Thursday, June 16, 2016

What is Telco Equivalent of Automaker Investments in Ridesharing?

How to deal with disruption of one’s legacy business is never as easy as it seems. Facing over the top voice competition, some telcos tried creating their own branded OTT offers, without notable success. Others tried to do so with messaging, again without notable success.

At least so far, some of the most notable “new service” initiatives have involved taking market share from other providers (telcos getting into entertainment video; cable TV companies getting into voice).

The notable exceptions have come in Internet access and mobile services. Both provide the best examples of a new service that achieved ubiquity.

Cable TV firms, on the other hand, have been successful at creating or buying content assets, which providers something of a model for an investment approach for telcos.

So far, access providers have not taken one possible approach, namely taking minority stakes in leading OTT firms.

Auto manufacturers are taking a slightly different approach, investing in the ridesharing firms the automakers believe could disrupt the “car ownership” market. That approach is akin to Microsoft buying Skype.

At least so far, though, the auto investments represent an approach telcos and other access providers have not achieved, the equivalent of AT&T and Verizon becoming minority investors in Google, Facebook and Netflix.

We might yet see something on that model in the Internet of Things arena, though. The key will be a willingness to accept minority ownership, with the corresponding lack of full control.

What we generally have not yet seen is a willingness on the part of some access providers to envision a major change in business model and ecosystem role.

Auto manufacturers actually are investing in ridesharing services because they fear the auto sales business might shrink. So they are hedging by investing in transportation services, rather than vehicle sales.

Driverless cars will be the determining factor if car ownership declines in favor of ride-hailing services, many believe, in large part because removing the need for human drivers can sharply lower costs.

The cost of owning and driving a car an average of 15,000 miles per year in the US is approximately $0.57 per mile driven, according to AAA.

UberX costs $2.15 per mile in New York City and UberPOOL costs $1.61 per mile.

However, if a ride-hailing company could cut the driver out of the equation with driverless vehicles, it could undercut the cost of owning a car.

The parallel shift, for an access provider, would be a shift towards ownership of content and application assets, rather than sales of access services.

As unlikely as that seems, it represents the hedge automakers are making with their ridesharing investments.

Automakers are redefining themselves, in part, from being in the "making cars" business to being in the "transportation" business. The issue is whether service providers can recraft at least some portion of their business from "access" to "apps."

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