It is obvious that an eclectic mix of stakeholders is drawn to the playing field of shared mobility – but like with any disruptive model, there are some important new rules of the game to consider.
December 7, 2017 There is no lack of appetite for new operators. GreenMobility, a fully electric free-floating operator in Copenhagen, completed the Nasdaq First North’s largest IPO of the decade in early 2017 and wants to be present in 20 cities by 2021. Berlin, Madrid, Warsaw, and several other cities in Europe are welcoming their third free-floating player, respectively, with leading markets still far from saturated. As the market continues to develop, what can future operators take away from the early success stories?
Understand the market dynamics
Local market characteristics such as population density, urban infrastructure, consumer habits, competitive landscape, and municipal support should be guiding key inputs such as vehicle choice and pricing scheme. Learn more about this here.
Optimize your cost base
Usage costs: Within sharing schemes, particularly ride-hailing and free-floating, the maximum value is realized with scale. While a significant emphasis will initially be on the more capital-intensive elements such as building a fleet, it’s important to shape sustainable unit economics by optimizing the core components of usage cost.
- Energy supply: Car energy costs should be manageable under all pricing schemes. To take a high-level illustrative example, in Western Europe (where gas is much more expensive than in the US), gas for 100 km can cost as little as 6 or 7 EUR, with electric costs for the same distance at just below 2 EUR. In a standard per-minute pricing module, this will likely represent less than 5% of cumulated trip revenue over the same distance in an urban area. When designing fleet operations, operators should closely monitor how running costs stack up against the cost of managing charging infrastructure and the purchase premium on electric models.
- Insurance: As shared services continue to grow in number, more insurance providers are developing schemes specifically designed for mobility operators. Important considerations include the amount of the deductible to implement and whether to outsource a portion of the cost to the end-user through a waiver. In a well-utilized fleet, the insurance cost per vehicle should represent somewhere between 5 and 10% of a vehicle’s annualized revenue.
- Parking: One of the most crucial characteristics for site selection, parking infrastructure is essential for both user experience and long-term profitability. Fortunately, as sustainable shared mobility solutions continue to ascend municipalities’ priority lists, more and more cities are opening their public spaces to shared operators, with various examples ranging from Seattle to Madrid. Operators must also consider leveraging private parking infrastructure, an asset to ensure quality user experience in congested downtown areas.
Fixed and operating costs: Strategic management of core inputs lends to strong economies of scale for shared operators. And while the initial capital required to launch a sizeable fleet may at first seem inhibitive, vehicle leasing and technology partnerships often seem like logical choices to reduce the barrier to entry for new operators.
- Vehicle sourcing: Lease or purchase can both fit the mold for an operator, with annual leasing cost or depreciation typically accounting for less than 20% of costs. The gap in pricing between electric and hybrid or ICE models is diminishing, and the introduction of sharing-friendly, affordable compact models such as the Nissan Leaf, Chevrolet Bolt, Renault Zoe, and Citroen C-Zero are proving to be attractive options for mobility operators seeking to go full electric from the onset.
- Technology: Developing a full-stack platform from scratch will likely be overly capital intensive, limiting, and too slow in terms of go to market. Automation and outsourcing for key operations such as fleet maintenance and customer support can create efficiencies and allow operators to focus on member attribution and vehicle utilization.
Drive vehicle utilization
Without having to dive into the detail, we can begin to clearly see how the per-unit economics can work in a free-floating shared scheme. Existing players have been able to raise new capital, launch in new cities, and grow fleets aggressively. For example, since kicking off with 250 vehicles in 2015, Evo Car Share in Vancouver expanded to 1,250 cars in a little over two years.
However, the key factor underpinning the success of these operations is vehicle utilization. Maximizing utilization requires a fleet of considerable scale, platform agility, and a strong user acquisition strategy.
- Scale: Operators have one chance to make an impression, and new users must be able to find a vehicle and book their first trip with ease. We typically advise operators to aim for a ratio of ten vehicles per square km of home zone area to ensure strong fleet coverage and a seamless end-user experience.
- Agility: Demand reactivity is the essential ingredient in the recipe for utilization. With modules such as fleet balancing and dynamic pricing, an advanced, agile platform that provides real-time data and insights will be pivotal in steering an operator’s growth. At Vulog, we are continuously working with our partners to morph our product into the leading source of critical insights that deliver competitive advantages as our clients mature.
- Marketing: Building that initial user base should also be a clear focus starting on the day of the launch. Leveraging promotional codes and marketing campaigns to funnel in initial users and build brand loyalty will pay dividends in the long run. As alluded to in a recent publication, customer lifetime value projections for mobility services are on the rise, meaning that people are using these services more frequently. Couple that with strong economies of scale and the fact that using these services is “contagious” if they are well-executed, and it makes sense to emphasize acquisition over margin in the early days of operation.
Although just scratching the surface, these are some of the key considerations that will dictate the success of new shared mobility operators. The combination of a rapidly transforming ecosystem and a viable commercial model offers a powerful proposition. With many potential suitors attracted to the space, identifying the tools and formula needed for success now will pave their place in the evolving market of the future.
Vulog is the world’s leading tech mobility provider: we are committed to building a greener future, one city at a time.