The digital strategies and tools are all there—innovative transportation technologies with an emphasis on on-demand self-driving or connected vehicles. They’re designed to deliver service to urban areas across the U.S. As investors, we believe this new wave of mobility investments will deliver high returns.
While these technologies are transforming how people move around cities, they face a problem: The operating expense tends to be high, the operating risks high, and the opportunities for profit very small.
For example, as recently as 2016, only about 18 percent of AllInRoads’ revenue was generated by monthly service fees. The remaining 85 percent was generated from maintaining data, networks, and software for connectivity that followed just their customers (the majority of which were incumbent transit providers). In other words, these are long-tailed, fixed-cost operations that require investments to justify investment.
Because these costs haven’t been factored into capital markets valuations, the relatively small portion of AllInRoads’ business that is based on recurring monthly revenue gives the company very small valuations in order to justify larger investment requirements.
So, in a nutshell, while the penetration of the All-Encompassing Mobility industry is still young, drivers can expect investing in this space to yield long-term returns.
As these technologies advance, we think most of the business models will converge and become extremely “mix” with daily rates, room service, and even traditional and non-traditional hotel segments, all coming to market at the same time.
The need for more choice is also changing the competitive landscape, reducing barriers to entry and increasing the customer opportunities. Already, there are growing collection of vehicles that go from ride-hailing company to backseat to the front seat for women in heels and groceries.
We expect these types of vehicles will either a) be backed by third-party financing with longer loan periods than today, or b) lower their operating expenses by using in-house maintenance, use alternative vehicle types, or focus on high-quality customers with predictable behavior.
While companies such as Uber and Lyft are financially healthy and capital-light, we expect other mobile transportation apps that allow passenger/driver to share rides to emerge.
We’re encouraged to see several major cities dolling out incentives to allow ride-sharing. With municipalities and tech companies investing heavily in infrastructure investments, cities will continue to support and embrace alternatives in order to achieve better transit or public transit, address congestion, and manage congestion-causing demand.
We see more cities redefining mobility to include mobility services. For example, the Denver Planning & Development Department recently released a “Mobility Plan Denver 2040,” which reflected a deep economic shift in the city, positioning it to attract a class of young professionals who want to share local services in living, work, and play.
We see a trend where mobility services will evolve beyond the limitations of transportation. For example, an app that delivers meals to office-based workers? “Facetime” for all, all the time, just so you know exactly where everyone is?
Additionally, we are seeing advancements in food delivery and over-the-top services.
If this is our definition of the Future Transportation Cloud, then the All-Encompassing Mobility industry has come into its own.