The nagging questions about Mobility As A Service

Assorted mobility services in Quito, Ecuador. Image: Getty.

Mobility As A Service. Discussed at length in specialist magazines, here on the pages of CityMetric, and increasingly in the popular press, it is transport’s latest buzzphrase. And with promises of a seamless choice of mobility across all modes of transport, in just one place, it is a very tempting offer.

But one nagging question keeps coming up when people keep talking about it. How on Earth will anyone make any money out of it? This is for one very simple fact: it is very difficult to make any money out of transport.

In a time when it is commonly shown that companies are making millions out of transport, this seems hard to fathom. But transport is a high cost industry, with a lot of money tied up in vehicles and infrastructure. Despite the headlines of millions being made by train operators, for instance, their combined profit margin is barely 2.4 per cent. In the bus market, while operating profit margins of near 9 per cent are reported, this hides significant regional variation.

And this is before you consider the ‘loss-leaders’ that are the likes of Uber and other car sharing companies. And now, Mobility As A Service operators want a further slice of that revenue pie.

The challenge to Mobility As A Service is not technology or data. It’s making the whole proposition attractive, not add to costs, and generate revenue. Previously, generating more revenue and more demand involved one or more of the following tactics:

  • Changing your prices. Demand for public transport doesn’t change much over the short term in response to price increases, with a 1 per cent fare increase typically resulting in a 0.2 per cent decline in patronage: after all, people can’t just change their travel patterns overnight. But it does lower demand over the longer term, with a 1 per cent price increase ultimately resulting in nearly a 1 per cent decrease in demand.
  • People traveling more. But when there are only a set number of hours in the day, and long term research has indicated a typical ‘travel budget’ of one hour daily – and most of us don’t ride buses and trains for the fun of it – that is very hard to do. The only exception is in places with lower trip rates in comparison to their peers.
  • Taking trips off your competition. In the public transport sector in the UK, on-road or track competition rarely exists, as the bus inquiry and a review of bidding for train operating franchises shows. That means you are attempting to take trips off other modes, ones which have very different social-economic characteristics to your own.
  • More people. Sadly the transport sector can’t just magic more people out of nowhere. It relies on housebuilding, new employment sites, and population growth for that sort of thing. In fact, the UK Department for Transport estimates that the main driver of future traffic growth in the UK will be growth in population.

This is important to understand in the context of Mobility As A Service. In order for any such service to work, every part of the mobility system needs to benefit. For one part to extract from another undermines the commercial viability of the whole proposition. After all, if people are paying the same amount for a mobility service, and they are still getting the same public transport service that is in turn getting less money from them, it is not an attractive proposition.

Oh, and enabling demand responsiveness and efficiencies in operation because ‘data’ is unlikely to cut it. What’s more, selling data to advertisers is increasingly a challenging proposition when so much data about customers is already available. 

It is worthwhile considering the fact that Mobility As A Service as has been sold is still largely just an idea. We don’t know whether or not it will work commercially, simply because we have not tried it commercially yet for any sustained period. And early trials such as Helsinki and Gothenburg have hardly set the world on fire in terms of proving the business model, although they have shown that some modal shift is possible. It’s worth noting that they are in environments where the public sector plays a significant role in the provision of public transport, however.

Creating a new market is a very tricky proposition – and it’s not guaranteed that what will result is any more in the customer interest or financially viable. This does not mean that we should not try or experiment: doing so is the only way of moving the transport industry into the digital age.

But the emergence of new dominant market players is not necessarily in the interest of the customer and the whole mobility ecosystem .If the future is Mobility As A Service, we cannot afford for the winner to take all.

James Gleave is a transport planner who has worked on projects ranging from school crossing patrols to autonomous vehicles. He writes about the future of transport on his blog at Transport Futures, and has also written for Local Transport Today, How We Get To Next, and The Guardian

 
 
 
 

“Stop worrying about hairdressers”: The UK government has misdiagnosed its productivity problem

We’re going as fast as we can, here. Image: Getty.

Gonna level with you here, I have mixed feelings about this one. On the one hand, I’m a huge fan of schadenfreude, so learning that it the government has messed up in a previously unsuspected way gives me this sort of warm glow inside. On the other hand, the way it’s been screwing up is probably making the country poorer, and exacerbating the north south divide. So, mixed reviews really.

Here’s the story. This week the Centre for Cities (CfC) published a major report on Britain’s productivity problem. For the last 200 years, ever since the industrial revolution, this country has got steadily richer. Since the financial crash, though, that seems to have stopped.

The standard narrative on this has it that the problem lies in the ‘long tail’ of unproductive businesses – that is, those that produce less value per hour. Get those guys humming, the thinking goes, and the productivity problem is sorted.

But the CfC’s new report says that this is exactly wrong. The wrong tail: Why Britain’s ‘long tail’ is not the cause of its productivity problems (excellent pun, there) delves into the data on productivity in different types of businesses and different cities, to demonstrate two big points.

The first is that the long tail is the wrong place to look for productivity gains. Many low productivity businesses are low productivity for a reason:

The ability of manufacturing to automate certain processes, or the development of ever more sophisticated computer software in information and communications have greatly increased the output that a worker produces in these industries. But while a fitness instructor may use a smartphone today in place of a ghetto blaster in 1990, he or she can still only instruct one class at a time. And a waiter or waitress can only serve so many tables. Of course, improvements such as the introduction of handheld electronic devices allow orders to be sent to the kitchen more efficiently, will bring benefits, but this improvements won’t radically increase the output of the waiter.

I’d add to that: there is only so fast that people want to eat. There’s a physical limit on the number of diners any restaurant can actually feed.

At any rate, the result of this is that it’s stupid to expect local service businesses to make step changes in productivity. If we actually want to improve productivity we should focus on those which are exporting services to a bigger market.  There are fewer of these, but the potential gains are much bigger. Here’s a chart:

The y-axis reflects number of businesses at different productivities, shown on the x-axis. So bigger numbers on the left are bad; bigger numbers on the right are good. 

The question of which exporting businesses are struggling to expand productivity is what leads to the report’s second insight:

Specifically it is the underperformance of exporting businesses in cities outside of the Greater South East that causes not only divergences across the country in wages and standards of living, but also hampers national productivity. These cities in particular should be of greatest concern to policy makers attempting to improve UK productivity overall.

In other words, it turned out, again, to the north-south divide that did it. I’m shocked. Are you shocked? This is my shocked face.

The best way to demonstrate this shocking insight is with some more graphs. This first one shows the distribution of productivity in local services business in four different types of place: cities in the south east (GSE) in light green, cities in the rest of the country (RoGB) in dark green, non-urban areas in the south east in purple, non-urban areas everywhere else in turquoise.

The four lines are fairly consistent. The light green, representing south eastern cities has a lower peak on the left, meaning slightly fewer low productivity businesses, but is slightly higher on the right, meaning slightly more high productivity businesses. In other words, local services businesses in the south eastern cities are more productive than those elsewhere – but the gap is pretty narrow. 

Now check out the same graph for exporting businesses:

The differences are much more pronounced. Areas outside those south eastern cities have many more lower productivity businesses (the peaks on the left) and significantly fewer high productivity ones (the lower numbers on the right).

In fact, outside the south east, cities are actually less productive than non-urban areas. This is really not what you’d expect to see, and no a good sign for the health of the economy:

The report also uses a few specific examples to illustrate this point. Compare Reading, one of Britain’s richest medium sized cities, with Hull, one of its poorest:

Or, looking to bigger cities, here’s Bristol and Sheffield:

In both cases, the poorer northern cities are clearly lacking in high-value exporting businesses. This is a problem because these don’t just provide well-paying jobs now: they’re also the ones that have the potential to make productivity gains that can lead to even better jobs. The report concludes:

This is a major cause for concern for the national economy – the underperformance of these cities goes a long way to explain both why the rest of Britain lags behind the Greater South East and why it performs poorly on a

European level. To illustrate the impact, if all cities were as productive as those in the Greater South East, the British economy would be 15 per cent more productive and £225bn larger. This is equivalent to Britain being home to four extra city economies the size of Birmingham.

In other words, the lesson here is: stop worrying about the productivity of hairdressers. Start worrying about the productivity of Hull.


You can read the Centre for Cities’ full report here.

Jonn Elledge is the editor of CityMetric. He is on Twitter as @jonnelledge and on Facebook as JonnElledgeWrites

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