independence: while a legislature debates and passes laws, a court can be insulated from this political process when it interprets those laws and resolves competing legal claims.”


In the MaaS Business Model, the PMC isn’t really a court of law, but it would adopt many of the characteristics described above.  Its members would include representatives from all mobility stakeholder groups.  The PMC would sit over MNOs that, via a bilateral agreement, would work in a cooperative manner with, but in substantive ways subordinate to, the PMC. 


The PMC would be the governing entity that creates participation guidelines and monitors and oversees MNOs (as well as service providers).  It can establish minimum standards and check compliance.  It can adjudicate disagreements and enforce rules.  It works to ensure that the compromises required by a complex, multi-stakeholder MaaS ecosystem are abided by. 


The PMC, like a court, needs revenue.  I suggest this come through fees paid only by MNOs so as not to further burden service providers who are already operating on thin margins.  And speaking of those service providers, it could be a policy of the PMC that, in order to encourage the mix of modes required to move large populations of people and goods into, out of, and through a city with limited space, that a portion of OTA revenues be applied as both supply side and demand side subsidies to assist disadvantaged users and non-profit, but mobility-critical, operators.

At this point, at more than 5000 words in, I asked myself what inspired this article. First there’s my longstanding fondness for urban areas, metro systems and how people interact with their built environments. I also enjoy future mobility concepts (both trains and cars!).


The second is a concern about the coming disruptions of what’s billed as the “4th Industrial Revolution” (Google the term and click on the World Economic Forum link).  In addition to the coming societal tsunamis (AI, IoT, robotics, CAV), there are specific waves coming too, e.g. the fact that Lyft and Uber will have their IPOs soon, resulting in billions of dollars to spend and intense investor demand to make a lot of money.  Where will they grow?  MaaS and the Passenger


Economy are targets. Therefore, it makes sense to have that referee sooner rather than later.


And in response to the comment “What – another regulatory body?” I respond that important elements of our infrastructure — telecoms, railways and energy companies — have historically been publicly or cooperatively owned.  Others, like banks, are strictly regulated.  A simple look back over the last three years shows that social media platform self-regulation doesn’t really work well for people.  The PMC is not a call for an authoritarian MaaS, but rather, an acknowledgement that someone will be making the rules.  The PMC can credibly provide the accountability and responsiveness to protect the public and safeguard the integrity of our mobility systems and ensure they work for us all and not for a narrow interest group.


Another inspiration is a belief I think all share: when buying something – be it a couch, a song or dental services – options are good!  Not just a nicety, but a principle.  Regarding mobility, we should not require people to use a specific mode of travel or accept a set level of service.  People, given real choices regarding how they move, are likely to make different choices than they do today.  They will opt for other modes if presented to them in an easy to use way. 


Next, I think government is not the problem, but it sometimes is.  The market is the solution, but it sometimes isn’t.  Regulation can be burdensome, but not when it does not restrict innovation.  It can be good when it compels participants to pay their fair share, prevents the collection of rewards while imposing costs on others, or holds those receiving a subsidy to a level of accountability. 


I firmly support the market approach – which may be the key difference between MaaS in America and MaaS in, say, Europe or other regions with more centralized governance models, or that concept called Mobility on Demand which as I’ve read about it, seeks to commoditize mobility.  That said, I also believe the human right to mobility precludes unfettered competition.  Cities are simply too important.  Mobility requires a more thoughtful and holistic approach.  People deserve more.  Mobility goals and procedures that broadly address our challenges and stakeholder interrelationships, and leverages assets and creates opportunities is what the MaaS Business Model should advance.


Not all principles and goals of the MaaS Business Model must be implemented at once for MaaS to work. And not all of them will live up to expectations. There’s no such thing as perfection, in policy, technology or in life, but those who never experience failures or setbacks aren’t taking enough risks.


Justice Louis Brandeis said the states are laboratories of democracy. I replace “states” with “metropolitan areas.” They are the places with the most potential, the most to lose, to win and to contribute. When working in an “all for one - one for all” way, better outcomes result. Rather than being swamped by the huge waves coming, we’ll learn to surf.  

I heard an interview recently of Dr. Jon Kabat-Zinn, an author on mindfulness: “Sometimes we are so ‘expert’ that our minds are just full of our expertise.  But it leaves us without any realm or room for novelty or new possibilities.  In the mind of the expert, they say there are very few possibilities; but in the beginner’s mind there are infinite possibilities.” To me that means don’t box yourself in or limit what you believe to be possible to only what you can see today. 


In a recent exchange about the outlook for MaaS in America, a colleague thoroughly listed all the roadblocks that might prevent it from happening.  I said I could not argue with the factors and forces he listed.  The ‘handicaps’ are certainly all there. W ell done.  The thing is, while all these factors must be analyzed, this cannot be done with the mindset of whether cities and regions will participate in MaaS. 


The fact is they must.  Why?  Again, we have this wave called the 4th Industrial Revolution.  It’s on the near horizon.  It’s beginning to crest and grow in speed, force and volume as it approaches the shore. When it crashes on cities, they had better be prepared. Mobility is so core to the successful city that MaaS is necessary – and not only because people expect their ‘integrated lives’ to extend to mobility.  MaaS can help cities build a resiliency against the impacts to come.  Because of the concentration of people, ideas, innovation, wealth, etc. that are in cities and regions, it is particularly important that they get smarter about how they do mobility.


They cannot count on old mindsets and stale models of subsidy or rigid views of the free market. They must not let perfection (as in a perfect set of conditions being necessary in order to participate) be the enemy of the good. You can’t model everything.  Cities are great laboratories to try things.  Let’s try. 


Again, it is not if.  Soon, it won’t even be when.  It is how.


I told my colleague I enjoyed the exchange, but the thing is, we all have views, and views are just static constructs and rather impotent unless put to the test and placed into action.  Getting back to the word how: an effective way to do something is through group action.  In my experience, that would be an association, one progressing a new state of affairs rather than the status quo; one with measurable objectives and goals that advance a broad vision rather than one prejudiced toward a legacy mindset or interest group.       


A colleague and friend of mine wrote that technology, communications and computing power are no longer or should no longer be the obstacle to MaaS.  It is will power and desire to change, convert and move beyond the artificial barriers we created in our current approaches to fragmented and stove-piped transportation systems.  To achieve MaaS, we must realize the synergy of its parts provides individual mobility opportunities greater than our current fragmented system.  It is that goal – and not the optimization of the parts – that will ultimately win out.  To that end, it is ludicrous to eliminate, thwart or otherwise handicap any mode of transport since each plays an important role in seamlessly and efficiently creating a multi-modal trip for the individual.  No single mode, no matter how optimized, will get you from door to door all the time.  Even the private car needs parking and enough of a supply of road space to accomplish that journey. 


My colleague’s words were inspiring.  So rather than just talk, which is important if not enjoyable, I wanted to walk the walk and help advance a MaaS ecosystem of a kind that reflects the unique American experience.  This endeavor to advance how MaaS will manifest in America is called, MaaS America. I welcome you – the reader’s - thoughts and better yet, your participation.

Tim McGuckin is the Founder of MaaS America, a non-profit group founded to advance the deployment of a MaaS ecosystem that reflects America’s unique mobility needs.
www.maasamerica.org