It’s the future. You have just bought your first fully autonomous car and let it drive you to work this morning. It was a little scary at first, but you forgot about the lack of a driver quickly, and now you are at your office.

What is the car doing right now? Right, it is sitting in the parking lot, doing nothing other than perhaps charging. What a waste! So you decide to let your car act as a cab when you are not using it. You don’t want to run a cab business, you just want to reduce the cost of car ownership, so your outsource the job to a cab service. Only, you’re not the only one thinking like this. Everyone’s got their car moonlighting as a cab. There is an over-supply, and no one’s making much money.

In fact, there are so many cheap cabs, you sell your car and just use autonomous cabs to get around instead. It’s much cheaper than owning your own.

Alternative cab services like Uber and Lyft are already preparing us for this future, and the amount of money they’ve raised leaves no doubt that they are able to convince a lot of people that mobility-as-a-service is a growing market.

Americans spend about $300 billion every year on gas alone, and this is only a fraction of the total cost of car ownership. Hence, the money to fuel this new market is certainly there and it is big. And trends like this can become self-fulfilling prophecies: Once a lot of people believe a market transformation like this is going to happen, and it is feasible from a technical and financial perspective, then it will happen. And the more people believe it and the more money is behind it, the faster the transformation will take place.

This phenomenon where a service replaces a product is nothing new. GE, Xerox, and more recently Amazon Web Services are all good examples of this. GE started selling “Power by the Hour”, where it leased jet engines to airlines rather than selling them. Xerox started selling print services instead of printers. And now there are signs that the same conversion from products to services is happening in the consumer market as well.

And let’s face it, who wants to own a car? Their insurance costs a lot of money, require space for parking which can come at a premium, especially in urban areas, require maintenance, washing, cleaning, and after a certain point require a lot of repairs. Apart from the aesthetic pleasure, owning a car is mostly a pain. The only reason most of us still want one is we want the flexibility to get around reliably and cheaply. But those things are mostly qualities of the usage of the car, not the car itself, which means that they can be designed into a service offering as well.

Ramifications

Disruptive changes like this open the door for new entrants to the market. Market participants know this as the risk of substitution. Established players need to be aware that their current competitors may not be their most dangerous competitors of tomorrow. As for mobility-as-a-service, the biggest existing industry at risk of substitution is the car industry.

Instead of marketing and selling to consumers, car manufacturers will need to sell to service providers. Providers may compete on the types of vehicles they use and hence a consumer’s image of a certain brand of car may still matter. But nonetheless, the competition car makers will fight will be different, and new entrants who may be faster to understand and adapt to the new requirements may be able to out-do established players.

It is also conceivable that car manufacturer themselves will stop selling cars and provide services based on them instead. This would very closely resemble GE’s Power by the Hour and would bring along the same benefits for car makers as it did for GE.

While almost all car makers seem to be preparing for the self-driving future, with new autonomous technology being announced on an almost monthly basis by now, it is unclear how many of them have taken note of the larger trend of mobility-as-a-service. Daimler is a positive example. Their recent acquisition of both a car sharing service (Car2Go) as well as a trip planning smartphone app (RideScout), is indicative of an understanding of what the components to a successful mobility-as-a-service strategy of the mobility market of the future will be.

On the aggressor side, i.e., the possible source for substitution, service companies like Uber and Lyft, Bridj, and RidePal seem best prepared to occupy lucrative market positions in this future market. What all of these companies have in common is an enabler for disruption that we have seen unleash its power in many other industries before: software. As Marc Andreessen says, “software eats the world”, and the mobility market and the car industry are not going to be an exception to that.

Alternative cab services gather a lot of real-time information about their customers, and this kind of data will allow new mobility-as-a-service providers to better target riders, optimize their fleets of vehicles in real-time, allow for new forms of ride-sharing that will ease congestion, and lower the cost of transportation for riders. It will also provide urban planning departments with unprecedented data to base their decisions on.

Opportunity

The resulting opportunity for urban transit optimization should not be underestimated. Different types of car-pooling, including dynamic, real-time versions, have been tried many times, but there hasn’t yet been a huge success for it. One of the most commonly stated obstacles is the flexibility and reliability of using such a service instead of driving one’s own car.

Yet, public transit is a form of ride-sharing, and if we measure success in terms of people moved per day, it is hugely successful. Why is that? Perhaps because the business model is different: Trains and buses will run, even if you are the only rider one on them, or even when they are empty. There are other factors as well, such as the anonymity and unstated understanding that riders don’t need to talk to each other, even when sharing a tight space.

Seeing ride-sharing from the perspective of public transit, and envisioning the new means of scheduling vehicles on-demand and plotting their routes based on the specific needs of the riders assigned to it, hence doesn’t seem so far fetched, and companies like Bridj are already going in this direction. Just like in public transit, reliability can be accomplished with more money. For instance, if there is no carpool available for your requested ride, a personal vehicle may come and pick you up. With this kind of guarantee, travelers can be enticed to participate in a service.

Overall, mobility-as-a-service will be a good thing for most travelers as well as the planet. Services are a lot easier to optimize than several million peoples’ individual behaviors, and since cost and environmental impact are actually correlated in transportation, service providers will have the financial incentive to do this optimization in a way that will mostly benefit the environment.

Christian Fritz leads the Representation and Planning (RAP) area at PARC, which is tasked with building, maturing, and deploying innovative software that addresses previously unmet market needs. His current focus is on applications in digital manufacturing and urban transportation.