Five Factors Influencing The Car-As-A-Service Evolution

What if I told you that 50 years from now the car industry’s revenue model will see a significant shift from outright purchase to a subscription-type model? You wouldn’t think it was particularly insightful — unless perhaps I told you this in 1900, and then you were around to watch car rentals and leasing proliferate in the mid-1900s.

Even then you might not have thought much of it, as equipment lease and rental models have been around since the time of the Babylonians, followed by sewing machine rentals during the industrial revolution. And we all recall the horse and buggy rental market explosion of the late 18th century.

Here are what I call the “Five U’s” that will influence consumption models as we look to the future of the automobile industry — or any industry for that matter.

Usage Latitude

Sometimes ownership allows you to do more with an asset than if you rented or subscribed to it. If I have my music downloaded and I’ve purchased it, I can mix it, mashing it up with other songs, and copy and convert it for whatever personal output I like. If I own my car, I can add subwoofers and slap Megadeth bumper stickers on it and leave my car charger in it overnight, and only my husband will be annoyed if there are trail mix remains in the front seat the next day (sorry, hon!).

However, as the “usage latitude” gap between ownership and car-as-a-service (CaaS) narrows, this equation shifts and CaaS becomes more attractive. If the sound system improves and you throw in a car charger, it may persuade me to live without the bumper sticker and eat more neatly — each of which is probably better for me anyway! Similarly, as the music-streaming market has matured, I can create my own mixes and mashups using their services as part of my subscription, rendering ownership less and less necessary.

Upgrade Frequency

The percentage of cars leased has risen over the past several years, driven in part by growth in the segment of consumers who want the latest in-vehicle and connected-technology experiences.

We’ve seen this evolution in SaaS as well, where companies are shifting investments in depreciating, on-premise installations to subscription models that are flexible and allow customers to take advantage of the latest technological advances and features.

Upkeep Responsibility

Another important area that can shift the balance between ownership and subscription is in the warranty and maintenance realm — a huge consumer pain point.

Currently, a lease comes with a certain number of CaaS “miles.” But we all know that not all miles are created equal. Factors such as terrain, temperature, weather, trip length and environment, driving behavior and load all affect the performance of a vehicle over time. With better data and measurement, manufacturers are already evolving the model to “service hours” to guarantee, like SaaS, availability and uptime, proactively swapping out my vehicle with another before I need to visit the mechanic for maintenance.

Further breakthroughs will come when I can customize my CaaS based on multi-vehicular needs for an entire timeframe. Why pay the maintenance, gas and other costs for a more expensive SUV all the time when I just need it to drive to the mountains for camping 24 weekend days during the summer and 10 days in the winter? Could I even get a discount for locking in the specific days, helping the CaaS provider better predict demand?

Upfront Percentage

“Um, Karen,” you say. “You can do that now. It’s called ‘renting a car.’”

True, I could do that, but the economics don’t always support it for all those concerned. For example, there is a lot of speculation about CaaS lowering revenue for car makers, as the supposed desire for vehicle ownership is declining in favor of access. However, if we look at the accessory and clothing rental industry (think Rocksbox, Rent the Runway), revenue on subscription versus upfront rental versus sales seems to be increasing in popularity. Why?

The percentage of cars leased has risen over the past several years, driven in part by growth in the segment of consumers who want the latest in-vehicle and connected-technology experiences.

First, like buffets, most people don’t eat all they can. If a subscription allows you to swap out any three pieces of clothing as often as you’d like, most people tend to keep at least one or two items for months, while still being charged. This sounds a lot like the way my car sits in my driveway, sometimes for days on end, as I talk about the trip I’ve been planning up the coast that never quite seems to materialize. Someday I’ll go. I think. But for now I’ll pay my monthly fee to keep the option on the table…

Ubiquity Of Service

Given that scenario, what I’d really prefer is a service that optimizes my total implementation cost with a relatively low upfront cost. So, for a fixed monthly price, I could have car access when I need it, with payment dependent upon the number of miles I use, the range of car types I want to drive, how long I want to keep them “checked out,” etc.

“But Karen,” you say. “You also can do that now. It’s called a ‘Zipcar’ membership.”

Yes, Zipcar and other car shares are amazing for short-distance and short-term usage in urban areas. Once you want things like single-direction trips or when you need a vehicle beyond seven days, for example, you run up “range anxiety,” and not the battery life kind — the fear that you won’t have the kind of car access you want exactly when you need it.

SaaS companies counteract this range anxiety with a service level agreement (SLA), which guarantees a certain amount of service availability, lack of “latency,” response times to address issues and some recourse if that doesn’t happen. This requires a shift in thinking from a per-vehicle sale to the “experience” of car usage. For CaaS adoption to increase, the concept of vehicle service must extend from fixing broken components to addressing ubiquity of service.

SaaS companies not only have their own support teams; they have an ecosystem of channel partners, consultants, and system integrators to maximize the reach of their products and ensure service levels are met. Here’s where it can get pretty interesting. While I wouldn’t go so far as to call Zipcar, Uber, Lyft and even public transit potential “professional service” or “support” firms in the traditional context, engaging them to assist in maintaining service levels can be where the rubber hits the road, accelerating CaaS.

What’s Next?

Over the next several years, car manufacturers need to capitalize on their sensors, data and analytics, the transportation ecosystem around them and some creativity across the spectrum of the Five U’s — usage latitude, update frequency, upkeep responsibility, upfront percentage, and ubiquity of service — to increase value for consumers and adapt to our changing needs. (Data accessibility and regulatory constraints are significant, but not insurmountable challenges.)

Actionable data generated from vehicles — for use in-car, between vehicles and throughout the ecosystem, and in the context of a person’s daily life — will drive the Five U’s, and control the industry’s destiny (and its winners and losers) and the way we’ll consume mobility.