What is Mobility as a Service and how can automakers fit in?

Mobility as a Service is exciting many established industry players, but profitability is far from a certainty. Automakers in particular are entering the landscape with caution, writes Betti Hunter

Mobility as a Service (MaaS) is one of the transportation industry’s latest buzzwords, and it follows a trend toward continuous revenue streams as opposed to one-off purchases.

The rise of the smartphone has changed how people traverse urban areas, with apps now plugging the gap left by traditional transit modes. Ride-hailing providers such as Uber and Lyft have exploded in popularity thanks to the low-cost, on-demand and easy to use services they offer. Players in the car rental and sharing sphere have branched out from the standard return to base model, instead offering free-floating fleets that can be accessed anywhere with a couple of taps on a smartphone. Technology companies old and new have also entered the fold, offering platforms designed to create seamless multi-modal mobility services that encompass public transport, ride-hailing and sharing, micro-mobility and active transport.

“To put it broadly, MaaS is the transformation of a product into a service,” said Professor Dr Malte Ackermann, Professor of Mobility as a Service at Nürtingen-Geislingen University. The role, which was created within the last three years, is the first of its kind in Europe and focuses on digital transformation and innovation management. “MaaS is being driven forward by a number of factors,” he continued. “Digitisation has had a huge role to play. Equally important is that people are now demanding more flexibility, especially when it comes to their work life, and are quickly adopting these new lifestyle patterns. As soon as smart phones and digitisation began presenting MaaS, people started buying into it.”

The technology industry realises that the entire mobility landscape is no longer dominated by automotive companies

Ackermann believes Uber in particular is a strong example of a new MaaS entity shaking up the transit industry. “Uber was an instant replacement of the old and painful process of hailing a taxi,” he told M:bility. “It was a two sided development; people were demanding a better service, and the industry was pushing towards new services. It is difficult to pinpoint which driving force came first, though—it is not a straightforward chicken and egg scenario.”

A holistic perspective

According to Ackermann, the transportation industry as a whole is dedicated to pushing MaaS forward due to the new demand and growth opportunities that such services present—especially for the automotive industry. “But the technology industry also realises that the entire mobility landscape is no longer dominated by automotive companies,” he continues. “In the near future, mobility and logistics will merge together into one big market. Technology start-ups are moving in and many established players are keeping a close eye on developments.”

One of the biggest trends currently capturing the attention of players across the new mobility landscape is the increasing size of urban populations. As two thirds of the world’s population are expected to live in cities by 2050, drastic steps will need to be taken in order to reduce congestion and air pollution—two blights that city lawmakers today are desperately trying to address. Personal car ownership already causes major issues on urban roads the world over, and growing the number of cars proportionately to a rise in city populations will almost certainly spell chaos. “It is not reasonable that everyone has their own private car in a city,” said Ackermann. “MaaS brings the potential to consider mobility holistically from a city perspective, and therefore the opportunity to reduce pollution and congestion. Automakers have paid attention to these developments and many are now acting.” If legislators in the world’s major cities manage to effectively discourage car purchase and ownership among their populations, automakers need to be prepared with a reliable new revenue stream.

Right now noone knows how the future will pan out and which mobility service will come out on top, so companies are acting with caution. Everyone is putting lots of eggs in different baskets

They must also be prepared to radically reimagine their entire business structures. “Many are questioning how to run what they call a two-speed organisation,” continued Ackermann. “The old vehicle sales business model was very stable, often selling not to a customer directly but through a retail outlet.” Now, however, automakers branching out to explore MaaS projects must learn how to interact with customers at a very high frequency. As a result, Ackermann explained, traditional automotive industry players are tending to run their fledgling MaaS offerings almost as a separate entity.

“Volkswagen has done so with MOIA, General Motors created Maven, and Toyota and Daimler are doing the same,” he said. “They set up these services outside of their established operations so they can have the flexibility and freedom to run differently. They need to find new ways to meet customer demands.” This, Ackermann believes, is the most effective way forward as companies across the industry attempt to navigate this as-yet uncertain new mobility landscape. “The challenges and marketplace are very different,” he added. “BMW and Toyota, for instance, are well established industry-wise from a business perspective and are not moving as fast as the mobility sector. There have been so many new entrants to the market and so much has changed already.”

The Wild West

In the long run, automakers would be wise to consider a more integrated approach, which is no easy task. “It is tough to connect an outside entity with the core business,” explained Ackermann. “Right now noone knows how the future will pan out and which mobility service will come out on top, so companies are acting with caution. Everyone is putting lots of eggs in different baskets.” In addition to managing their internal operations prudently, some automakers are opting for safety in numbers. “Collaborative partnerships are becoming a trend. For example, Daimler and BMW recently merged their mobility services,” he continued. But this extends further than the automotive industry. “Volkswagen has partnered with LG and Amazon, and Microsoft is reaching out to automakers. Many start-ups and Chinese companies are entering the market, too. It’s a total industry transformation and it currently looks a bit like the Wild West.”

Many believe that customers will end up spending far less on mobility in the future, despite being more mobile

As industry boundaries are blurred and new players enter the game, the big picture is slowly being painted. However, it is one thing to build a new, innovative industry from the ground up. Making sure said industry is profitable is a harder nut to crack. “There is a great deal of competition and a huge range of mobility options,” said Ackermann. “But many believe that customers will end up spending far less on mobility in the future, despite being more mobile. Prices will continue to be pushed down as more options arise. It is a great benefit to consumers, but the industry might find it tough to earn a buck.”

Ackermann points to the rise of urban e-scooter models like Lime and Bird as an example. “They have taken over in Europe and North America, but their value proposition will only remain if they are cheaper, or develop niche solutions. If it is an open race with three or more operators in one city, it will always come down to margins.”

Savvy service operators, Ackermann says, will find their profits by creating a kind of digital monopoly. “Profit margins will likely be lower for MaaS providers, but they can offset this to a degree by building ecosystems of their own, just like Apple and Google have in the tech world.” However, MaaS is likely to be a tricky market to navigate for some time to come, particularly for automakers. “Vehicle manufacturers, especially premium brands like BMW and Toyota, make a great deal of money from selling individual cars. However, they may struggle to adapt their models and find the same margins in this new mobility field.”

Prices will continue to be pushed down as more options arise. It’s a great benefit to consumers, but the industry might find it tough to earn a buck

As MaaS developments heat up, more positions such as Ackermann’s are likely to arise to respond to the growing need to understand rapidly progressing mobility trends. For example, in January 2019 January 2019 the Michigan Mobility Institute appointed Jessica Robinson as its new executive director, who immediately announced plans to launch a Masters of Mobility degree directly informed by industry trends. It makes sense—expert knowledge will be required to navigate such a complex new sector effectively, and tame the Wild West.

This article appeared in the Q4 2019 issue of M:bility | Magazine. Follow this link to download the full issue.

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