SEEKING PERPETUAL MOTION WITH By Joël Hazan, Nikolaus Lang, and Hind El Abassi Chraibi

or fans of traditional model trains, and taxi services. It relies on a digital plat- Fsuccess is the constant roundabout of form to support all aspects of commuter cars that easily negotiate tracks and journeys, from planning to optimized . tableaus, traversing mock villages, water- ways, and places of business. MaaS is more than just the next potential digital B2C bonanza for private players. It’s Modern mobility proponents—a group that something that cities need to endorse, en- includes cities around the world—seek per- able, and guide, because access brings eco- petual motion, too, using both established nomic benefit to urban areas and MaaS forms of transit and new ones: ride sharing, can dramatically improve access. With free-floating bikes and scooters, and more. MaaS in place, cities can optimize travel, They aim to create a large-scale real-world including B2C offerings, and reap the bene- version of that toy train vision, one that al- fits of perpetual motion. lows people to move quickly and seamless- ly through metropolitan areas. Someone living in a suburb, for instance, could travel Moving Toward MaaS easily to work in a city, using an app that Cities have an opportunity to take charge allows her, with a single click, to book and of a burgeoning array of new transporta- pay for, say, a shared autonomous electric tion offerings. They can step up to put in vehicle that will take her from her doorstep place the technologies, programs, and regu- to a train with a stop near her office. lations that will work best for their resi- dents, including businesses, and that will This kind of access is called mobility as a ser- provide for a thriving economy. To do so, vice. MaaS enables end-to-end transit using they must collaborate with stakeholders, the new mobility offerings that are prolifer- finding a way to reach common under- ating in cities around the world as well as standings to meet the needs of all. (See the traditional modes like public transportation first article in this series on mobility, “Solv- ing the Cooperation Paradox in Urban Mo- We believe that individual commuters, too, bility,” November 2018.) Cities must or- are ready to embrace MaaS. They increas- chestrate the activity of stakeholders on six ingly expect convenient and efficient inter- fronts: measure, capture value, integrate, action with mobility ecosystems, given the incentivize, regulate, and experiment. growing number of options available. They are very fast adopters of on-demand and Taking on the role of MaaS orchestrator seamless services—witness the upward will help cities to optimize transportation trend in the use of ride-hailing services in and meet objectives in three key areas: three major cities, as shown in Exhibit 1. They have needs that current transportation •• Economic, to optimize investments in options cannot meet satisfactorily. Our re- infrastructure and to foster financial transac- search shows, for example, that access can tions and therefore the wealth of a city vary markedly in a city; the poorest zones in Paris are only about half as accessible as the •• Environmental, to relieve congestion and wealthiest. And commuters are willing to lower the use of personal cars, thereby test credible “green” alternatives to their alleviating pollution private vehicles. A BCG survey that assessed consumers’ willingness to use shared auton- •• Societal, to make urban mobility more omous electric vehicles found, for instance, inclusive in terms of improving access to all that “environmental benefits” was a top- areas and for all socioeconomic classes three reason for 33% of respondents.

So, MaaS holds vast promise for cities; in- deed, some are already serving as MaaS Dissecting MaaS: Progress testing grounds. Private players see the po- and Challenges tential upsides, too: although the MaaS con- We distinguish four levels of MaaS func- cept is in its early days, a variety of enter- tionality. (See Exhibit 2.) Each level rep- prises are rushing to participate and cash in. resents an increase in sophistication as (See the sidebar, “The MaaS Gold Rush.”) companies expand their technological ca-

THE MAAS GOLD RUSH

Ride-hailing apps, free-floating bicycles, reinvent their business models as electric cars. All of these revolutionary new mobility options like ride hailing changes in urban mobility are attracting and ride sharing shift car ownership investors and users. It’s no surprise that from individuals to fleets. Some of MaaS is also drawing attention from these players have already expanded enterprises that have a connection to the their business to include ride-hailing mobility industry or to relevant technology: platforms (Daimler acquired Chauf- feur Privé in 2017, for example); they •• Transport providers, which see are now looking to move further MaaS as an extension of their current down the mobility value chain by business. They want to secure their developing MaaS platforms (Toyota access to end users by aggregating has invested in MaaS Global’s their offerings with those of the Helsinki-based Whim app). competition. Wiener Linien, for instance, is offering WienMobil, an •• Nonmobility players and startups app that gives users access to travel (such as transitapp and moovel) see options in and around Vienna. MaaS as a “winner takes all” B2C battle with promising economic •• Automotive OEMs and car rental potential. companies, which are looking to

Boston Consulting Group • BCG Henderson Institute 2 Exhibit 1 | The Rapid Uptake of Ride Hailing

The trend in three cities—Paris, New York, and London— indicates that ride hailing meets mobility needs

Millions of trips Millions of Uber riders

NYC London London NYC

Paris Paris

Months since launch Months since launch

Sources: Uber data; BCG analysis.

pabilities to accomplish more with the commissions on each trip but can also be same input data (multi-operator real-time based on lead generation. data on capacity, pricing, and operations). But while each level is attractive to end This model poses particular challenges for users, MaaS providers struggle to achieve the mobility industry, because transport the right economic model. Each functional- providers already operate in a low-margin ity level calls for a different business mod- context and cannot afford the distribution el, which has its own limitations and hur- of funds to third parties. Travel apps can dles. We believe that it’s only at level four impose commission rates because hotels, that—eventually—the full potential of for instance, need the attention of those MaaS will be realized and that MaaS will apps, but the few current travel options be truly economically viable. won’t feel that pressure. There are few op- erators in a given city for them to work Level One: Planning. Initiatives at this level with. So, third-party mobility distributors coordinate various modes of transportation are left with limited bargaining power. and personalize routes. Level-one platforms offer free itinerary planning for users, and Level Three: Planning + Ticketing + Pricing. they sell users’ data to advertisers. MaaS initiatives at this level incorporate operators’ pricing and means of attracting However, only monopolistic players with customers. high penetration rates, such as Google and Tencent (which is reportedly looking at MaaS Level-three platforms bundle single trans- options), can afford such a business model. portation tickets into all-inclusive mobility packages. They use various customer acqui- Level Two: Planning + Ticketing. At this lev- sition techniques to expand their user base. el, platforms are able to aggregate mobility This is what Netflix and Spotify did in their offerings from different operators, resell respective industries, but they rapidly re- operators’ tickets to individual commuters, alized they had to take control of their unit and charge commissions to operators. costs in order to be sustainable. Netflix started to produce content, and Spotify in- Level-two platforms rely on a travel agent dexed the royalties paid per stream to its model. Revenues are usually derived from own business targets.

Boston Consulting Group • BCG Henderson Institute 3 Exhibit 2 | How BCG Defines the Four Levels of MaaS Each level leverages the same input data but uses a different, increasingly sophisticated business model

• Real-time optimization of itineraries involving multiple transportation modes 1 Planning • Personalized routes based on users’ preferences and real-time traffic

2 Planning + • Multi-operator ticket distribution Ticketing

• Bundling of operators’ pricing schemes into mobility packages 3 Planning + Ticketing + Pricing • Customer acquisition mechanisms

Fully Integrated: Planning + • Incentives to promote green modes, travel during off-peak hours, 4 and so on Ticketing + Pricing + Incentives • Redistribution of city and employer subsidies

Source: BCG.

Bundling mobility solutions with very dif- off-peak hours, for instance, at a discounted ferent unit costs is not an easy equation. price). All-inclusive pricing will motivate users to choose modes of transportation that are This ultimate level is where the interests more convenient for them but also more of public authorities meet the needs of expensive to operate, like ride-hailing and private players. taxi services. The level-three model is un- sustainable because it lacks incentives to encourage users to choose less expensive Cooperating to Level Up transportation options (for example, mass Both cities and MaaS operators have a big transit and free-floating bikes as well as interest in reaching the fourth, fully inte- travel at off-peak hours). grated level of MaaS. That is where the real value lies. Right now, although multiple This brings us to level-four platforms, MaaS initiatives are underway in major cit- which will provide incentives for users. ies around the world, they remain at the earlier stages. (See Exhibit 3.) In fact, the Level Four—Fully Integrated: Planning + Helsinki-based Whim app is one of the rare Ticketing + Pricing + Incentives. Only at level-three platforms; it is considered to be level four will MaaS operators be able to the international reference for MaaS. With achieve real success and economic sustain- Whim, users can subscribe to a monthly ability and to offer the fully equipped unlimited mobility plan that gives them ac- version of MaaS that we have previously cess to all transportation modes in Helsinki described, one that makes possible a and the surrounding region. In February real-world approximation of perpetual 2019, announced the launch of motion. To reach this level, MaaS players the second level-three MaaS platform, in must put in place incentives that will London, with the goal of building individu- encourage commuters to use economical alized, multimodal packages. For now, City- transportation modes. Fully integrated mapper is footing the bill for the discount MaaS players will also incorporate invest- offered to customers using public transpor- ments, planning, and more. They will be tation. Close collaboration with Transport the distributors of subsidies that encourage for London will be essential for Citymap- commuters to use MaaS offerings as well as per to achieve its ambition and become incentives that prompt them to use those profitable, as will fruitful negotiations with offerings in particular ways (traveling at other private players.

Boston Consulting Group • BCG Henderson Institute 4 Residents of a city with a fully integrated that will succeed will be mobility activists platform would be able to utilize the best that foster innovation. They will get deeply modes of transportation at the best time at involved with private players as they exe- the best price and with the greatest ease. A cute, on the six fronts, their role as orches- city like this would be able to activate trators in the context of MaaS: MaaS to further the three overarching ur- ban objectives: improvements to the econo- •• Measure. Cities will define the KPIs my (optimized infrastructure and com- (level of congestion, for example, or merce), to the environment (diminished average time spent commuting) of their pollution by encouraging modes such as transportation ecosystem. Targets will ride sharing and discouraging the use of be defined on the basis of those KPIs, private vehicles), and to society (discounts and MaaS initiatives will be assessed for the commuters who most need them). against them.

Fully integrated MaaS operators would •• Capture value. Cities will make substan- be economically viable, thanks to the tial investments in MaaS, but much of enabling elements that cities can provide that money can be a reallocation of for them, such as centralized transporta- mobility funding derived from smart tion subsidies, taxes on personal vehicles, moves like taxes on personal vehicles and enforcement of incentives. Only public and the strategic use of subsidies. authorities can do those things, and only with those things in place can sustainable •• Integrate. This action is inherent in an economic models for MaaS players be initiative like MaaS—cities will bring created. together a variety of public and private players to create the coordinated web of Which apps and which players will ascend mobility that is essential to MaaS. to the fully integrated level of MaaS is un- clear. What is clear is that to achieve it, cit- •• Incentivize. Cities will incentivize both ies and MaaS operators must all play their players and commuters through the parts, cooperatively. Cities need MaaS, and redistribution of subsidies in the form MaaS needs cities. MaaS has to be ad- of discounts. dressed as part of a broader solution in- volving the whole mobility value chain, •• Regulate. Cities will mandate one from infrastructure to digital platforms, single MaaS provider, to simplify the from public authorities to private players. user experience and to centralize No one will be able to win alone. The cities control over the incentives system.

Exhibit 3 | BCG’s Benchmarking of MaaS Initiatives

1 Planning Google Maps Citymapper transitapp moovit

Planning + 2 moovel WienMobil Free2Move Uber Ticketing

Planning + Citymapper 3 Whim Ticketing + Pricing (London)

Fully Integrated: Planning + 4 No fully integrated MaaS offerings yet exist Ticketing + Pricing + Incentives

Source: BCG.

Boston Consulting Group • BCG Henderson Institute 5 •• Experiment. In a nascent area like chieving the best of MaaS technolo- MaaS, experimenting will be crucial, Agy requires a virtuous circle: one that and cities must be sure to find the right connects cities that lend their regulatory balance of regulating and encouraging and urban planning expertise, private oper- new efforts. Fostering innovation is key ators that contribute their mobility and in an area like this. technology expertise, and other public and private entities (environmental, communi- Practically speaking, cities need to estab- ty, and business groups, for instance) that lish an operating model to work with all can influence transport uptake. When all stakeholders. Part of that approach: draw- the parts—and parties—are in place, the ing a line that connects a city’s economic, benefits of the new mobility (one akin to environmental, and societal objectives to the constant flow of cars in a model train the policies it will enable for private play- landscape) will be within reach. ers and the results it will require of them; reinventing public-private collaboration This article is the second in a series on the models (for instance, establishing an exclu- future of mobility. In subsequent publications, sive contract between the city and a tech we will explore in more detail the mobility- player that specifies the city’s requirements related actions that cities must take, drawing and the tech player’s development plans as on the findings of our research platform; we well as the KPIs that the city and develop- welcome the input and participation of cities er agree upon for measuring value); and and private players. defining precisely what is expected from private players (such as certain levels of de- crease in congestion and emissions).

About the Authors Joël Hazan is a partner and managing director in the Paris office of Boston Consulting Group and a Fellow of the BCG Henderson Institute. You may contact him by email at [email protected].

Nikolaus Lang is a senior partner and managing director in the firm’s Munich office. He is a coleader of BCG’s Center for Mobility Innovation, which spans automotive and mobility, transport and logistics, and infrastructure. You may contact him by email at [email protected].

Hind El Abassi Chraibi is a project leader in BCG’s Paris office. You may contact her by email at [email protected].

BCG’s Center for Mobility Innovation works with clients around the world to navigate this space of rapid change and new challenges such as congestion and pollution. We help our partners identify areas for ac- tion and launch new mobility concepts. And we secure lasting results for the public and private sectors. The experts working in BCG’s Center for Mobility Innovation offer a full range of support: we help clients develop their mobility vision and strategy and innovate by leveraging evolving mobility technologies. Work- ing in partnership with our clients, we bring to market state-of-the-art solutions and connect with the right stakeholders along each step of the value chain. We address the specific needs of each client in today’s changing environment.

The BCG Henderson Institute is Boston Consulting Group’s strategy think tank, dedicated to exploring and developing valuable new insights from business, technology, and science by embracing the powerful technology of ideas. The Institute engages leaders in provocative discussion and experimentation to expand the boundaries of business theory and practice and to translate innovative ideas from within and beyond business. For more ideas and inspiration from the Institute, please visit https://www.bcg.com /bcg-henderson-institute/thought-leadership-ideas.aspx.

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