Industry insights Daimler & BMW finally have the glimpse of a chance to compete with Uber & Didi

Reaching the scale of UBER and Didi who achieved an aggregate amount of 10+ billion trips last year will be hard given that the new joint venture of Daimler & BMW clocks way below 100 million—but at least there is a chance to become relevant in the market of mobility services.

This week the rumors around the creation of a new mobility service powerhouse through a merger of Daimler and BMW’s mobility services business turned into reality - pending regulatory approval. The newly created 50/50 joint venture has a broad scope covering core service parts including car sharing, ride hailing, parking, and charging. We will look into some of the facts around the new partnership, understand where both players are coming from and look into the strategic product questions that are to be tackled now.

The past two weeks have been full of mobility news: As Uber and Tesla made news related to fatalities around their autonomous driving products, the new deal of Waymo and Jaguar Landrover for the delivery of 20,000 self-driving vehicles of JLR’s new i-Pace until 2020 was leading the good news list. Until news out of Germany set the tone for a new era in the growth of mobility services: A far-reaching joint venture of Daimler (parent of Mercedes-Benz) & BMW’s mobility services businesses.

Details around the partnership

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The scale of the joint venture (source)

Daimler CEO Dr. Dieter Zetsche shared core insights on Daimler’s corporate blog into the new 50/50 joint venture that will cover 30 % global market share in the car sharing market:

- “Combined Car Sharing with car2go und DriveNow: Customers will get access to a total of 20,000 vehicles in 31 metropolitan areas around the globe.

- Combined On-Demand Mobility: ReachNow and moovel as mobility platforms will grant customers access to various modes of Transportation.

- Combined Ride Hailing services: mytaxi, Chauffeur Privé, Clevertaxi and Taxibeat will bring about the world’s largest taxi service and thus help significantly reduce traffic in urban areas.

- Convenient Parking options: Parkmobile and ParkNow will support finding a spot while offering ticket- and cashless payment.

- Customer-friendly Charging solutions for electric cars: ChargeNow and Digital Charging Solutions combined will provide a comprehensive network of 143,000 publicly accessible power outlets."

Where both players are coming from

Until now, both players were going head to head on their point-to-point service offerings both achieving strong growth rates for their car sharing businesses in 2017—30% in the case of Daimler’s Car2Go and 25% in the case of BMW’s DriveNow. Adding up the two fleets now should push the global offering to 20,000 vehicles assuming that Car2Go’s 14,000 (2017) and DriveNow’s fleet of 6,000 (2017) vehicles are fully deployed for the new partnership.

In the past year, Car2Go’s 2.97 million customers did more than 24 million trips achieving a 38 % utilization rate. DriveNow was coming in at just over a third of that, 1.03 million customers, which could tap into a significant share of electric fleet already as BMW’s i3 made up for about 20% of the overall fleet offering (March 2017 figures).

In February this year, BMW took full control over DriveNow after initially operating the business in partnership with German car rental service Sixt. While being labeled as a pure marketing gig to get slow selling vehicles promoted and onto the streets, the companies proved that there is a path towards profitability. BMW announced in late 2016 that its DriveNow project had reached profitability.

The way ahead: Reaching the product era—and competing with Uber & Didi's 10 billion annual rides

In an interview with Forbes, Daimler Moovel Group’s Head of Communications Indinero Kuhn outlines a “comprehensive product portfolio, rapid response, high level of flexibility and financial strength” as a core asset of the new joint venture.

This recognized that it is about owning the end-to-end experience around personal mobility than just a component in it (i.e. for instance supplying the car)—a theme that very much follows the agenda of ride hailing solution providers such as Uber and Lyft who have expanded into hardware partnerships and are building out strong in-house capabilities in mapping.

Car sharing is not a platform to promote vehicles (anymore), nor a marketing channel—–it has reached the era of being a competitive mobility service. Beyond market share, having two of the world’s leading car manufacturers’ models at the tip of your finger is a strong starting point for a mobility layer where you have the choice: Do you want to be the driver? Do you want to be the rider? You choose. This is a bet on consumers demanding flexibility—–by German standards also quite bold.

It is also a means of having closer access to consumers. For more thoughts on why this matters, check out my article from earlier this year on the World Economic Forum blog “Agenda”.

Yet, in terms of size in the context of mobility services, the new player will find itself still way behind the competition. UBER reported 4 billion rides in 2017, only topped by China’s Didi with 7.43 billion rides across its 450 million users. The new joint venture, however, gives the German duo the chance to pull together their resources in order to take up the competition, and actually have a fair chance. Strong investments in market growth and software engineering talent will be a requirement to truly own core parts of the mobility services market, though.

Financial Capabilities & Competition

30 % market share in car sharing is solid, the overall share in mobility services including ride hailing services is however much less. The competition to win consumers is around the broader transport experience regardless of the question if one is the driver or the rider for the trip (a question that will definitely be answered with autonomous cars). The growth powerhouses in the mobility services business rely on network effects to further grow and expand the business. This leads to a core question:

To what point is a Western publicly run company going to compete in a race where deep pockets are required to become the dominant player in this network-driven economy?

BMW has claimed profitability for its DriveNow service in 2016 and Mercedes’ Car2Go ensured Daimler’s investors that some of its cities are being operated profitably as well. Those are both great signs: The ability to turn the business model around cars and mobility on demand into a profitable business. Ride sharing giants like UBER have proven similar efforts, yet are seeing that >100 % growth comes at a cost.

With their joint venture Daimler and BMW are competing with companies which are used to burning cash to compete head to head yet willing to consolidate to not burn to death as seen in the case of Didi’s acquisition of Uber's China business and the recent consolidation of GRAB and UBER in Southeast Asia (awaiting regulatory approval).

Those players might have an unfair advantage to the newly formed partnership. The investors of Didi, UBER and their likes trust the economic model that is built on network effects and share the support to burn (money) in order to earn a monopoly-like market position. The shareholders of Daimler and BMW likely have a different temper given their appetite for risk and confidence in proven business models. Considering this, the merger could however open necessary doors for more shared risk for the established businesses and also open paths for more risk-seeking investors to fund and grow the business. After all, the car sharing market is projected to continue strong growth with Global Market Insights Inc. projecting "a massive double digit year-over-year growth (34.8 %), with a projected revenue collection of more than USD 16.5 billion by 2024."

Now it’s about getting things done: Overcoming IT integration challenges

From an IT perspective, I am excited about the holistic view that both companies are taking now by dedicating a specific joint venture to this side of the business. On the Daimler corporate blog, Dr. Zetsche points out a couple of key themes in his post that stand out to me:

"At BMW and Daimler we think it’s time for truly holistic mobility that benefits our customers – without the need for an increasing number of apps, passwords and sign-ins." Dr. Zetsche

The era of apps has passed, the new era of APIs has arrived. While not being a shiny-enough object to make it into one of the press releases, the ability to effectively communicate between existing services and integrate partner services into any customer touch point is a cornerstone of this partnership. As much as financial capital flows are key to market the business, these data flows are key to run the business.

"Many of these plans require not just a new perspective on our own business, but also new partnerships with others." Dr. Zetsche

This hints to a complex piece in the mobility infrastructure of the future. Large scale partnerships that go beyond the current ties of companies: between automotive OEMs, suppliers (stating the obvious here), but much more extensively new service providers in the broader mobility field—as well as cities.

"Altogether, this joint venture is our ultimate commitment to dynamically scale mobility and expand our current service portfolio into new exciting areas in a most customer-friendly manner." Dr. Zetsche

The number one priority for customers, in the end, is getting comfortably from point A to B. For every one of us, comfortably can mean something else: Driving inexpensively across town, driving a sporty vehicle during our commute or weekend trips, or being driven at a fraction of a cost of a traditional taxi ride. Being able to focus on other things than driving and parking, or not even having a driver’s license while still wanting to participate in individual transport expands the range of possible motivations even further. The overall mobility experience will connect much more closely to other consumer experiences and interact with those. Having a holistic approach to mobility is a critical part of enabling this new service infrastructure.

Despite the market dominating position around car sharing, I hope that the European regulators recognize the fact that the partnership is strengthening Europe’s position to compete head to head around mobility offerings in the US and China. After all, a strong home market is just the necessary basis to compete elsewhere.

At Xapix, we are excited about the new opportunities around transport services that are going to arise from this partnership!

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