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Day July 6, 2016

“The Last Car I’ll Ever Buy”

That’s how a developer I know described his recent purchase of a new Mazda 3. His statement has really stuck with me because I realized he was right. He wasn’t planning to take immaculate care of his car and make it last a lifetime. He was talking about the end of the car ownership era, and the rise of the autonomous car service.

I’d think anyone in a technology field agrees that autonomous cars are coming. What I believe many underestimate is how quickly they will arrive (given we are already using most of the technology required), and that autonomous cars will shift the car ownership market to a service-based model.

Think of all the reasons you currently own a car. Convenience is clearly at the top of the list. You need something that is at your doorstep the minute you are ready to leave, and takes you exactly where you need to go. The privacy is nice; just you, the radio and your Clay Christensen-approved milkshake. But that’s about it for the positives. We know cars are expensive to own – between depreciation, fuel and maintenance costs, insurance and financing charges it’s easily the worst investment you’ll ever make.

Now, think of some of the other things we take for granted with car ownership:

  • We take for granted that we will only enjoy the benefits of this terrible investment about 5% of the time (it’s far less in my household). Most of the time our cars sit in a driveway or parking lot somewhere, steadily depreciating.
  • We take for granted that we can only pick one vehicle to serve all of our needs for the next several years, and might choose a minivan or SUV even though most driving will be done by a lone occupant (the alternative of course, is to double-down on the terrible investment and buy a second car).
  • We accept that we are wholly responsible for our vehicle, and if it breaks down or ends up in a collision (even if someone else caused it), it’s going to be a big, unplanned expense.
  • We accept that significant amounts of real estate in prime downtown areas needs to be set aside for parking cars.

So the opportunity for autonomous cars is to meet the needs of the existing car owner with a service that offers greater benefit than the current model. And the opportunity for an autonomous car service is to provide a greater benefit than car ownership currently does.

To compete on cost is just one factor. Competing on user experience – the sum total of convenience, efficiency, aesthetic details – is where the business is won or lost.

 

While people tend to focus on the obvious ‘experience’ benefits of autonomous vehicles, there is equal – and in a way hidden – value in developing a business that addresses the expensive inefficiencies of car ownership detailed above.

Being a digital product guy I’ve found a lot of value in Strategyzer’s Value Proposition Canvas. So let’s apply it to our topic du jour.

If you were mapping out the value proposition for an autonomous car service it would look something like this: (the circle on the right is current state for a car owner, the square on the left represents the automated car service solution. Click for a PDF version.)

Autonomous ValueProp

The Value Proposition Canvas, if you’re not already familiar, is a powerful validation tool in product development. One of key benefits of the Value Proposition Canvas is forcing discussion and agreement on what the customer ‘jobs‘ are. Second, it highlights the positives and negatives (gains and pains) of the method a customer currently uses to get the job done. Finally, it captures the gain creators and pain relievers of the new product/service, which are the assumptions you are making about the values you believe customers will find in your new service. The next step is to figure out how to validate these assumptions – will customers actually see new gains or pain relief in your solution?

In the ‘jobs to be done’ section it’s simple. The car in my driveway needs to get me where I need to go, quickly and safely, ideally in comfort and privacy. If you’re willing to give up some of the gains (speed, privacy, some comfort) by taking the bus, you can spend a lot less money – a value proposition people decide on every day.

Taxis are a longstanding alternative, and have a specific value proposition that makes sense enough of the time to keep them in business. And then there is Uber, Lyft and in China, Didi, which Apple recently invested a billion (yes, with a ‘b’) dollars in. These new businesses have turned the taxi industry on it’s head by providing better service at a lower cost. Specifically, Uber and Lyft offered a key ‘gain creator’: app-initiated pickup requests; and one pain reliever: seamless, automatic payment. It’s worth noting that customers were not demanding these features en masse, but they were the reason Uber was able to break through (among other customer experience improvements). These improvements have been available to the taxi industry for almost a decade, but the atrophied incumbents failed to innovate fast enough.

But the reality is that Uber is just a prototype, the MVP for something much bigger. It’s a way to test and prove that a car service summoned from customer smartphones can work. The human drivers are just the stopgap until fully-autonomous vehicles are available.

 

The reason I’m going a bit inside baseball with the Value Proposition stuff is that strong gain creators and pain relievers are what drive rapid adoption of new products and services. Transformative products often offer gain creators and pain relievers that people didn’t even realize they wanted or were previously not possible. And autonomous vehicles offer all of this. Some of these gain creators – automatically calculating the fastest route, the ability to choose the vehicle suited to your particular need for each trip – are powerful but mostly invisible to customers until the service actually exists. And many of the pain relievers address significant drawbacks of private car ownership (see Part One) which we simply take for granted in the absence of a viable option.

So let’s step back from simply applying autonomous technology to the next car in your driveway. Imagine instead a service, a flexible fleet of autonomous electric cars. Single occupant vehicles, dual and 4-passenger rides, and vehicles capable of carrying 4, 6 or 8 passengers in auto-configuring, private cabins (think limousine privacy barriers that go up and down). Suddenly Elon Musk’s self-opening car door makes a lot more sense.

You summon a vehicle on your smartphone and select the level of service. The system figures out which suitable vehicles are near you, what other pickups/dropoffs each pool vehicle needs to make, and the most efficient route to your destination. If you can picture this system at scale, you can see how the multi-passenger option makes sense.

To use an internet analogy, think of the passengers as packets of data. The network figures out the most efficient way to get them to their destination address – no driver required.

 

Instead of the way we currently pay for taxis or Uber, which is per-use and by length of ride, think of it being a monthly fee, like a transit pass. To position this effectively as an alternative to car ownership the pricing model should mirror the way most of us pay for the vehicles we own.

Based on your home and work locations and tier of service, you would be able to select a plan that could cover all of your commuting needs as well as unlimited trips on evenings and weekends. Let’s say the service has a median cost about $500 per month. If that sounds high, consider that the American Automobile Association estimates it costs, on average over $8,500 (USD) per year to own and maintain a car in 2016.

That’s a pretty healthy monthly-revenue-per-user to work with, considering your target customer is almost every car owner in or near a major metropolitan centre. And again, don’t let the current taxi/Uber business model realities cloud your thinking. Remember these are autonomous, electric vehicles. They don’t incur the operating cost of a driver and run on electricity, which is anywhere from a half to a third of the cost of a gasoline fuel source. Remember a single vehicle can meet the needs of a dozen customers throughout the day. And at night while most of the city sleeps, these cars can do double-duty as delivery vehicles, with seating configurations hot-swapped for shipping racks, re-stocking the city with commercial goods (think of this as the ‘last-mile’ for the imminent driverless trucking revolution).

If you’re thinking this transformation will take a decade or more, think again. As I said earlier, the value proposition of driving one’s own car vs. taking public transit is something people evaluate on a daily basis. The choice between a legacy taxi and Uber shifted so quickly many cities have no idea how to deal with it.

In a few years my developer friend will decide the convenience of his faithful Mazda3 is no longer worth the insurance and gas he puts into it. His decision will be based on the same logic as people today who are ditching their land lines, cancelling their print subscriptions, and cutting their cable. The transition will be easy (far, far easier than the hassles involved in buying a new car) and it will be permanent. For all the hype around autonomous cars, the biggest change they introduce will not be the hardware so much as a change in the business of cars.

In particular GM appears to be well positioned to take the lead in building the actual vehicles at scale, but as Uber has shown, the real business growth potential is in the software and service.  The companies that position themselves for this eventuality will be the ones that will truly dominate the automotive industry in the next decade.

– July 6, 2016