Profitability > Expansion: Creating Long-Term Sustainability in the Mobility Market
The last few years have seen major changes in urban mobility. Peer-to-peer ridesharing services, dockless bikes and scooters, as well as carsharing, have all exploded onto our streets in one form or another. In doing so they are disrupting traditional businesses and existing ownership patterns.
However, despite the huge amounts of investment into this space, sustainability in the sense of long-term profitability, has remained elusive. One only has to look at the fears investors are currently having with Uber and Lyft, while Obike, a dockless bike operator, went dramatically insolvent leaving corpses of yellow bikes strewn across many cities.
To create a sustainable business model, Mobility as a Service (MaaS) operators need to get a number of things right. Critical to this is operational demand fulfillment. In essence, they need to get the most out of the units they already have and not simply rely on expansion.
Where others have failed
MaaS companies have struggled to become profitable for different reasons. Malpractice and rule-breaking are responsible for reputational damage. An example is Uber, where a whole array of offences have been levelled at the company.
This can also be seen to a lesser degree with scooter sharing operators accused of launching their products into cities before the infrastructure is ready. Poor quality vehicles hit micromobility operators in the early stages and killed off a number of dockless bike sharing companies entirely. But, one of the biggest problems affecting profitability is operational. Ridesharing operators struggle with the high running costs incurred by paying drivers, while micromobility and carsharing operators are faced with the challenge of keeping their vehicles in use for as much time as possible.
Building blocks to profitability
For free-floating services, there are essentially five building blocks to profitability. The first is pricing. Consumers won’t use a service if it doesn’t offer value for money or is more expensive than the competitors.
The second is cost-effective fleet acquisition. Good quality vehicles for the lowest price which are best suited to the market they are to be deployed in, are essential for a profitable business. When they first launched, E-scooter sharing companies like Bird and Lime launched poor quality scooters onto the market with extremely short operational lives. In doing so this weighed down on profitability. Nonetheless, having proved the popularity of the product, micromobility operators have started to improve their quality (see here). More structurally sound and possessing a longer battery life, these scooters can help to improve these companies’ unit economics.
The third block is fleet maintenance. This means the efficient servicing of vehicles in order to provide a pleasant user experience and avoiding reputational damage.
Fourth, is strategic planning. This includes deploying the right kind of service in a suitable well researched market and intelligent marketing to create demand. All of these are important ways of getting bums on seats or feet on board (scooter sharing).
The final block and the one that we at Ubiq are most concerned with is operational demand fulfillment. Mouthful aside, it’s essentially about getting the most out of an existing fleet so that the supply most efficiently meets demand. In other words, it is about maximising the utilisation rate of a fleet. Greger Ottosson, a market analyst in the urban mobility market, argues that a 30–40 percent rate of utilisation would represent a competitive position. This is way up on the typical 10–15 percent. Although 30–40 percent doesn’t sound particularly high, the natural limits to utilisation such as low usage at night and time needed for maintenance, means that reaching this relatively high rate, can make all the difference to a company’s profitability.
Operational demand fulfillment
Operational demand fulfillment is ultimately about best matching the supply of vehicles with the demand, and this is where we at Ubiq can add most value. We help companies with smart tactical deployment and operational excellence. In doing so, we help free floating operators take a step closer to those magic 30–40 percent utilisation rates.
Demand prediction and planning underpins this. Establishing and meeting demand, as it is in real time, requires knowing where the demand will be in advance. This forecasting can range from basic historical data analysis (looking at demand in a certain place at a specific time), to more complex forecasting models which take into account data such as weather, holidays, special events and parking regulations. In addition, it’s also possible to offer better pricing for users to book vehicles in advance and in doing so get a better grasp of future demand. Knowing where the demand will be, therefore, provides operators with the information to match demand with supply.
Repositioning
Then comes the repositioning. Imagine a scenario where a large percentage of users require vehicles for a one way trip back from a big sporting event on a Saturday evening. If it ends at 10.00pm, the vehicles need to be in place outside of the stadium to meet the sudden surge in demand. Repositioning based on demand prediction would therefore be required.
There are a number of ways to do this. Contractors could be hired to move vehicles, but this is something that normally happens on a nightly basis. What we find even more effective and cost-efficient, is encouraging users to position the vehicles themselves. Offering them a reward for leaving the vehicles in zones with higher demands or by encouraging nearby StreetCrowd users to reposition the vehicles, Ubiq utilises the crowd for operational excellence. On top of this our StreetCrowd service can also roll two operational features into one by getting the crowd to service the vehicles while at the same time repositioning them.
At the end of the day, high utilisation means increased revenues and higher profitability. Instead of just increasing fleet volumes, operators with a high rate of utilisation can make the most out of existing inventory. For an E-Scooter operator providing a $300-$500 scooter it still makes sense to keep utilisation of stock high, but with lower inventory costs, they can afford to be slightly laxer in this regard. Carsharing operators on the other hand, have no choice but to optimise this. Free floating mobility services can start to stop burning cash and instead prove their long-term sustainability.
To find out how Ubiq can optimize your corporate fleet operations, contact us here.