Form Factor Innovation and Utility in Mobility
Those who are familiar with the Chinese mobility revolution will know Bill Russo. Bill is an American, based in China for many years now, and is the go-to person for all things China, automotive and mobility. When Bloomberg and other news media have a question about the Chinese car industry, they often turn to Bill.
GlobalFleet had the opportunity to talk to Bill Russo about his career, about China and the role that China is playing in the global mobility service industry. Very early in our conversation, Bill explained that the concept of disruption has been instrumental in his professional life.
Computers and the democratization of access to information
“I started my professional life at IBM and I’ve kept a keen interest in the disruptive power of information technology. Back in the early days, in what we can call the ‘pre-disruptive era’, IBM was the undisputed market leader. This is the period in the 60s and 70s, where computers were large, water cooled, and fed by punch card units that evolved into dumb terminals linked to mainframes with local information storage.
Disruption came rapidly and hit hard. The commercialisation of the desktop Personal Computer, the laptop and later, the smartphone, were important disruptors in the form factor. In parallel, linking computers via the internet with information shifting from local to cloud storage. In a few decades, the entire industry went from mainframes controlled by IT professionals personalized mobile devices providing access to data ‘in the cloud’. Access to information has become democratized with an entirely new form factor for the user.”
Automobiles and the democratization of access to mobility
In the IT industry, the “device” is the form factor and “information” is the utility. If you translate this to the automotive industry, the “automobile” is the form factor and “mobility” is its utility. Bill continues:
“I was introduced to the automotive industry when I started working for Chrysler. I was part of the product and business strategy teams that decide which product was to be added to the 10-year capital plan. I understood quickly that, unlike the IT ecosystem, the business model of the automotive industry has been relatively undisrupted since its origins. Form and utility had evolved, but never dramatically. As a result, it’s been a relatively stable value chain: from manufacturer to distributors to retailer. Products were generally specified to the requirements of the owner, the primary economic target of the industry.
This was supported in the mature markets, Europe and the US, by a multi-generational consumer behaviour that prefers to buy or lease vehicles”
Going to China
“Back in 2004, I was appointed by Chrysler to lead their North-East Asia business, based out of Beijing. The mass of the people in China at that time, and still today, don’t own cars. Most of the population used bicycles or public transport. Still today, riders out number car drivers by almost 10 to 1.
In the beginning of this century, China was going through an accelerated economic development, with large mass migrations of population moving to the cities. Considering the low percentage of car ownership, more and more people were under-served with mobility solutions.
The major disruptive element over the past decade in China has been the impact of the mobile internet on everyday life. While China has long had access to the internet through other form factors, smartphones are transforming in a very fundamental way the lifestyles of Chinese people, including access to basic services like ordering food delivered to your door or accessing a ride. The combination of internet access and increased demand for mobility has led to a true revolution of the over 100 years-old automotive industry business model: where the focus shifts from the product (the automobile) to the utility derived from the product (automobility).”
Automobility 1.0: Mobility on Demand
Bill continues: “Now, one of the biggest differences between China and the Western World was that China didn’t have a multi-generational habit of owning cars, which means that people’s basic need is convenient access to mobility. In an ever-larger urbanized middle-class population, car ownership grew rapidly. However, with the advent of the mobile internet, Chinese people can satisfy this need without having to take full ownership of the hardware.
This resulted in the rapid rise of Mobility on Demand: mobile phone applications that allow people to have access to mobility without the requirement of full asset ownership. On top of the ease of use, MoD is also perceived as an upgrade from the often crowded and uncomfortable public transportation system. People were sitting in their own comfortable space and didn’t have to compete to get the vehicle: access to mobility has become democratized through information technology.
However, the automobility revolution at this stage is not complete, as cars are a less efficient form factor for moving large populations of people. In fact, buses and trains are much more efficient than cars as they move more people whilst using less space. MoD solved part of the mobility needs but created a new problem: urban congestion.”
Automobility 2.0: Intelligent Connected Vehicles and Electric Vehicles (ICVs and EVs)
In the transportation services business, owning fleets makes economic sense if you maximise their utilization. Similarly, a vehicle that’s being put to use as an “on demand” car, will drive much more than a private vehicle, up to 20 times more. This means that there are new requirements for these MoD cars: cost of fuel, maintenance and operations must be minimized.
Bill introduces the relationship of MoD and the development of new cars: “It takes about 5 to 7 years from the initial design of a vehicle to its production. This means that, when MoD grew rapidly in China, the vehicles were not yet adapted to the requirements of this MoD industry.
This is where Connected, Electric and eventually Autonomous technologies come into play. The vehicles produced today, that were conceived 5 to 7 years ago, before the rise of MoD, are designed for the traditional owner and operator, not for MoD usage. The expansion of MoD will require a reimagining of the mobility device, especially requiring features which give users more use of their productive time and fleet operators lower overall cost of operation.”
Automobility 3.0: Autonomous Mobility On Demand (AMOD)
“Eventually, a large portion of the value chain will shift to an AMOD model, where both form factor and utility of the car are designed for Mobility on Demand, ushered by the Tech industry.
By 2030, in markets like China the form factor will have changed from the traditional body shapes (the sedan, hatchback and SUV) to “boxes” that move people and things which can either be small, medium or large, in accordance with their function.
These vehicles will be operated by professional fleet managers. Beyond the traditional value chain from manufacturing to retail the new automobility value chain will consist of mobility suppliers and/or fleet managers who will provide for the assets and professionally manage them.”
Mobility On Demand “White Space”
Today, public transport has the best track record in operating fleets of various form factor; shuttles, buses, metro and trains are already adapted to their utility in terms of size and usage. In China however, the surge in demand from users who prefer a more comfortable personalized Mobility on Demand solutions will drive form factor innovation in personal transportation. Bill describes the China context using a mobility pyramid.
“At the bottom of the pyramid, you’ll find public transport; at the top, the privately owned or leased car. What has happened since the rise of MoD, is that we have witnessed a large growth of demand for personal mobility coming from ‘upgraders’ from public transportation. As we mentioned, this is good from a personal comfort perspective, but not the ideal situation from a form factor perspective, as these smaller vehicles add to urban congestion.
Viewed from the top of the pyramid, car owners will continue to purchase and operate vehicles, increasingly for family and recreational use which favors MPV and SUV form factors. Some percentage of owners may abandon commuting in their own car in favour of personal urban MoD In other words, there’s a white space that needs to be filled in between the top of the pyramid and public transportation. This creates a tremendous opportunity for services and form factor innovation, enabled by technology.”
China and the rest of the world
According to Bill, China is not evolving towards a Western mobility model. “The multi-generational habit of owning a car is strongly anchored in the Western view of mobility. There will be a shift towards shared mobility, but not nearly as radical as the one happening in China, South Asia, Middle East, Africa, and Latin America. Don’t forget that the starting point for these regions is essentially different: car ownership is not as widespread as it is in the Western world.”
Bill reminds us: “It’s not correct to assume that because Western products have been popular in China, that this pattern will continue in the era of mobility services. Metaphorically, the Western mobility model is an ownership-centric hammer, looking for as many nails as possible to hit by selling cars to owners who drive themselves. In markets like China, ownership is not deeply penetrated, and habits can be influenced if they offer more convenience. Automobility companies should reverse the equation: look at what the mobility user needs and develop solutions from there, which is in reality a C-to-B model rather than a B-to-C approach.
In addition, Western service providers should abandon their resistance to partnerships, which are often viewed as risky the EU/US business cultures. In China, it’s collaborative partnerships are often the best way to create opportunities, and may be the only way in the new automobility era.”
For more information on the topic, listen to Bill Russo’s podcast