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Owning a car in the era of connected cars

Tuesday August 02, 2016,

8 min Read

We are currently living on the cusp of the biggest disruption of the automotive sector. The technological advancements and the diminishing cost of advanced technologies are blurring the line between different industries. And the connected world is changing the behavior and attitude of the millennials who prefer access over ownership. These shifts and forces are restructuring the industry and forcing the auto giants to rethink their role in the near future. Chinese tech giant Alibaba recently launched an internet connected car in partnership with SAIC, powered by its own operating system, YunOS. The car can recognize the driver by their smartphone or smartwatch and customize the car settings to suit them, such as music and navigation waypoints. Elon Musk through his latest Master plan has shared a vision where our car would generate income for us when we are not using it.

Tech giants and auto giants have started to team up for the connected car wars including Volkswagen with LG, Google with Fiat Chrysler, Lyft with GM, Uber with Hyundai and Toyota. It's no longer going to be about the internet in the car, it all going to be about the car on the internet. What would this paradigm shift mean to our relationship with our car in the near future?

Almost 20 yrs ago Zipcar challenged the notion of owning a car and showed the world that a car can be a service too. This was in the era when internet browser was the only medium to access the internet and RFID was a sophisticated technology. 10 years later, we saw Uber making it possible to request a taxi through the smartphone. The advancement in the internet technology has shown us many possibilities in terms of moving people and goods from Point A to Point B, with ease and convenience. These concepts of mobility are finding more acceptance as they continue to align with the needs of the millennials, who are mostly under saved and over borrowed, live in an experience and subscription economy, and value access over ownership. The next generation technologies such as IOT and self-driving cars are going to redefine all the aspects around owning a car and how we choose to move around.

Let's take a look at the current car ownership models:

1. Pay per Ride: Uber and Lyft pioneered this model and gave us the option to request a car sitting in our bedroom and start traveling whenever we want to. Uber eliminated the need to wait for taxis on the road and offered us to travel in style from our doorstep at a price lesser than normal taxi fare. It perfectly aligned with our growing habit of ordering things through our smartphone. Uber currently doesn't own any cars but they rely on the Uber drivers for the cars. With the emergence of self-driving cars, Uber would either need to replace the manually driven fleet of cars with autonomous cars or completely own a fleet of self-driving cars.

2. Car as a Service: Whenever you need a car, you just need an access to it. The success of Zipcar is a proof that car can be a service and this service kicked off when the concept of connected cars was not even formally invented. Over the years the concept of Car as a Service has managed to gain enough attention from the startups and auto giants alike. ReachNow by BMW allows you to request for a BMW 3 Series, BMW i3 or MINI through an app and lets you use and pay by the minute. GM through its Maven program is offering people to request GM vehicles through their Maven app. Audi's Audi On Demand program allows users to reserve any Audi of their choice for up to 28 days without even owning the car and only pay for the use. Car as a Service is all about going from point A to point B cheaply and not about investing or owning a car.

3. Own + Share a ride: In this model, you fully own a car but through an app, you offer rides to others who are also traveling in the same direction. BlaBlaCar is one of the few startups in this domain. The platform connects people who are looking for a ride with people who are willing to offer a ride. BMW recently invested in a startup called Scoop which provides corporate carpooling, where you carpool with your fellow employees. Uber and Lyft are also testing this concept of sharing the ride through their current offering. While GM in partnership with Lyft has gone even one step ahead with this model. They both are working on a program which would allow Lyft drivers to rent a vehicle for a certain period and use it to provide rides to its customers and then return it. In this way, a person who can't own a car, owns it and Lyft is able to expand its fleet and number of drivers.

4. Own+share it when not in use : We only use our car for a couple of hours in a day. And rest of the time, it stays idle in our garage. Getaround is a startup that lets people rent your car when it is not in use. You can list your car on their platform and allow users to request for your car. In this way, your car generates income for you to cover your car-related expenses and insurance, when you are not using it. GM backed Turo, formerly know as Relayrides, lets people rent your car for a definite period when you are traveling for work or on a vacation. Instead of letting the car gather dust in the garage, it is making money for you. Elon Musk envisions this future through Tesla where your listed Tesla will automatically drive itself to the requested user.

5. Fractional ownership: This is an another car ownership model that has emerged lately. Fractional ownership is not a new concept, though. It is a method through which several unrelated parties can own a high-value tangible asset such as a jet or yacht and mitigate the risk in owning the asset. Ford recently launched a leasing pilot program enabling a group of 3-6 people to co-own a Ford vehicle. The group can reserve the drive time, share the lease payments and check vehicle status and maintenance. Audi has also launched a similar program called Audi Unite, where any model of Audi could be shared among five people for two years. GM early this year entered into a strategic alliance with Lyft and launched a service called Maven to provide car sharing service with on-demand access. Orto, a London-based early stage startup is the latest player testing the waters of shared car ownership.

Is it the end of car ownership?

Probably not. These 5 car ownership models may provide quick access to a car without the need to own one but still, they are not perfect, they have their own inefficiencies. The user has to make a choice between convenience and cost. There may not be a car available when you urgently need it. Or you wouldn't be comfortable enough to share your car with a stranger or offer a ride to a stranger. In crowded urban cities, owning a car may no longer be a necessity but in semi-urban or rural areas, you would still need a car all the time. The full car ownership wouldn't go completely. Then how might the car ownership look like in the era of connected cars?

Pay as you drive

Presently the cars are connected to the internet through retrofitted devices and driver's smartphone. In the near future as the IOT technology and autonomous car technology mature, we would have a fully smart and internet connected car. I forsee Pay as you Drive model to emerge in the near future.

Under this model, you would own a car of your choice through a monthly fee calculated based on the total distance you intend to travel in a month. The fee will have a fixed and a variable component. The fixed component will be the cost of the car and the variable component will be the maintenance and insurance cost. The variable component would depend on your driving style. When you drive beyond the distance set in the plan, you would be charged extra. You would own your driving data and your smart car would give you a rating based on your driving history. You would also have the option to cancel this car and switch to a different car under the same brand or a different brand. When you switch, you would be able to use your driving rating to negotiate the variable fee component with the new car provider.

Car ownership is going to change radically and it is quite clear that shared ownership is the path to move forward. In the connected car future, the role of the carmakers might even change from car makers to car service providers. 

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