Winning the Mobility Race

Automated with big data

When it comes to the future of mobility, a lot of media coverage focuses on electrification. This is understandable, since global automotive manufacturers are investing hundreds of billions of dollars in electric vehicle development. Volkswagen alone reportedly plans to spend at least US$66 billion on digital technologies and electric cars by 2025. As noted in a recent Globe and Mail article, “Even internal-combustion holdouts such as FCA—a car maker that has built its brand on brawny, gas-guzzling 4x4s such as Ram pickup trucks and Jeep Wranglers—have embraced the shift to electric vehicles with the zeal of a religious convert.” In FCA’s case, Christian Meunier, global president of the Jeep division, promises “the greenest SUV brand in the world.”

The march of electrification is impressive. In Bergen, Norway’s second-largest city, one in five cars is now fully electric. For the deferred Tokyo 2020 Olympic and Paralympic Games, Toyota had more than a dozen autonomous “mobility-as-a-service” electric vehicles (EVs) to provide continuous loop transport within the Olympic and Paralympic Villages. Toyota relies on e-Palette, a reconfigurable vehicle concept for ridesharing, retail shopping, food delivery, work, and hospitality. Hyundai’s Xcient, the world’s first mass-produced heavy-duty H2 fuel cell truck, is now operational on Swiss roads.

Electrification is clearly a disruptive force. As a Financial Review article highlighted, the Boston Consulting Group predicted last year that at least 25 per cent of petrol stations worldwide were at risk of closure by 2035 without significant changes to their business models. Worst case, BCG estimated that 80 per cent could shutter. And that was prior to COVID-19’s negative impact on travel and economic activity. Keep in mind that the pandemic has also been encouraging urban electric micro-mobility. According to CNBC, the number of shared e-scooters is now expected to grow from 774,000 to 4.6 million units from 2019 to 2024.

The auto sector’s big bet on electrification attracts a lot of media attention because of the breadth of its potential impact. Not every city in the world has an EV presence like Bergen’s. Generally speaking, as Globe and Mail columnist Eric Reguly recently pointed out, the role that cars will play in the post-pandemic urban world remains an open question for a variety of reasons. And EVs face significant infrastructure challenges that require huge investments that many local and regional governments probably cannot afford to overcome. Simply put, even if falling battery prices put EVs at price parity with internal-combustion vehicles over the next 10 years, it will be many decades before gas-powered vehicles are run off the road. But it is not just EV adoption rates that make the auto sector’s focus on electrification dangerous. After all, while some loyal customers will be attracted to automakers boasting the greenest brands, the larger mobility market will be influenced by something else.

Innovations in digital technologies, lightweight materials, sustainable energy sources, and social trends like carsharing and ridesharing are converging to create an unprecedented level of connected and, eventually, autonomous mobility solutions that will revolutionize personal transportation. And this innovation—along with the digitally enabled transformation of mobility products and services—is ushering in a new ecosystem of mobility experiences, which will potentially play a much bigger role than brands when it comes to determining who wins the race to dominate future mobility markets.

The Impact of Digital Technologies on the Future of Mobility

In the past 50 years, innovation in the automotive industry has brought us cars that are more secure, reliable, connected, and fast. Companies like Ford, Mercedes-Benz, Porsche, and BMW have progressively improved the core technologies in their cars, their manufacturing process, and the digital complements that enrich their offerings. Meanwhile, digital-age manufacturers like Tesla have been raising the bar by moving to disrupt the traditional automotive sector with connected electric cars as mobility platforms like Uber have changed the playing field by using technology to redefine and solve the problem of urban mobility. And despite the fragmentation that seems to be taking place, leadership in the mobility space will be based upon digital experiences built on digital platforms.

Digital technologies have turned the car into a connected product. The incorporation of GPS and real-time mapping features, for example, has improved the driving experience of car owners by offering navigation assistance. But innovations in the car industry have been incremental, and most people still purchase and use cars in the same way they did 50 years ago.

In recent years, the digitalization of the car and the design of new mobility services using digital technologies have started to change the way customers interact with the car—as a product—and the business model around mobility. Smart vehicles, such as Ford and BMW’s sensor-ridden and connected cars, have enabled these companies to build software strategies and to offer their customers an increasing number of information complements. Smart mobility services such as Uber and Lyft rely on digital infrastructure, few proprietary algorithms, and third-party services accessed through application programming interfaces (APIs) to create digital platforms as a model of mobility services. Finally, Waymo, Tesla, and Toyota’s autonomous driving technology promise to disrupt the mobility industry.

Initiatives—such as the European Green Deal, which aims for European climate neutrality by 2050—are driving industry innovation and transformation. For example, focusing on the last-mile market, Motiv Power Systems is electrifying delivery vans, school buses, trolleys, and work trucks, while Rivian, a venture backed by Ford and Amazon, plans to launch an electric pickup truck in 2021.

Transitioning to Tech-Enabled Experiences

Where is the mobility industry headed? Car manufacturers and transportation companies will find it increasingly difficult to differentiate themselves thanks to technologies that are becoming commonplace, and the interactions between the human and its artificial counterparts will matter as much as computing power or the novelty of technology.

The digitalization of mobility products and services also changes the production, innovation, and business strategies in the industry. In the case of smart mobility products, digital features added to the product, the increased product utilization, and large volumes of customer data enable companies to accelerate the rate of product innovation, including the improvement of self-driving technology. In the case of smart mobility services, two-sided digital platforms have found new ways to use underutilized private cars, limiting the investment of the platform provider, and making possible their accelerated growth in the market.

Digital Mobility

When combined, digital mobility solutions and digital business models will define the future of mobility as customer-centric digital experiences. A digital experience is the seamless delivery of business value enabled by digital technologies—the digitalization of processes, products, and services—stitched together to offer comprehensive customer interactions and novel business models.

Our definition of digital experience encompasses more than the quality of encounters of a customer with a company’s digital interface, or the simple interaction of a business user (partner, employee, or customer) with digital technology. A digital experience manifests itself to the user as a seamless delivery of value but requires an enterprise-wide digital infrastructure and a digital ecosystem strategy. The owners of these experiences will be digital platforms.

Mobility Product Digitalization—Ford and Tesla Smart Cars

Ford cars are as much of a computer system as they are a mechanical system. Ford’s communications and connectivity system, SYNC, features a collection of APIs, called AppLink, for third parties to tap into the car’s digital interfaces. Developers can integrate their services in the car for a seamless experience. For example, Spotify can connect its Android and iOS applications to SYNC, allowing the driver to control the music streaming service through the car’s voice, touch, and button interfaces. In addition to existing services, developers can create novel solutions that tap into the car’s sensors, Bluetooth connectivity, computation, and storage to deliver new forms of value to the driver. By incorporating these technologies into the car and opening the suite of APIs, Ford has built a software ecosystem that connects its cars to the cloud and extends the functionality of its vehicles, turning the car into a smart product.

Tesla’s cars, in contrast to Ford’s, were conceived as digital products. The company is as committed to developing software as it is to manufacturing electric vehicles. Tesla vehicles feature many sensors that the cars use to track the surrounding environment, performance, and actions of the driver. Also, algorithms drive the behaviour of Tesla cars, adjusting their response to changing conditions and driving needs, and the link to Tesla’s servers permits for the continuous updating and extension of the car’s capabilities. The APIs that offer access to Tesla’s car functionality, such as reading vehicle data and starting the car, are not open to developers to build third-party applications. Tesla owns the iOS and Android apps using APIs to connect to the car. The focus of the company has been ensuring the quality of the driving experience and adding functionality developed by Tesla, such as self-driving features. At the same time, as Electrek editor Fred Lambert reports, the company has released an “unofficial API that enables some very basic third-party apps,” and a group of Tesla owner–hackers have found ways to authenticate and use their applications in the cars.

“The innovation process itself is one of the internal processes that digital product manufacturers can upgrade.”

Tesla offers new forms of value to its customer, from the automation of driving under certain conditions, to upgrading the car’s capabilities and its rich information services. For example, when Hurricane Irma battered Florida in September 2017, Tesla pushed a software update to some cars to unlock extra battery capacity, extend their driving range, and assist owners in their evacuation.

The innovation process itself is one of the internal processes that digital product manufacturers can upgrade. The continuous stream of product utilization data gives the company real-time insights into the value it generates for the user (e.g., how the user likes using the product, and the existence of unintended uses). Also, the digital nature of the product allows companies to remotely upgrade the algorithms driving the behaviour of the smart product, and thus accelerate the product upgrading cycle. In sum, the smart car changes the customer value proposition and some operational processes, as data becomes available for the company to learn about customer preferences.

Mobility Service Digitalization—Uber & Zipcar Smart Services

Digitalization offers a seamless platform of services to provide mobility on demand, such as Uber, which has digitalized transportation services. Enabled by infrastructure, third-party APIs, and proprietary algorithms, Uber has created a two-sided platform that connects car owners with people that need transportation. The ride-sharing service uses APIs from Twilio for text message notifications, Google Maps for mapping features, and Braintree for electronic payments, to cite a few. It also connects its apps with music streaming services, such as Spotify and Pandora, to customize the travel experience. At the same time, Uber offers APIs that allow the integration of its services with third-party apps. For example, developers can add ride-finding functionality to wearables such as Garmin devices, offer delivery services, and integrate with other travel and dining apps to complement their customers’ experiences.

Uber’s smart service represents a different innovation to urban transportation than the smart vehicles sold by Ford or Tesla. Anyone can rely on the on-demand service to find fairly priced rides, forgoing their need to own a car, or can simply have access to an alternative transportation method when needed. In addition to Uber, car rental companies now face intense competition from a host of on-demand, short-term car rental providers such as Zipcar, which claims a rental reservation every six seconds with a fleet of 12,000 vehicles in 500+ cities. Alternately, Turo provides a peer-to-peer sharing system with over 350,000 vehicles of more than 850 different makes and models. This has resulted in car rental companies losing a significant share of customers to rideshare services.

As Fortune noted last year, digital marketing firm Epsilon-Conversant’s analysis of US$140 billion worth of travel transactions over two years found that 63 per cent of industry customers had reduced spending on rentals, generating almost US$3.2 billion in lost revenue. Meanwhile, 56 per cent had stopped using car rental services altogether, with most moving to rideshare services. Although it was driven by the pandemic, the bankruptcy announced earlier this year by Hertz—which posted net losses in 2019 and 2018—is indicative of the disruption that has been unleashed upon the concept of “rented mobility.”

Digital Experiences—the Future of Urban Transportation

A 2017 McKinsey report entitled “The expanding role of design in creating an end-to-end customer experience” highlighted how rising customer expectations have blurred the lines between products, services, and user environments, creating enormous opportunities. In addition to driving the birth of new products, often from unexpected sources, consumer demands have also stirred up a storm of new, unanticipated competitors. “In this novel mix,” the report noted, “product companies will be pushed to create services and service providers [will be pushed] to incorporate products into their offerings. Both will face the challenge of developing great user environments as part of customer-centric strategies.”

In the evolving mobility market, companies are taking different approaches to digital experience design. Vehicle manufacturers like Ford, Tesla, and Mercedes-Benz are adding smart product functionality to their cars while seeking business models that turn their smart products into services. Meanwhile, providers of smart transportation services are acquiring capabilities to manufacture cars or are partnering with manufacturers to integrate cars with their smart service algorithms. For example, Uber has partnered with Volvo to develop a self-driving fleet of vehicles, while Waymo, Alphabet’s spin-off company, has partnered with Fiat Chrysler to build self-driving cars that will be owned and operated by Waymo. In the car industry, successful digital experiences will seamlessly combine both smart cars and smart services to offer custom transportation experiences. Digital experiences, as we have seen with platform business models, will rely on a network of business interactions facilitating the exchange of data and digital complements. The companies that will become industry leaders in digital experiences will master the physical elements (such as cars, computing, and sensing technologies) and also master the digital interfaces and algorithms that make possible the flow and analysis of data and deliver the most value to the customer.

On a third front, as industry reports indicate (see “SAE J3016 Levels of Driving Automation” and  “Software is transforming the automotive world”) software-driven electric and electronic vehicle architecture will need to undergo significant platform transformation to enable the journey up levels of driving automation, from Feet-off (level 1 driver assistance), Hands-off (level 2 partial automation), Eyes-off (level 3 conditional automation), and Brain-off (level 4 high automation), to the final No Driver (level 5 full automation). This will require a change from distributed function-specific electronic control units to a handful of domain-specific control units. Subsequently, the future direction will require either a central system or a few zone-oriented vehicle computers, which may be domain-independent. The development of processors for the mobility solutions of NVIDIA, Intel, and ARM, and their alliance with autonomous car companies, demonstrates the importance of hardware in the mobility race. In parallel, unprecedented connectivity to other vehicles and infrastructure with minimum latency will require advanced cloud connectivity and services.

Bringing It All Together

The future of mobility depends on a congruence of technology and digitalization on a platform, seamlessly integrating safety, energy, data processing, decision making, and real-time cloud connectivity with infrastructure and on-demand services. To meet its full potential, traditional car manufacturers must digitalize vehicles and develop digital services. Mobility service companies have to create a vibrant ecosystem and incorporate mobility assets and digital complements.

The key to succeeding in launching digital mobility experiences requires

  • the seamless integration of digital mobility products and services
  • capturing and analyzing personal data using digital replicas (twins)
  • getting data privacy and data governance right
  • the balancing of personalization and the centralization of the value proposition to create economies of scale

The ecosystem will require advances in a host of related elements. In a 2030-focused IBM report, 48 per cent of consumers studied say that in an autonomous mobility-as-a-service paradigm, cost and convenience would matter much more than the vehicle brand. Fifty per cent of automotive executives prioritize the digital reinvention of their organizations to succeed or even survive, while automotive executives anticipate the industry will need to spend over US$33 billion by 2030 to reskill employees.

Significant challenges include policy and technology uncertainty, value chain complexity, infrastructure needs, and regulatory standards and acceptance. For densely populated urban areas focused on clean air and congestion reduction, as McKinsey thought leaders highlighted in 2019, seamless multi-modal clean mobility solutions would be critical that combine availability, affordability, efficiency, convenience, and sustainability. Public works solutions such as equipping roads with sensors connected to traffic management, autonomous-vehicle communication, and predictive infrastructure maintenance would be essential ecosystem enablers.

If all goes well (with mobility and COVID-19), what might a future morning commute look like? In its 2030-focused study, IBM visualizes the following experience:

It’s a sunny Monday morning and you’re ready to head to work. The vehicle—let’s call it “ACES” (Autonomous, Connected, Electrified, and Shared)—that you ordered Sunday night arrives, so you get in. The first thing ACES does is wish you a happy birthday. Next, it plays “Happy Birthday to You” and shares social media greetings from family and friends through its infotainment center.

As you are enjoying the messages, ACES starts driving you to your destination while alerting you to upcoming traffic issues. It suggests alternative routes and asks if you want to pick up dry cleaning en route.

While this is happening, ACES quickly scans your health vitals and coordinates with your fitness app. It checks your house in case the TV or other appliances were left on, and downloads the audio book you listened to earlier. ACES suggests you might want to walk the last mile because you missed your exercise target last week.

ACES communicates with local businesses on your personal approved list. You pass the theater that has a concert your spouse wants to attend. ACES checks both your schedules, ticket prices, and availability, then asks if you want to make the purchase. While ACES executes the transaction, it puts the event on both of your schedules, and arranges for a vehicle to transport you to and from the concert.

When you arrive near your destination, ACES drops you off to walk the last mile. It stores new learnings or personal preferences in your mobility profile before wishing you a good day. ACES then sets out to pick up its next scheduled customer, setting up their personalized experience along the way.

Eventually, of course, some commuters will literally be carried away by the mobility experiences coming down the innovation pipeline, since numerous companies—such as Airbus, Uber, and Bell Helicopter—are working on self-flying air taxis that will add a view to the list of personalized services and customer conveniences that will revolutionize personal transportation.

And thanks to these technology-driven innovations, consumers will clearly emerge as the big winners of the mobility race.