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March 9, 2017 | Authored by: Vindicia Team

Daddy, for my 16th birthday present, I want a car subscription

My youngest daughter, who is 12, is never shy to specify what she wants for her birthday. And I wouldn’t be surprised if by the time she hits 16, she’ll be asking not for a car, nor even for money for driving lessons, but for a subscription to a car service.

By 2021, as autonomous cars become common, will there even be a need to spend money on driving lesson or own a car? It might well be easier to budget a monthly car subscription service from my monthly wage without having to dig into savings (OPEX vs. CAPEX). But is it realistic?

In recently published research entitled “Daimler and Uber ‘Join Forces’ in the Strategic Battle for the Autonomous Highway,” Morgan Stanley analyzes the significance of Daimler’s move with Uber. Among other observations, they note that both companies are stretching their vision beyond cars and taxis:

“Last July, Uber acquired autonomous trucking startup Ottomotto…Daimler believes that truck platooning and autonomous trucks are the future …we believe this partnership could be as much about getting autonomous trucks on the road as passenger cars.”

Morgan Stanley goes on to quote their own global blue paper of April 2016 “Global investment implications of Autos 2.0” with respect to the “shared car” market, and the “driverless car” trend: “The fundamental failure of today’s ownership model lies in the fact that today cars are used for less than 1 hour a day – that is less than 4% utilization.”

These metrics are reminiscent of the under-utilization of computer resources in enterprises that drove the virtualization of software and the success of companies such as VMware.

The point is that the auto industry will undergo two revolutions. The first is shared mobility that could drive car utilization up to as much as 50-60%. This totally disrupts the auto ownership model “from privately owned and operated model to a professional service run by large firms engaged in mega-fleet management” or from B2C to B2B shared.

The second wave of disruption (and the two waves will co-exist) is autonomous cars which: “by removing the major cost element in personally owned and shared mobility models – the human driver – from the equation, and morphing automation to an on-demand service.

Fleet management companies will have to work very hard on building the financial models for automation services. There are multiple factors that affect the price of an on-demand journey. There are also considerations of how users will wish to buy, order and subscriber to auto services. The potential variety of business models is almost unlimited – flat rate, tiered, pay per use. Models that take into account distance, time, fuel consumed, type of car, location. How about loyalty points, or bonuses for frequent passengers? What will be the charge for availability and use of in-car entertainment and Internet connectivity? How will they build on-demand versus subscription models?

The fleet management owners will need billing management systems with the flexibility and agility to support many complexities, as well as the data and insights to understand how to optimally design, launch and price the vehicle subscription services in a simple, understandable and attractive way to each user.

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Vindicia Team

Vindicia Team

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