Thoughts on an equitable and efficient MaaS business model: Part 1
This article is about Mobility as a Service, a notion that is still a relatively recent one. As such, “What is MaaS?” is still a common question. While you can find a definition of MaaS from any number of sources, what should interest us more is who is doing the asking. What is that person or group’s explicit motivation and motive? Whose interest does MaaS serve?
The answer to the first question begins with the response, “It depends on who’s asking.”
This is a two-part article. This first part concerns who is doing the asking, what is that group’s interest in MaaS, and what could be the impacts on the business model for MaaS if those interests dominate the discourse about MaaS and how it manifests. I look at five groups:
While you can find a definition of MaaS from any number of sources, what should interest us more is who is doing the asking...
To Passengers, MaaS is the ability to book a seamless, end-to-end journey, pay for it with one app, and customize the travel experience by level of comfort and convenience (and this extends to those wishing to move goods). MaaS may also enable you, a vehicle owner, to reduce the number of cars you currently own (2/3rds of US families own two; 1/3 own three or more, and the average cost of personal vehicle ownership in the US is $8500/year (AAA, 2017)).
To Transit Operators, MaaS to them may be too easy of a way to choose a travel option other than using a train or bus – therefore MaaS should be boxed out, regulated or otherwise limited. Or, it may be a boon – a means for transit operators to promote themselves as the steadfast and critical center of the first-mile/last-mile challenge.
To an Auto OEM, MaaS may mean less cars sold to individuals, but more fleet sales. It could also mean becoming a fleet operator, to avail yourself to something called the passenger economy (which in a nutshell is the value of all goods and services potentially sellable to people who are now passengers in a shared or autonomous vehicle, rather than an active pilot of said vehicle).
As for Transportation Network Companies (TNCs like Uber and Lyft), they are like OEMs in regard to fleet aspects and in terms of horizontal integration opportunities. But in relation again to the passenger economy, MaaS could justify more rounds of investment in TNCs, more cash and higher company valuations for shareholders.
Finally, City Governments (that I combine with regional transit operators) probably see in MaaS a dichotomy. On one hand could be a fare-box-free means of moving people the way they want to be moved (presumably that does not include trains and buses) – a method they don’t have to pay to design, build, operate and maintain. On the other, it disrupts long-standing traffic systems, decades-old organizational charters and all other institutions and people who have failed to adapt to the age of technology-enabled mobility.
These admittedly simple portrayals of MaaS interest groups and stakeholders belie a dynamic environment and complex interplay of actors whose needs and motivations must square for MaaS to meet its fullest potential. “What is MaaS,” and “Whose interest does MaaS serve,” are not just academic queries. The answers inform and impact the framework, operating and business models for MaaS, its financial stability and, perhaps most important, transportation’s historic role in advancing broad human opportunity and economic vitality.
I believe trends in consumer expectations and technology make MaaS inevitable. But if MaaS tilts too much toward one stakeholder’s interest, a potentially trans-formative mobility paradigm could end up serving a narrow set of people and interests and create issues that transportation and transport tech have historically addressed reasonably well. Below are some thoughts on how MaaS might develop if it leans too much in one direction.
Transportation Network Companies (TNCs) like Uber and Lyft possess key attributes we see as inherent to MaaS: services are cloud-based, accessed by mobile devices and booked on-demand; they are paid for as-you-go or via subscription, and; they are offered at a range of service levels (think Uber Pool and Uber Black).
Because most TNCs are well-financed start-ups, they can afford to test ideas and fail forward. They are not bound (much) by bureaucratic red tape and institutional issues. They enjoy broad public support and exploit this ‘cool’ factor. Since they are much about software, they can scale much more easily, often enjoying (at least on the pitch deck) hockey-stick growth curves. They have very low fixed, and low operating costs relative to other mobility providers.
In the context of the business model for MaaS, TNCs seem well-positioned to drive it. One main concern about a MaaS system weighted toward TNCs relates to externalities, an incredibly important but somewhat esoteric concept (outside of the economist crowd). In short, by not paying for all the benefits you are receiving from, or the costs you cause due to, your activities, others bear them. This is already evident.
Like in curbing pollution, where economists and scientists have long argued that the single best way to reduce it is to put a price on emissions and raise that price over time, thus creating a sensible market incentive to reduce emissions and invest in non-polluting technologies, so it goes with congestion. TNCs seem to be causing it – in large cities at least. If you don’t price road space, there’s no incentive for TNCs to care about it, thus letting the burden (the externality) fall to others. The exception may be when congestion hurts a TNC’s bottom line. Consider NYC which froze new ride-share licenses last year due to increasing congestion, lower street-level vehicle speeds, and decreases in transit ridership due to the 10’s of thousands of ride-share vehicles being added to the city’s streets – all roaming for fares. After the city acted, Uber rather quickly got behind a congestion pricing proposal for NYC that was quite moribund politically until then. That tells me that sometimes the profit motive can be as effective a means to advance good policy as smart people telling you to do the same thing.
To continue with externalities, another one is that a good share of TNC profits are derived substantially from offloading operating costs to drivers and the public. We can debate whether this is right (they do it because no one so far said they can’t), but I believe it is not sustainable. First, TNC drivers are independent contractors responsible for their own expenses and overhead. Most drivers make not nearly enough to live. Second, the typical fare for a ride across Manhattan in NYC for instance does not account for the rent (in the economic sense) that must be collected to adequately maintain, much less improve, that extremely valuable public asset we call city streets. While cities who invest in their infrastructure, and wish to continue doing to accommodate growth, are starting to consider extracting more rent from TNCs (see here), TNCs are still, today, “free riders” – entities offering a product and extracting revenue and profits without paying the true cost of the production of that service and resulting revenue. Extraction without controls over, or investment in, sustainability is, well, unsustainable.
Next, a TNC-weighted MaaS business model may result in mobility services not being universally available. A 5-mile, 15-minute ride in a Lyft in NYC is priced around $15. Add in congestion and occasional surge prices and you could be looking at $30-$50/day for your two-way commute. Even with NYC’s high minimum wage, that’s up to half of some people's daily pay after taxes. A TNC-driven MaaS model could thus be regressive in terms of transport’s historic role as an enabler and equalizer of opportunity and broad economic health.
The last issue I see with tilting a MaaS business model toward the TNCs is a concept called a "walled garden", a technology business strategy which when applied to urban transportation, may limit the potential of MaaS. A walled garden is a closed technology platform that limits the information and options available to a user. If you use Apple products, you may relate.
The walled garden strategy is coming to urban transportation as TNC behemoths Uber and Lyft add new mobility options (new modes) to their platform. Uber works with or owns a car-share company, scooter company and bike-share company, as well as a transit mobile ticketing app. Lyft acquired a bike-share company, has an e-scooter service, and is integrating with transit. These companies want to evolve into walled gardens by providing trip planning and ticketing for any urban trip you desire.
While a platform can attract people and other services onto it, making it more useful and allowing for a seamless experience - the essence of MaaS – platform providers also now have the power to exclude other services and totally own customers and their valuable data. Uber and Lyft could surreptitiously transition people away from transit options when it suited them. And if TNCs own all that data, transit entities may lose out because the data they need to make intelligent capital and operating decisions may not be shared. Finally, the walled garden concept thwarts competition and the flow and exchange of information and ideas – things that, coincidentally, are a key feature of leading cities. This in turn can direct or push the evolution of mobility services towards TNC business and financial goals rather than the needs of the broader community, to the detriment of the metropolitan region in total.
Transit as an interest group is nearly the opposite of the TNC. Besides having high operating and capital expenses; restrictive regulations including tough labor laws, and; is often held in rather low regard by customers, transit is also not about profit. There are very few operators with fare-box recovery ratios approaching, much less exceeding 1:1, and the one I know that earns a ‘surplus’ does so by leasing the land rights above its stations to real estate developers. Then again, we cannot characterize lack of profit as a failure because that is not transit’s motive. Transit is about moving large amounts of people in a short time to places a lot of people need to be at or want to go to, for fairly modest prices, in urban geographies that cannot accommodate a lot more infrastructure. For example, transit moves 5.7M people in/out of NYC (source: MTA) per day whereas cars support about half of that.
Transit is doing yeoman’s work and, in relation to urban geographical realities, critical work. It delivers not just lots of people, but also equity in the pursuit of opportunity. It must be part of the MaaS equation.
A Transit-based MaaS business model would be ideal for an interest group witnessing the loss of ridership from TNC’s, and the loss of public and perhaps political support, which may mean loss of funding. As for driving a MaaS business model, I’m concerned that transit might handicap MaaS because that is what bureaucracies tend to do – hamper innovation. MaaS is the product of innovative technologies and innovative thinking unbounded by many rules. The cultural differences between a TNC where bureaucracy is very minimal and a transit organization where it is enabled, encouraged, and protected are sharp. A TNC values individualism, risk taking, the quality of the work done, and results. The transit bureaucracy values conformity, standardization of work, and process. TNCs value ideas and their impacts. Transit, being beholden to the public and sometimes hostile political groups, is risk averse and rewards marginal and non-disruptive ‘improvements.’
Companies like Uber and Lyft have created game-changing new platforms and shareholder value. Can transit as effectively marginalize its bureaucracy in favor of operating how its customers want – and how its customers experience ‘service’ in other aspects of their lives? If the near past is any indicator of the near future, I have my doubts that a transit-weighted MaaS business model would yield a MaaS ecosystem that is innovative, responsive, scale-able and would continue to introduce the attractive features that will keep it growing and meeting our ever-evolving mobility needs.
For Passengers, a MaaS business model tilted toward this interest group will have outcomes that depend on who the passenger is. To those with the means to afford ride-share as a commuting method, a passenger-weighted MaaS model is working for them now. But for those who cannot, the model marginalizes. And about both the City Government and OEM interest groups, I relate the former to Transit Operators and the latter to TNCs. While there are distinguishing aspects of each that deserve examination, for the sake of brevity, I won’t do so here.
Rather, I conclude Part 1 with more questions:
I suggest that to achieve true MaaS – one that works for innovators, governments and people – you need a conductor, if you will, or perhaps several, the purpose being to orchestrate all the instruments of MaaS in a way that balances individual group wants and needs while building sustained rewards for all of them, and thus creating a desire by those interest groups to remain a part of the orchestra, so to speak.
I share some thoughts on how that might look in Part 2.