Analysis: the right angle

Thu, Jul 21, 2022 ❝Differences in preference may be trivially explained if approached from the right angle.❞

Contents

TL;DR this post goes into how big the difference is for a transportation enjoyer and the car industry. The enjoyer needs only look at the benefits (and possible costs and trade-offs), while the car industry has to adapt a complete supply-chain to a shifted balance of qualities. It is fully understandable that this is easier on the enjoyer than the industry. However, it also shows how trivial it is for genuine benefits to persist once they are proved possible, and consequently hard to reject/resist, and almost impossible to deny.

In The Third Industrial Revolution, they discuss the difference in attitude towards car-ownership among younger generations. This is a problem for our economy. I want to take this problem as an example of looking at a problem from a practical point-of-view. In the post on the third industrial revolution, I mentioned a different method to identifying potentially disruptive changes using indicators. Before we go there, in the next post, this post looks into modeling societal changes through their qualitative characteristics. This model removes the “implementation details”, which are irrelevant to the typical consumer (outsider).

“We built the whole global economy in the second industrial revolution around car ownership. That’s what this was all about. You’ve thrown us a curve. You really have. Apparently you don’t want to own cars anymore. This is grandma and grandpa. They’ve got two cars sitting in the drive-way. Cleaning and waxing them every few weeks and they’re never used, or they’re at the office 90% of the day, never used. You don’t want to own cars. You want access to mobility and car-sharing networks, not ownership of cars and markets, correct? So, there’s a problem here. The problem is: for every car shared in car-sharing in the sharing economy, we’re eliminating 15 cars. This is both a problem and the opportunity.” – Jeremy Rifkin

The key subject, the surprise, here is the idea that millenials and younger generations do not want to own cars. The way it is explained, and undoubtedly the way that it is perceived by many people in the business, is that this is unimaginable. Something they could not see coming. And it is understandable. A decades-old industry, still well alive, is architected from the ground up around the idea that the car is the most-desired mode of transportation (and often status). More than just a “different idea”, it is counter-intuitive. Why would you not want to own a car, if you can?

For a long time, the go-to mode of transportation for non-car-owners was (is) public transport. Depending on where you live, public transport can be more than sufficient for most needs. People who live in cities typically have several choices of public transport, giving them quite some flexibility. A car would still be nice, but comes at a price. In return, you have even more freedom. In the country-side, a car is often simply a necessity, because public transport is significantly more limited: less choices, less frequently. Therefore, a car provides (relatively) even more benefits.

Currently: car-ownership

Now, let’s look at the car industry. Note that I am not intimately familiar with the industry, but it is not hard to figure out that there is a massive supply chain of manufacturers and assemblers and anything else related to automobiles. The industry is heavily invested. Heavily invested in few business models, most notably “private car ownership”.

The use of a car and the most prevalent model car-ownership are based on a few “qualitative promises”:

• freedom to use any time
• freedom to go (virtually) anywhere
• freedom from service-providers:
  • few dependencies for maintenance
  • fewer dependencies for use

These qualitative benefits are what car-owners are buying into. They are familiar with two choices: public transport and the availability of a car, offering a lot more independence. So, not suprisingly, the car offers very attractive benefits. And, not surprisingly either, an extensive industry emerges around “car-ownership”.

Next: car-sharing

And now, as mentioned above, we move towards a car-sharing economy. Suddenly, people “do not want to own cars anymore”. But, actuallly, it isn’t at all about not wanting to own cars. It’s about ownership no longer being a necessary condition, while acquiring even more qualitative benefits than with the previous model. To fully understand the extent of qualitative advantages available nowadays, it is also important to take recent IT, information handling, electronics, battery, car industry, and other developments into account. These are literally game-changing events.

• … all of the car-ownership advantages …
  • freedom to use any time: this is realizable because of the ability to automate planning and administration of cars
  • resource-availability (within reason), given the availability within a car-sharing pool
• locality, availability: any car in the neighborhood that participates in car-sharing and is available
• (near-future) artificial intelligence that drives the car
• more sharing, means more frequent use, means more timely maintenance and replacement, resulting in fewer older cars
• environmental benefits from shared use
• cost: less control over availability (during peak-demand)
• cost: depends on a way to manage shared use, shared maintenance

All of the reliability/maintenance/safety/security features are available to car-owners too. However, car-owners are fully aware of what/when/where their car is used. This is a factor of uncertainty when cars are generously shared among users. However, there is more control and insight into the state of the car. Or conversely, cars have become sufficiently complicated machines that a sole owner cannot have technical overview anymore, anyways.

Locality is needed for timeliness, to allow for the “any-time”-freedom. Given a large enough pool of cars, there will always be a car in the neighborhood. Peak-hours will be an issue, so this may take some planning/adapting. However, car-owners suffer from a similar “denial-of-service” in the form of rush-hour traffic. Realisitically, without the developments in IT and information handling of the last few decades, car-sharing would be a lot more difficult. It isn’t about “not wanting to own a car”. It’s about “not needing to own the car”.

I would be curious to see if/when we get to the point where the car-shared cars are more attractive due to better maintenance/age/use benefits.

The angle

So, to get back to the topic at hand: there is little surprise that these ideas emerge. It is a matter of feasibility and realistic expectations. From the user’s perspective this is matter of available options, risks, benefits. The risks were big before, but they are manageable now, due to advances in technology. To benefit from these qualitative improvements, one simply needs to find a model that is designed to include these additional qualities. Car-sharing is this model. In a way, balance has shifted. That is, the balance of qualities that are significant or even relevant to the equation is different. New solutions become viable, and old solutions may find they are no longer in the sweet spot.

From the industry perspective, this is a big problem. The car industry with everything related to it, has been optimizing for decades for a balance where car-ownership is the sweet spot. Industries have settled themselves in an ecosystem that is a balancing act of supply chains that are highly-optimized to the car-ownership model and its life-cycle. The more optimized they are for one model, the harder and more costly it is to reorganize for a different model.

Disruption

Looking at the problem from this angle, there is very little controversiality or disruption about it. Due to new qualitative improvements, the balance shifted. People realize new options are available. That’s it. No bad intentions, no rebellion, no organized movement. The only disruption that takes place is in the qualitative improvements that are available. The moment users become aware of alternative solutions that are more attractive is the moment there is a shift in conciousness. With the changed mindset comes the change in demand for the industry. The industry has a more difficult time to adjust, because of how massive it is and how optimized it is. Of course, certain scandals do not help the cause.

Prequel: public transport

This post focuses on car-ownership vs car-sharing. Public transport has improved in the mean time. There are plenty of circumstances where public transport is the most attractive solution. This post does not try to imply that public transport is obsolete, because it is not the case. Public transport has very nice characteristics, such as parking space efficiency, infrastructure occupation efficiency, fuel-economy, passenger-density. However, considering the qualitative advantages that we mentioned before, current public transport still relies on schedules and fixed paths. In terms of these qualitative characteristics, little has changed. If you would have chosen car-ownership for added freedom, now you may choose car-sharing for its added benefits on top of these freedoms.

Side-tracking

I got side-tracked revisiting a few societal developments as I wrote the article. Not sure if you find this equally relevant.

• “V for Vendetta” demonstrates how ideas will persist even in an extreme setting. However, this movie portrays a dystopian society. This may, unintentionally, give the impression that this thing with “persisting ideas” is not relevant (yet) in our society. This particular example, “car ownership vs car sharing”, shows how trivial, yet real, the matter is.

• Norway investing oil profits in other areas is interesting because this is a direct way to avoid (over)optimizing an industry. If profits – in full – flow back to the source, this encourages further optimization. Optimization is not bad per-se. However, as this post discussed, heavy optimization also means a more difficult time to make significant changes. If, on the other hand, profits were spent (in part) on research, even in the same industry, this at least keeps options open. That is, if research is unbiased and undirected.

• Sunk cost fallacy I wonder to what extent this plays a role. On one hand, it obviously does given the amount of investment/optimization. On the other hand, invested wisely such as in unbiased research, should provide an overview of the domain and developments, including possible transitions out of the original industry. So the sunk cost fallacy itself may not be a relevant.

• As almost anywhere, misinformation is a problem. Even if you “just” look at qualities, which are abstract, you will need to trust (or have reliable understanding yourself) in the costs and benefits. As an example, we have seen how problematic this was (and still is?) for the matter of climate change.