Mobility as a Service jumped back into the headlines last week when Apple announced it was making a $1 billion strategic investment in Didi Chuxing, China’s largest ride-hailing company.
It’s not as though MAAS slipped into the blind spot of the automobile industry. The sector is being disrupted and leading carmakers know it. General Motors invested in ride hailing startup Lyft and is working with Maven, a ride sharing company. And Uber is tooling around the streets of Pittsburgh in self-driving Ford Fusions even as it shakes up traditional taxi fleets worldwide.
Cultural mores are changing and the car business is being put on notice. As people become greener, more willing to rent and share the stuff they need,traditional car ownership makes little sense. Cars are typically used less than two hours daily they create pollution and traffic. Car sharing and ride hailing services reduce traffic congestion and pollution because they reduce the number of vehicles in use. When cars become autonomous, these trends will accelerate.
For carmakers the writing is on the wall. There is a paradigm shift coming and old profitability models are going to be run over. The most likely scenario would see profitability shift from volume to premium carmakers. For example, a second car used only to run errands like picking up the children from school or grocery shopping could be replaced by a mobility service. That family might use the savings to upgrade the car it still owns. The consulting firm Roland Berger sees three types of auto-industry manufacturers in the future: Vertically integrated premium providers, general mobility service providers, and automobile device manufacturers.
And that’s what makes the Apple’s Didi Chuxing investment so interesting. Apple’s electric car aspirations are no longer in dispute. Project Titan is a go. A vertically integrated premium product business model that connects smartphones to vehicles makes sense for Apple. In China, Didi Chuxing is a mobility services powerhouse complete with machine learning and big data chops. It completes 11 million rides daily, operates shared bus, designated driver and premium car services. It has the reach and software platform to put premium Apple cars into the biggest and now most importantluxury car market in the world.
For Apple, getting there with Didi Chuxing would mean no upselling and a huge, reliable subscription based revenue stream. And there is precedent for this approach. Last year LeEco, a Chinese conglomerate, purchased 70% of another Chinese mobility services firm, Yidao. LeEco is best known outside of China for its splashy investment in Faraday Future, a company that plans to build electric cars in the US and offer them as a subscription service.
Still, competition will be extreme. Apple has no bona fides as premium car maker and the others have no incentive to yield as it merges into the marketplace. China’s Internet search leader Baidu already has a longstanding working relationship with BMW. In fact, a recent McKinsey study showed German automakers including Mercedes, Audi and Porsche hold approximately 80% of the luxury market. Making inroads is not going to be easy.
Many worry about Apple’s next big thing considering the saturation of the global smartphone market. With its Didi Chuxing investment the outline of its car business is starting to take shape.
Tim Cook likes to talk about how well Apple’s services are performing – apparently disregarding its recent flop in music services and its failure to follow through on its promise to disrupt the television industry. Adding luxury cars would certainly gas-up results if successful.
But this is no reason to buy Apple now. The car manufacturing business is super-tough, as Tesla can attest, and competition is intense. The path ahead is long, winding, and littered with obstacles. An electric car is not just an iPhone with wheels. If Apple is successful, awesome, but make no mistake – the odds, and competitors, are stacked against it.
