A System of Agents brings Service-as-Software to life READ MORE
April 28, 2015
Foundation Capital
In 1908, pioneering industrialist Henry Ford introduced the Model T to Americans, the first mass-produced car with interchangeable parts that gave middle-class Americans the freedom to travel wherever they wanted in an affordable, reliable automobile.
What can be debated, however, is that Ford could also be considered the father of the modern traffic jam. More cars on the road means more congestion. That wasn’t an issue in 1908 but more than 100 years later, with 46,876 miles of U.S. interstate highways – almost twice the circumference of the earth – traffic has increasingly been the bane of millions of daily commuters in the U.S., especially in cities like New York, Washington D.C., Los Angeles, and San Francisco.
The Challenge: Personal Car Ownership
Car ownership has been synonymous with independence and convenience and Hollywood films have solidified the almost manic necessity to drive cars, especially sleek sports cars like the BMW in the James Bond films, the Chevy Camaro in “Transformers” or the Audi R8 in “Ironman.”
There are three main issues with the glorification of individual car ownership:
1) Environment & Human Health, Inc. reports that 33% of all dangerous carbon emissions in our environment are due to automobile exhaust.
2) Congestion caused urban Americans to purchase an extra 2.9 billion gallons of fuel.
3) Congestion caused urban Americans to travel 5.5 billion hours more.
According to a Texas A&M’s annual mobility study, this extra fuel adds up to 56 billion unnecessary pounds of carbon dioxide released into the atmosphere by idling commuters. Fuel costs amount to $121 billion each year and the average commuter spends $818 and wastes 38 hours in traffic.
The Life as a Service Solution: The Ride-Sharing Economy
We are – especially as urbanites – moving toward a Life as a Service [LaaS] society. My colleague Paul Holland wrote a very interesting Venture Beatarticle about the sharing economy. LaaS simply means that instead of buying or owning things, you can procure any service or product you want on-demand, wherever and whenever you want them. Need office space? Pay a membership fee and work at co-working spaces like ImpactHUB in the Bay Area or Cross Campus in Los Angeles. Want something quickly delivered to you other than a Domino’s pizza? Amazon is currently working on Amazon Prime Air which will safely deliver packages to your doorstep in less than 30 minutes using drones. And, of course, in our day-to-day commuting or night life, why bother driving your own car, when you can use any number of hassle-free ride-sharing services like Uber, Sidecar, or Lyft – where with a touch of your mobile screen, in less than 10 minutes, you have a car ready and waiting for you.
These services introduced by Uber and other ride-sharing platforms address the challenges above with a highly efficient community based and localized approach. Ride-share companies have championed a dogma that if the customer has easy access to convenient transportation, the world would have fewer cars on the road which equates to lower levels of toxic emissions in the air.
Ride-sharing companies have enabled mobile devices to effectively track and manage car and passenger logistics. One simple click on a mobile app yields a multitude of proximal options for personal transportation to a desired destination. Businesses with this current model are increasingly prevalent. Ride-sharing provides a solution that not only saves people the high costs incurred with owning a car such as maintenance, fuel, insurance, and parking but also affords the freedom and ease of a personal car service.
The Future of Ride-Sharing
In order to assess what the impact of this business model would be with different levels of adoption in the future, I ran a simulation with a few different scenarios.
What if the amount of individual car rides decreased by merely 10% through the use of ride-sharing and mass transit? If only a third of this 10% shift was through services like Uber, there would be a massive positive environmental and personal financial impact. The scenario below proposes that simply decreasing the use of individual cars and increasing the use of public transportation and ride-sharing would achieve the 10% targeted decrease in individual rides and wouldn’t be a threat to the current taxi or private car taxi services.
Benefit 1: Lower Carbon Footprint
Now let’s focus on the potentially positive impact on the environment. Below is another chart which shows a scenario in which the ride-sharing and public transportation use are increased by 10% in San Francisco alone, resulting in a reduction of individual car usage and significant decrease in gas emissions by 2025.
Benefit 2: Cost Savings to Consumer
According to an April 2013 “Your Driving Costs” study from the American Automobile Association, AAA, the average cost of maintaining a basic sedan rose by almost 2% annually, bringing the average cost of maintaining a car in the United States to $9,122 per year. Assuming an average car is parked 95% of the time and a vehicle is driven about 15,000 miles annually, that’s almost $25 per day (which doesn’t include parking cost.) This is an exorbitant cost.
Based on the ride-sharing model, costs would go from $25 per day to as low as $5 a ride. Although this cost is a little more expensive than the cost of public transportation (as low as $2 per trip), ride-sharing offers a faster, more convenient alternative.
Benefit 3: Time Saved by Consumer
Convenience, lower carbon emissions and costs are not the only benefits. You save time as well. Think about the average time it takes you to get from one place to the next as a single person in a car. Now think about how ride-sharing would reduce the number of cars on the road and allow more use of carpool lanes which increases time efficiency. Below is a projection of how ride-sharing could reduce the time wasted and help you be more productive.
Benefit 4: Reduction in DUI Incidents
Lastly, imagine if we can have safer roads with a reduced number of DUI incidents. Imagine stepping out of a bar or a nightclub and having the assurance that with the convenience of a few clicks on your phone, you can secure your own personal transportation. An Uber blog claims that their service has resulted in a 10% reduction in DUIs in Seattle. When you multiply that scenario over the course of a weekend in hundreds and thousands of cities across the world, there could be a substantial decrease in DUI incidents.
Though these life as a service companies continue to iterate and improve, demand and usage will invariably increase. By focusing on technologies that are helping consumers live the lifestyle they want, more businesses like Uber and other ride-sharing companies are redefining what “mobility” meant during Ford’s era and are firmly ushering in a new era of freedom through shared mobility and a better world.
About Author
RJ Jain is serial entrepreneur and angel investor. He is the co-founder of Appurify which was acquired by Google and is the former director of engineering at Sidecar. He is currently an entrepreneur in residence at Foundation Capital. RJ is always excited about finding and building businesses that will make a lasting impact in the world.
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