Ridesharing still costlier than owning private car, with 70% of market untapped
16 June 2017
Current ridesharing services such as Uber have only tapped into 29% of their potential US market, according to consultancy McKinsey, and are still relatively expensive. They remain more costly than owning a private car, in part held back by a pricey 45% driver annual turnover rate. This limits their potential growth, and so despite current 250% annual growth, they still only account for just 1% of vehicle miles in the US.
To meet their full growth potential, McKinsey says, ridesharers, including OEM vehicle-designing partners, need to focus hard on attracting the family market through flexible vehicle design, and the commuter and business market by lowering costs through flexible ridesharing services that seamlessly pool journeys in the same vehicle.
Highlighting this in their webinar ‘Mobility Moonshine: new vehicle concepts for the future of ridesharing and commuting’ with their design team Lunar, McKinsey’s research shows that 83% of users of ridesharing services say convenience is the primary reason they choose ‘ridesharing’ – which McKinsey defines as all new services from e-hailing to dynamic route minibus services such as MOIA.
It also points out an inhibiting factor for new players in the market, with a dominant ridesharing company such as Uber or Lyft building attention and loyalty, making it hard for other players to break through. However, it says this is only the case if competitors do not offer something different – and that with 70% of the potential market still unaddressed by current ridesharing solutions (according to research from the US Federal Highway Commission, August 2016), there is plenty of scope to achieve this.
Firstly, McKinsey says that the top two uses of US ridesharing services are business use, and trips within cities and inner suburbs. This means that the entire rural and non-urban markets (where, for example, Uber cannot offer a ride within five minutes) are unaddressed. Another key market unaddressed in the shopping market, since current ridesharing solutions are unable to cater to people with large amounts of shopping.
McKinsey also conducted behavioural studies, which showed that commuting people are generally much more introverted in the mornings; they desire a more private experience, perhaps including reading or with headphones on, and possibly wishing they were still asleep. However, when coming home, people tend to be more social (and others are tired). McKinsey characterises this as people being in different kinds of ‘modes’, and therefore the best ridesharing solutions would be flexible and responsive to these different kinds of modes, giving people the opportunity to have different ambiences depending on the different ‘mode’ they are in.
To address this, McKinsey internal vehicle designers Lunar have created a ‘WEGO’ concept for a shared commuting minibus-style vehicle, which has two aisles of seats down the vehicle. Each set can rotate, so people can choose to have a more personal experience and face the seat towards the window, or they can choose a more social experience and face the seat inwards to converse with others riding on the bus. Lunar says that for ridesharers, the interior design is key to the experience – and to competitors creating a unique experience – and that they have had a positive reaction to their designs from OEM design teams. They also say that their research shows that car identity has become less of an inhibiting factor in the US due to traffic and parking becoming so stressful, and that people value the benefits of ridesharing, and how easily it becomes to get from place to place. Time is also freed up for people to do other things while they are travelling, and relax.
Safety was another focus of their research, which highlighted that US people generally feel safer on ridesharing services than in cabs, but that women on average do not feel safer with Uber. McKinsey stresses that there is still a need to address how to make people feel safe when travelling in ridesharing, and that getting this right will enable ridesharing to grow.
The family market is a crucial unaddressed sector of the ridesharing market, with current solutions unable to provide features necessary for this market, such as booster seats for young children.
McKinsey designers also showcased their ‘MEGO’ design concept, which aims to allow ridesharing vehicles to tap into the family market, as well as providing a superior experience for their current userbase. This concept is for a standard five-seater car, and includes a front passenger seat that can be folded forward to provide additional space for people to get in.
Designers Lunar point out that for ridesharing, the back seat of a typical vehicle is the core revenue generator, and therefore it should provide a better experience than the front seats. In addition, to make people feel safer, the concept improves sight lines, so that there are no hidden areas in the back seats, which McKinsey research shows makes people feel much safer, in addition to the more open-air feel of the interior.
Another interesting detail highlighted in their research is that the cost structure for a non-dedicated ridesharing vehicle is 40% lower than for a dedicated vehicle (e.g. a London Black Cab), and therefore that ridesharing vehicles should be flexible for other uses. As a result, in Lunar’s MEGO concept, all back seats can be folded up to allow for the vehicle to also be flexible for use for package delivery for off-peak hours. Car sharers also often do their ridesharing part-time so they can use the extra money to buy a better car than they would have done otherwise, which is another reason why the vehicle must be suitable for flexible use. The MEGO concept also includes a dedicated touchscreen, such as to control temperature without asking the driver, which Lunar says is better than putting this functionality on a user’s smartphone, as it makes the controls more accessible and solves problems such as draining smartphone battery life.
McKinsey highlights three key growth areas for ridesharing: purpose-built vehicles that can provide these safety and flexibility benefits, multi-person transportation solutions (such as MOIA and Uber Pool) and autonomous vehicles (which can dramatically reduce cost by removing the driver).
These multi-person transportation solutions should target in particular the currently-untapped commuter neighbourhoods and employer hubs, and that by doing this in the US, McKinsey research suggests use of ridesharing could reach around 40% of the US population. This is because journey destinations are often clustered together, such as at city centres, big employers and interchange transport hubs such as airports, and therefore there is key potential for dramatically lowering ridesharing costs through a pooled solution for these markets through multiple people sharing the same vehicles. Whether people would be willing to change rides part way through their journey should also be explored, as this could bring down costs further. For very high density areas, minibuses and large buses could be used to bring down economies of scale (and congestion) even more. This is the market Ford’s Chariot minibus solution is trying to solve, although McKinsey stresses the service should not just be a smaller version of current buses, as this will not allow the service to maximise the potential market through economics and experience.
Ultimately, with the rise of autonomy, McKinsey expects that vehicle design will increasingly diverge from current driver-oriented vehicle conventions, which will allow the cars to be much more open, benefitting not only passenger experience and ridesharing, but also connected car features and entertainment possibilities.
Finally, McKinsey highlights that the consensus from OEMs is that these more flexible approaches to ridesharing that will allow for a much wider potential market are likely to find much more traction in Europe and Asia, where mobility is much more multi-modal with other services such as trains and buses, than in the car-dominated US.
Photograph courtesy of Daimler
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