Don’t join the gold rush, sell shovelsWednesday, June 20, 2018 | News
The shift from ownership to sharing has arrived
Futurologists have predicted it for years, but now, it’s actually starting to happen. The impact of the sharing economy on the automotive industry has upended the status quo and companies are scrambling to gain first-mover advantage within a radically reconfigured marketplace.
In the US, in March 2018 alone, an Ohio dealership launched a monthly subscription package that allows customers to switch between different brands of luxury cars, and GM announced a plan to allow their customers to rent their cars directly to each other. Meanwhile, ride-hailing is rapidly taking share from traditional car rental in Certify customers’ business travel expenses.
In the UK, a Mobility as a Service (MaaS) App called Whim is in trial in the Midlands, offering unlimited public transport, hire cars and short taxi rides for a fixed monthly payment of £440. And personal contract purchase (PCP) deals — essentially car rental, with the option to pay off the rest of the car’s value after three years — have already become the preferred method of new vehicle purchase.
Don’t join the gold rush, sell shovels
The problem is that hundreds of companies in the automotive world have set their sights on the same goal: to be the go-to choice for consumers. That’s fine if you have billions to invest in marketing, but if you’re not at the level of Ford, Uber or Google, that fight is going to get ugly. Rental agencies, dealerships, and business leasing providers — all of whom are used to owning customer relationships in the pre-mobility world — are among those who are going to be out-gunned.
The good news is that there are two clear ways for businesses to thrive in this new marketplace in a way that won’t be disrupted by technological advances. Both strategies involve selling to businesses rather than consumers, which means they can deliver sustainably higher margins without requiring a huge spend on marketing and customer acquisition.
Strategy 1: Sell a service to the dominant platforms
The most obvious low-risk, high-reward model is to provide an indispensable service to enable the mobility being sold by others. This would involve contracting with whatever mobility platforms dominate, be it Ford, Uber or Waymo, Alphabet’s self-driving car unit.
A business might decide to become the leading company that deliver services around:
- Repairing dents
- Moving cars to where they are needed
- Checking and certifying vehicle safety
- Valeting vehicles
Even if the play is small and specific, physical services have strong local density benefits, and the go-to provider for a particular niche will have a strong competitive moat.
Remote services like billing and marketing could be added to the above list, but these are more vulnerable to digital disruption. There’s a better opportunity to build a defensible position when a local presence, employees and physical assets are required.
The challenge is to pick the portfolio of services you offer and — probably hardest — to admit to yourself that the battle to own the consumer is a battle you are going to lose.
Strategy 2: Become the go-to mobility provider for niche vehicles
Let’s say that Uber becomes the one app we all use when a normal consumer wants to get somewhere. There will still be people who need specific types of vehicle that Uber won’t bother providing, whether that’s:
- Construction companies in need of cranes and other heavy machinery
- Logistics firms needing HGVs
- Factories that use fork-lift trucks
- Food and beverage companies that require refrigerated vehicles
- Vehicles adapted for disabled users
These users also recognise the opportunities that the new pay-per-use and subscription models of vehicle access provide, removing the hassle of maintaining or otherwise managing these expensive assets.
But unlike consumers, who are always looking for the cheapest deal, these users will pay a premium for a service that is tailored to their unique needs. For businesses, an unavailable vehicle means lost profits: an unacceptable outcome.
The time to pivot is now
The competitors of tomorrow are going to be different from those in the past, in every sector of the automotive industry.
In 2016, for example, Amazon experimented with selling Fiat Chrysler cars online at a discount in Italy. British Car Auctions, a used-vehicle marketplace, has quietly moved into vehicle logistics. Waymo has already signed a deal with Avis Budget Group to service and support its driverless fleet in Phoenix.
There’s no going back, and the time for companies in this space to act is right now. They need to figure out what their sustainable competitive advantage is, map out their options, choose a strategy and start executing – because in five years’ time, it’s going to be too late.
Those who are left behind will not survive, while those with a smart plan in place will find a B2B area to dominate, achieve scale, and cement their position within the new ecosystem for decades to come.