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For TaaS Providers, Engagement is Everything

More OEM’s Offering Subscriptions

Over the past weeks, we have seen more announcements from OEM’s intending to become Transportation as a Service — TaaS — providers.  Nissan announced a subscription pilot called Switch.  And Hyundai announced a partnership with the startup Canoo.  Canoo intends to offer its vehicles only by subscription. 

New Metrics for New Challenges

For these companies to be successful in a TaaS business, they will need to learn lessons from service businesses that came before them.  And importantly, they will need to learn all new ways to measure business performance. 

OEM’s are accustomed to measuring customer satisfaction in terms like Quality, Durability, and Performance.  These are all product metrics, and they are the metrics that matter if the main objective is to sell the customer an expensive product once every couple of years.  But how should metrics change when the customer is buying a service, with the ability to cancel or change every day?  In that world, Engagement is Everything.

Metrics for a Services Business

I was reminded of the power of Engagement when I had a chance to listen to the weekly “a16z” podcast from Andreessen Horowitz.  The title of the podcast was “Metrics and Mindsets for Retention and Engagement.”  The purpose of the podcast was to provide an overview of the key metrics that have been used by some of the internet’s giants, like Facebook or Pinterest or AirBNB.  These same metrics have been used in automotive service businesses like OnStar or SiriusXM. Some key takeaways:

Think in terms of three key metrics:  Acquisition, Engagement, and Retention.

  • Acquisition is how many customers were added in a given time period
  • Engagement is how frequently those customers use the service, and how many of the services they use
  • Retention is how many stay with your service in any time period

Of these three, Engagement is the most critical.  It predicts Retention and its opposite:  Churn

  • Engaged customers stay longer
  • Engaged customers are happier
  • Engaged customers recruit other new customers
  • Engaged customers spend more on your services

A service provider needs to be great at measuring and tracking Engagement

  • Watch how engagement changes over time from new users to experienced users
  • Compare engagement for different cohorts of users, and drive to increase engagement as a core business metric
  • Compare engagement for different types of users
  • Understand what behaviors predict increased or decreased engagement

And a service provider needs to test and learn relentlessly

  • Test different ways to create the best new customer onboarding experience and launch early engagement
  • Test different methods to drive greater and more frequent engagement
  • Test methods for re-engaging customers who have fallen off
  • Test methods for preventing Churn

Takeaways for an OEM moving into TaaS:

So what does this have to do with the TaaS plans of the major OEM’s?  Isn’t Nissan’s Switch or Canoo’s subscription just another form of auto financing — building the cost of maintenance and insurance into one monthly price?  Without a focus on Customer Engagement, they will be, and I think they will likely fail to attract (and retain) large numbers of customers.  With a focus on engagement, though, these services have the potential to create real value for customers.  Because another way to think about engagement is to ask how often the customer is coming to the TaaS provider for additional help and additional service solutions.  Engaged customers will keep coming back to their service providers for additional transportation problems and — if they’re good — those providers will keep coming up with more and better solutions.  

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OEM to Transportation Service Provider — Easier Said than Done!

Intense OEM Activity

Over the past year or so, several auto manufacturers, or OEM’s, have announced their intention to make a shift from manufacturing cars and trucks to become providers of comprehensive transportation services.  And their announcements are backed up by multi-billion-dollar investments. 

In December, Hyundai announced its intention to “Transition into a Smart Mobility Provider by 2025” as part of its 5-year, $40B capital plan.  Following that, Herbert Diess, CEO of Volkswagen, said in January of 2020 that, as VW shifts to become a maker of electric vehicles and connected cars, “The era of the classic carmaker is over.”  In April of 2019, Ford implemented a re-organization, which placed Jim Farley as President of New Business, Technology, and Strategy.  Farley’s responsibilities include Ford’s Smart Mobility business, which is intended to invest in and create new mobility services. Finally, General Motors unveiled it’s “Origin” autonomous vehicle in January of 2020.  In response, a NY Times article covering the unveiling reported that GM’s plan was not to sell the vehicle, but rather to use it as part of an autonomous taxi service operated by GM’s Cruise subsidiary.  Other global OEM’s have made similar announcements.

Why OEM’s have their eyes on Transportation as a Service, or TaaS

The OEM’s interest in becoming transportation service providers is understandable.  They see growing interest of consumers in purchasing transportation this way through ride sharing, micromobility services, etc.  This causes the OEM’s to fear a shift of customer loyalty toward the providers of those services, and away from the manufacturers.  OEM’s are also widely installing Connected Car technologies, which allow for easier remote management of fleets of vehicles.  But it is not easy to become a service provider, and it is even harder to do it while continuing to be a profitable manufacturer. 

Challenge #1:  Running a Service Business Requires New Skills

Today’s OEM’s are very good at efficiently manufacturing huge volumes of complex vehicles with high reliability and consistent quality.  OEM’s are good at logistics and supply chain.  OEM’s are good at product and manufacturing engineering.  OEM’s are good at product design.  But OEM’s have very little experience with managing 1:1 customer relationships.  In managing a service, every single customer experience is unique.  To be successful, a service provider has to be great at listening to and evaluating customer feedback.  A service provider has to quickly adjust their service to match changing customer needs (no more 4-year product cycles!).  To be profitable, a service provider has to rapidly adjust capacity and pricing to match demand.  To their credit, many OEM’s are experimenting in these spaces through investments in start-ups and through services pilots.  They are certainly learning from these experiences.  But to be successful and to successfully shift their business models, OEM’s will need to gain a lot more experience.

Challenge #2:  The Services Business may not be Aligned with the Manufacturing Business

Several OEM’s have painted a vision of providing comprehensive transportation services for consumers — from bikes and scooters, to cars and trucks, to buses, planes, and trains.  No OEM has indicated that they intend to make every device in the chain, but most indicate that they plan to use their own cars and trucks within their transportation service.  The challenge comes when the OEM doesn’t happen to make the product that is best suited to the needs of the transportation service.  For example, suppose the transportation services needs a standard midsize sedan as part of its service suite.  What happens if the parent OEM doesn’t make the most space-efficient, or most reliable, or most fuel-efficient midsize sedan?  Should the transportation service have the freedom to buy the best vehicle for its service, or will it be forced to buy a sub-optimal sedan from the parent and eat the loss in efficiency or revenue?

Challenge #3:  Competition with the OEM’s Traditional Customers

Before it was called “Transportation as a Service (TaaS),” or “Mobility as a Service (MaaS),” this concept had another name:  the Fleet Business.  Rental companies and Fleet Management companies have been in the business of providing transportation services for a long time.  These Fleet customers can represent 20% or more of some OEM’s sales.  Fleet customers will see a move by OEM’s into Transportation Services as a shift from the OEM as a Supplier to the OEM as a Direct Competitor.  In order to maintain their sales volumes, OEM’s may have to choose between serving their traditional customers and building their new service businesses.

So, all credit to the traditional OEM’s for recognizing the growing customer interest in transportation as a service.  They can take credit, also, for seeing the potential for disruptive business models that are enabled by Connected Car and other technologies.  OEM’s may find, though, that their new TaaS businesses may need to quickly become much more independent in order to  be build the necessary skills to grow and become fully successful.