“Self-driving cars are the future of ride-sharing,” proclaimed an industry expert who shall remain nameless. The comment struck me as ridiculous. From my point of view, Uber (and all car services) already provide self-driving cars. You don’t drive the car; the driver does. Do you really care whether the car is controlled by a human/machine partnership or it’s an autonomous mechanical device? Other than to acknowledge that you are the person the car is supposed to pick up, you don’t need to speak to the human driver any more than you would need to speak to the natural language–understanding algorithm that would request the same confirmation if the vehicle were autonomous. Should you decide to change your destination, your driver will ask you to enter the new address via the app, so talking is completely optional.
Anyway, if we already live in a world where you can press a button and request a self-driving car, what will really change when fleet cars are autonomous?
It’s the Economy, Stupid!
Cost per mile is an obvious differentiator between a human-driven livery car and an autonomous livery car. While fees vary widely, as of this writing, ride-sharing trips in and around New York City cost approximately $2 per mile. Uber charges drivers 20 percent (other services charge as low as 5 percent and as much as 30 percent). So there’s roughly $1.60 per mile left for the Uber driver. Out of that $1.60, the driver must pay for the car, insurance, maintenance, and gas. Let’s round up the IRS standard deduction of 53.5 cents per mile to 60 cents per mile to offset the cost of the car, insurance, maintenance, and gas. That puts the average cost of the driver at approximately $1 per mile.
Averaging most industry estimates, a $40,000 electric autonomous or hybrid ride-sharing fleet vehicle will cost approximately 20 cents per mile to operate. It doesn’t take much in the way of math skills to understand the industry’s desire to eliminate human drivers.
As I have previously written, there are many other benefits to autonomous vehicles including safety, but here I’d like to focus on the financial incentives that may accelerate the trend toward sharing.
It’s Happened Many Times in Many Ways
Music was once distributed for purchase on plastic disks that cost consumers $20. It is now distributed via sharing services that cost consumers fractions of a penny per stream. The same thing happened with DVDs and video. Some will argue that the music business has dealt with the shift in its economic model, but it has not. It is a business in transition. Clearly the video distribution business is about to similarly transform. No one knows how long it will take, but the customer journey will certainly fully transition from an ownership model (where you own your own copy of an asset with limited rights for usage) to an access model (where you pay for access to use the asset on demand under a similar limited rights grant).
When $40,000 Cars Cost 40 Cents and $400,000 Houses Cost $40
There is no reason to believe that anyone will be able to stop or even slow down either the arrival of a ubiquitous sharing economy or its close cousin, the on-demand economy. That said, the sequencing of this transition and its speed are not well understood. I’ve heard good arguments that predict fully autonomous urban areas by 2030 and others that say it won’t happen until 2050 or even later. But trying to time any market is a fool’s errand. Since we know that these paradigm shifts are within our technological reach, the question of timing should take a back seat to the opportunities presented by the known outcomes.
Every business can easily identify several areas where something that was once capital and resource intensive such as providing a virtually unlimited supply of potable water, creating a private data center, or generating electricity is going to ultimately transition to a simple (possibly commoditized) line-item expense such as a monthly invoice for water, power, or cloud computing.
How will you invest in this very probable future? Where will you place your bets? How will you think about which business functions and processes require internal investments, and which are so obvious and useful that outside vendors will ultimately emerge? These are questions that should be considered daily. I welcome your thoughts and opinions.