null Mellon Mobility Innovation: The Economics of Sharing
Manager Insights

Mellon Mobility Innovation: The Economics of Sharing

Manager Insights Article Thematic Equity
April 2020
Mellon Mobility Innovation: The Economics of Sharing

Rideshare services have revolutionized the convenience of getting somewhere quickly. Several larger ridesharing companies went public in 2019. While long-term growth prospects look promising with higher rider adoption, several issues can challenge this disruptive industry and force it into a shakeout. Growing concerns from the public and lawmakers surrounding congestion and employment regulations are driving more stringent laws and increasing barriers to growth for companies within this space. We researched this sub-theme extensively in 2019 and concluded that portions of the sub-theme will continue to face more challenges. However, given the onset of the COVID-19 pandemic, usage patterns could change to provide some new tailwinds for players who can navigate this difficult economic period.

In 2019, the state of California passed the AB 5 Bill, ruling to reclassify so-called “gig economy” contractors as employees. While this legislation will take time to enact, it represents the potential for other US cities, states and perhaps other countries to raise and restructure compensation. Historically monetized at a discount to legacy taxi services, ridesharing companies may see margin pressure from rising cost inflation. Moreover, rising insurance costs from poor insurance claim reports can reverberate back on the ridesharing companies or on their drivers. Lastly, local municipalities and cities are redefining access and routes for ridesharing companies to reduce the congestion they promote. New York, Virginia and Massachusetts, for example, are reviewing dynamic pricing and changing ridesharing rules to boost the number of patrons per ride. Ridesharing safety is also driving new legislation. For example, lawmakers in Massachusetts recently proposed new legislation that would mandate enhanced protection of riders’ personal information, as well as increased trip data collection.

Various navigation services have taken notice of the changing reaction to ridesharing companies and have begun offering new services such as carpool options, allowing people to commute with neighbors, alleviate traffic, and reduce transit costs. One such company has already announced the US’s first autonomous rideshare service. As our previous article discussed, fully autonomous vehicles are not yet a reality, but are rapidly underway. The net result of these changes can equate to slowing ridership volumes, lower profits per ride or both. For example, carpooling services may reduce global emissions at the expense of driver monetization.

Furthermore, the ridesharing industry is grappling with rising competition. Aggressive fund raising totaling $77 billion and falling barriers to entry are threatening future investment returns. While consumer choices are expanding from new players entering the field, we ultimately expect consumers to gravitate to providers that can deliver mobility-as-a-service apps. These “super-apps” can include a wide variety of mobility offerings including ridesharing, carsharing, micromobility and food delivery. Ultimately, the breadth of service may favor players with strong brands who can also deliver at a local level. Consolidation may be necessary to improve returns. Until then, ridesharing vendors may need to reassess their offerings and exit unprofitable markets to improve earnings and cash flow. Recently, we have begun to see vendors narrowing their service and geographic offerings in parts of the food delivery market.

Recently, the COVID-19 pandemic has rippled across the global economy. Travel related services have been disproportionately impacted as countries have closed borders and issued shelter-in-place rules in certain locales. Ridesharing companies are susceptible to weaker demand from drastically reduced travel activity and reduced personal mobility as consumers work from home. The depth and length of the current economic malaise are unknown given the contagion’s unpredictable trajectory and the timing of potential antidotes and vaccines. This uncertainty may persist in coming months and overshadow the sharing economy for some time. However, the industry is finding new ways to monetize these mobile networks. Food delivery is becoming a more popular option for both consumers and restaurants as delivery plays a bigger role thanks to social distancing. Additionally, some ridesharing companies are providing vital community services by shuttling much needed medical supplies, medical professionals or patients to their destinations.

Sharing companies can also adapt to the changing landscape with automation. Utilization from robotaxis could boost asset utilization versus today’s more traditional methods. While some robotaxi services may launch in the next several years, they will require continued investment and favor companies with scale. Over the longer-term, robotaxis may see broad adoption due to increased and possibly sustained emphasis on social distancing.

Based on the combination of new regulatory statutes, rising environmental concerns and changing consumer preferences, we expect the ridesharing industry to adapt and evolve in rapid fashion over the next several years. While these forces provide a variety of challenges, we see the potential for continued secular growth for those companies that have the scale and agility to adapt their business models to these new realities.

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