Sitting in traffic — and then being unable to park in downtown San Francisco — motivated me to write this post.
The auto industry, for much of the 20th century, represented American ideals. The “Big Three” represented millions employed directly, often in jobs that raised standards of living. The leaders of auto companies came to define modern management, from Alfred Sloan to the Whiz Kids. Cars and culture became intertwined. The suburban lifestyle, from malls to minivans, was enabled by cars.
Through oil shocks, quality imports, labor challenges, urban sprawl, bankruptcies and more, the auto industry has continued to be a massive and essential part of the U.S. economy, and a huge part of growing economies.
That’s what makes the disruption afoot in automobiles even more fascinating. The rule of thumb about disruption is that you can’t predict it while it is happening, and if you’re the incumbent, you are hearing about disruption at every turn. That’s why it is tricky to assert that the auto industry is being disrupted.
There’s a lot of evidence building that the societal and technological underpinnings of disruption are already in place. And there’s a mounting pile of skepticism from incumbents about new technologies. There’s also the role of government as the agent of resistance employed by those favoring the status quo, always under the guise of safety and causation.
Watching the unveiling of the self-driving car at the recent Code Conference offered an opportunity to ponder many signs of change coming together, creating an opportunity to look forward at the changes disrupting the industry and how we get around.
Stepping back from the drama of that onstage demonstration at Code, I see five signs that, when put together, point to a major disruption of the way we think of cars and transportation. These five signs represent the first step in thinking about disruption by identifying changes in the landscape that are structural challenges for all incumbent players.
Urbanization and improvement/acceptability of public transport
All around the U.S. there is a renewed migration to urban centers (this is also an unstoppable force in the developing world). The major coastal cities of New York, Los Angeles, San Francisco, Seattle and more are seeing the population shift back to the urban centers that were shunned as the Boomers settled into the newly created suburbs.
This re-urbanization is accompanied by significant new investment in public transportation within these urban cores. These same cities are spending more on trains, buses and bike lanes than they have in decades. Shared bikes in many cities are making it easy to get from point to point quickly and efficiently.
While the genesis of these projects goes back years, the improvements visible today are supporting and accelerating the ability to urbanize. Businesses incentives to locate in urban cores are on the rise. Across the country, the subsidies for the use of public transportation from employees and institutions contribute to the socialization of the use of these resources.
Unbundling in-car features
It might seem like a small point today, but the locus of innovation in automobile electronics is shifting from hardware to software, and from the car manufacturers to innovative companies building transportation capabilities using mobile platforms. We see the convenience of using maps on a phone with crowdsourced data for road and traffic conditions. We’ve also seen entertainment unbundled, with the ubiquitous tablet now serving as the prime back-seat entertainer. Features that used to be original equipment or add-ons are better, more agile to change and cost less when offered through modern mobile platforms.
This sign has two disruptive elements. First, it is an economic challenge for auto makers who have spent enormous energy building out business and sales approaches based on car “electronics.” Disruption to this disrupts the economics of auto sales, especially since safety and comfort have been “pulled” into the assumed base price of cars.
Familiarity and personalization of transportation comes from what is on my mobile device — not in the car — making the transition from one vehicle to another more seamless.
Second, from a consumer or owner perspective, the familiarity and personalization of transportation comes from what is on my mobile device, not in the car, making the transition from one vehicle to another much more seamless. LocalMotion (Disclosure: Along with Lyft, it’s an a16z portfolio company; I serve on the LocalMotion board) even unbundles the most basic car functionality of entry and ignition, by using an RFID or other means to access the car. With that come all sorts of features previously dependent on a specific car, from GPS location to repair notification — all on my mobile device.
Approximately half the oil used in the U.S. is consumed by personal vehicles. No matter how fast we find new (and potentially risky) methods to extract oil from the earth, we’re going to run short. I have many memories from my childhood of the 1973 oil embargo and the subsequent gas lines, rationing and long-term implications of an oil-dependent nation. The U.S. has only twice briefly shaken an addiction to high-consumption vehicles (in the 1970s and between 2006-2008), and most recently, we’ve seen a resurgence in sales of SUVs and trucks to individuals. Ironically, the competitive advantage held by U.S. auto makers, along with the high profits associated with trucks and SUVs, only further serves to cement their potential for disruption and lack of long-term interest in alternative fuels.
At the same time, there are software technologies advancing that can do far more than incrementally improve the design, manufacture and distribution of alternative fuel vehicles. Tesla has become a symbol of what can be done when there is a complete rethinking of how to build and drive a car. Detroit’s reaction has been unsurprising, if not disappointing. Recently, I saw Bob Lutz, the legendary former chairman of General Motors, in an interview, still talking about range anxiety and potential safety problems of exploding batteries. I suppose you can keep being negative about every potential alternative to the direct use of fossil fuels, but doing so without putting forth any credible efforts for alternatives seems to follow the pattern of incumbents facing disruption.
Owning a car is a big headache. Ironically, it is far less of a headache than it has ever been, relative to reliability and durability. My childhood memory that a trip from New York to Florida required a AAA membership and driving with a fear of a “breakdown” are faint memories. Modern cars, especially those manufactured in Japan and Germany, are insanely high-quality upon delivery (I recall my father keeping a list of defects in our new family car back in the 70s), and remain high-quality for thousands of miles before any service might be required.
But insurance, gas costs, parking costs and the incredibly poor investment represented by auto ownership has now become a headache relative to the perceived social status and convenience. A new car loses 20 percent of its value when it is driven off the lot, and for the pride of ownership, you can pay huge out-of-pocket costs beyond purchase that add up to perhaps $300 a month — more, if you pay for parking and tolls. Yet the average car in the U.S. is parked 23 hours a day, on average. It is literally crazy to own your own car.
With urbanization, even if you want to own your own car, you’re not likely to have anywhere to put it. Given all of this, it is hardly shocking that there is a sea change in attitude about car ownership. Owning a car is no longer aspirational, and our nation’s youth are even waiting longer to get a driver’s license than at any previous time. From ZipCar or Cars2Go to Uber and Lyft, shared ownership and shared ridership are at new levels of convenience and cost.
A short time from now, actually driving a car will seem as out of place as the in-office wet bar seen on “Mad Men.”
The unbundling of features of cars such as keys, personalized maps and entertainment mean that I can walk up to a car, tap in and drive off comfortably. I can also summon an equally convenient ride with precise GPS location. These benefits are extended to commercial fleets of vehicles, which suffer these same inefficiencies on a microeconomic scale. You can see shared fleets of cars using sharing technology that keeps cars in use and reduces the number of cars on the road — better for the owners, better for the roads and better all around.
Needless to say, fewer cars is a massive disruption to the auto industry. We are also familiar that, with disruption, it is often the case that things appear at their very best before they turn for the worse, so the near-term rise in car sales (particularly SUVs and trucks) is poised to be a last major purchase cycle before folks who grew up delaying their licenses, using car- and ride sharing, and looking to their phones for transportation, are the leaders in business and communities deciding how to allocate transportation resources.
Driving technology leading to driverless
When Google showed off a driverless car, designed from the road up to be self-driving, there was a combination of excitement, followed by a lot of commentary about how far off the practical application will be. Even if the driverless car is 15 or more years away, it is inevitable. The signs discussed above only make the driverless car more inevitable, and each is itself an ingredient along the way.
Even before we see a completely redesigned car, we will see the incremental steps — just as we see in tech all the time — there will be broad adoption of driver-assist technologies in existing cars. For many, particularly incumbents, these will have the appearance of meeting the needs of the marketplace. That’s how innovation happens. The dividends of the fundamental work done by Google and other companies on the maps, sensors, control systems and more, are leading to innovations such as the Subaru Eyesight and Mercedes Intelligent Drive — precursors to full autonomy.
On the commercial side, we’re already seeing things like the Daimler autonomous truck. It would not be crazy to see commercial transport move even more quickly to autonomous or hybrid “driving,” given the long hauls on major highways and the immense savings in fuel that could come from consistent driving patterns.
Once there is autonomy, it is not hard to imagine what seems like a utopian view of transportation, where you walk up to any nearby car, perhaps one you summoned via a mobile device, if needed — or even better, one that predicts that you are in need of transportation based on your routine or schedule.
Some individuals might own personal cars and contribute them as a shared resource to defray costs. Companies will be in the business of offering shared cars, and governments might create Divvy-Cars modeled after the urban bikes we have today. Car sharing also benefits enormously from autonomous driving. You can choose to be a car owner and have a vehicle at your disposal, benefiting from the savings that come from sharing with a broader set of folks, while never having to worry about the skill of the driver who takes advantage of your shared asset.
You enter the car, having had credentials verified. Your destination is known, and off you go. Not only does traffic flow more smoothly, simply because more cars are more fully utilized and able to more predictably and algorithmically traverse the roads, but you are far safer, as autonomous cars are free of driver distraction, emotion and slow reflexes. To think that humans are better than computers are at hurling thousands of pounds of metal at 60 mph seems counterintuitive at best. It will almost certainly be the case that a short time from now, actually driving a car will seem as out of place as the in-office wet bar seen on “Mad Men.”
Conservatively speaking, it took about 30 years for car ownership to drive the broad changes across society — starting from the economics of owning a car (and the jobs that were created making them), to building 50,000 miles of highways (that took 35 years and $500 billion), to the development of the suburban lifestyle, and finally the rise in incomes making for one-driver/one-car (actually about 0.8 cars per licensed driver in the U.S., having peaked in 2008).
It could take that long until we are at the next technology peak — one described by uniformly available shared transportation, autonomous vehicles and a societal infrastructure and lifestyle to support these changes. But these changes are coming. There’s an inevitability when you put together the signs of change — society is evolving.
Incumbents will take near-term approaches that have the effect of incrementally improving where we are in transportation. That’s not a negative, but it is a reality. Cars will add improved safety tools to alert drivers who are swerving on roads. Cities will employ sensors and monitoring systems to provide more information about congestion. Technology will continue to squeeze more miles out of burning fossil fuels.
We shouldn’t forget that car enthusiasts are like any tech enthusiasts, and they will continue to invest in the depth of knowledge and enjoy the experiences they have come to love (the way many Boomers enjoyed tuning up and tinkering with cars, much to my personal disinterest).
That’s what happens with disruption — while it is happening, it seems like it is going slowly. Then all of a sudden things are different.
There’s also the likelihood that incumbents will resist technological change. We will see leaders talk about “range anxiety” of alternatively powered vehicles. We will see opponents of shared assets continue to talk about the risks to public safety. We’ll see the status-quo forces of interest groups resist the infrastructure changes and spending required (just as those same forces opposed the freeways of the era we currently benefit from).
This is part of societal change — no one is acting in bad faith, and the give and take of making progress over these time periods and levels of investment cannot happen without differing viewpoints arriving at change in their own ways and at their own pace.
At each step in technology evolution, the installed base often denies the mounting evidence of improvements in the next generation. Recall that many programmers resisted protect mode, virtual memory, graphical interface and tablets. Fly-by-wire commercial aircraft were introduced by Airbus and initially played down by Boeing until they were all-in with the 777. We see drivers who have resisted automatic transmission, GPS and even cruise control, and we will see incumbents of all types resisting the full redesign of cars.
Perhaps the common thread in technology innovation is that it takes a new company free of constraints to truly redefine a product.
Cars didn’t exist when the 20th century started. With Moore’s law enabling a faster pace of change, it would not be surprising to see the world look just as dramatically different in half the time. In historical terms, the car-ification of the U.S. took a blink of an eye. The 2.0 version has the potential to change even faster.
And as you get your mind wrapped around the changes to your family car and local taxi service, start to consider how these exact changes will really impact public transportation, roads, airplanes, trains and more.
That’s what happens with disruption — while it is happening, it seems like it is going slowly. Then all of a sudden things are different.
This story originally appeared in Re/Code.
The views expressed here are those of the individual AH Capital Management, L.L.C. (“a16z”) personnel quoted and are not the views of a16z or its affiliates. Certain information contained in here has been obtained from third-party sources, including from portfolio companies of funds managed by a16z. While taken from sources believed to be reliable, a16z has not independently verified such information and makes no representations about the enduring accuracy of the information or its appropriateness for a given situation.
This content is provided for informational purposes only, and should not be relied upon as legal, business, investment, or tax advice. You should consult your own advisers as to those matters. References to any securities or digital assets are for illustrative purposes only, and do not constitute an investment recommendation or offer to provide investment advisory services. Furthermore, this content is not directed at nor intended for use by any investors or prospective investors, and may not under any circumstances be relied upon when making a decision to invest in any fund managed by a16z. (An offering to invest in an a16z fund will be made only by the private placement memorandum, subscription agreement, and other relevant documentation of any such fund and should be read in their entirety.) Any investments or portfolio companies mentioned, referred to, or described are not representative of all investments in vehicles managed by a16z, and there can be no assurance that the investments will be profitable or that other investments made in the future will have similar characteristics or results. A list of investments made by funds managed by Andreessen Horowitz (excluding investments and certain publicly traded cryptocurrencies/ digital assets for which the issuer has not provided permission for a16z to disclose publicly) is available at https://a16z.com/investments/.
Charts and graphs provided within are for informational purposes solely and should not be relied upon when making any investment decision. Past performance is not indicative of future results. The content speaks only as of the date indicated. Any projections, estimates, forecasts, targets, prospects, and/or opinions expressed in these materials are subject to change without notice and may differ or be contrary to opinions expressed by others. Please see https://a16z.com/disclosures for additional important information.