Daimler’s struggle to become a platform player in urban transportation
Car manufacturer Daimler, who owns the Mercedes brand, has been quite aggressive in pursuing new business opportunities in the evolving context of urban transportation. Along the way the company is shifting from a product-centric business model to a platform approach to create and capture value.
More and more urban dwellers in developed markets don’t feel the need to own a car anymore. Instead, they rely on other transportation services that have sprung up and expanded over the past few years such as ride- and car sharing. Furthermore, the car seems to have lost some of its appeal as a status symbol particularly among a younger demographic. [1] Unlike most traditional car manufacturers, Daimler, who owns the Mercedes brand, has been quite aggressive in pursuing new business opportunities in this evolving context of urban transportation. Along the way the company is shifting from a product-centric business model to a platform approach to create and capture value.
In a first move, Daimler founded car-sharing service Car2Go in 2012. Users can rent a car on-demand for point-to-point routes via a smartphone app and are charged by the minute. Today, Car2Go is the world’s largest car sharing company with over 1,000,000 registered users in 30 cities. [2] There are some direct network effects as customers benefit from a larger user base that extends beyond their hometown when traveling to another city. To strengthen direct network effects Car2Go implemented a ride-sharing feature: customers can easily pick up other users along the way and split the fare. Nevertheless, network effects in the car-sharing business are fairly weak. However, Daimler also made a first foray into platform business models that exhibit much stronger network effects by strategically investing in several start-ups.
In 2014, Daimler acquired MyTaxi, a mobile platform that connects passengers and taxi drivers. [3] MyTaxi was a first mover and invested heavily in platform quality (e.g. intuitive user interface, convenient payment process) to increase its user base initially. Even though taxi drivers were reluctant to allow MyTaxi to intermediate the industry in the beginning, indirect network effects (i.e. access to a large and growing customer base) were too compelling eventually. In turn, a growing number of drivers attracted more users kicking off a positive feedback cycle. Today, MyTaxi is the dominant player in core European markets and processes every second taxi journey in Germany. Additional investments that Daimler did in companies with business models exhibiting similarly strong indirect network effects include the peer-to-peer ride-sharing platform Carpooling and park-sharing platform Park2Gether. [4]
Despite these successful investments in existing platforms, Daimler’s most ambitious move to become a platform player has not really taken off yet. With the launch of Moovel, Daimler attempted to create a platform integrating various urban transportation services (e.g. public transport, taxi, car sharing, bike sharing, ride sharing) by multiple providers. This would allow users to access and combine a variety of transportation services by conveniently planning and paying for their trip through a single app. For example, optimizing for price and convenience to get from A to D might involve using a bike-sharing service to get from A to B, public transport from B to C and finally a car sharing service from C to D. With Moovel users can seamlessly travel this itinerary without having to deal with three separate providers’ registration, reservation and payment processes. Daimler pockets an undisclosed percentage of revenues from providers for each booking made on its platform. Again there are indirect network effects at play: the higher the number of services that can be accessed through Moovel the bigger the value for users and in turn, the more users are registered on the Moovel platform the more valuable it becomes for service providers.
However, so far Daimler has struggled to sign up a critical mass of members on either side. Available providers comprise mainly companies directly linked to Daimler (e.g. Car2Go and Carpooling) and the number of active users – although not publicized – seems to remain low. One possible explanation might be that the value of aggregating various urban transportation services is simply not big enough for the user. After all there are usually only a handful of providers in a users’ home city covering a large chunk of possible routes, unlike air travel with many airlines and possible itineraries. Another explanation is that service providers perceive Daimler as a direct competitor and are therefore reluctant to join its platform. For example, it seems unlikely for now that DriveNow, a car-sharing subsidiary of BMW, will join Moovel. Finally, Daimler might still be too hesitant to fully commit to a platform strategy by heavily investing initially to sign up users and service providers and potentially cannibalizing some of its traditional business. After all, selling flashy premium cars is still very profitable – at least for now.
[1] McKinsey & Company: Mobility of the Future
[2] www.car2go.com
[3] www.bloomberg.com/news/articles/2014-09-03/daimler-buys-uber-rival-mytaxi-in-services-expansion
[4] www.techcrunch.com/2012/07/26/carpooling-daimler-carwars/
Great post. I think the entire transportation business will be affected much stronger by network effects in the future. Companies like Uber already show the potential of platform-based transportation services and probably we can expect much more in the next years (e.g. delivery services). It’s very interesting that none of the German car manufacturers has been able to reach a tipping point for their respective carsharing service so far. I think the next few years will be crucial to gain the network effects that are needed to survive in this business. Maybe the best strategy would be to cooperate with each other as they did for the Nokia Here acquisition this year. If they do not, I think there is a huge risk that new entrants like Uber will quickly dominate this attractive market.
Really interesting post! From a strategic standpoint I understand they are looking ahead to where the market is heading. Companies like Uber in the future will have much larger bargaining power on price vs. individual consumers. It makes sense that car manufacturers want to get ahead of the curve. But from an M&A standpoint, Daimler needs to find ways to create value through such an acquisition. I could see Daimler adding value through better maintenance of the platform’s fleet, thus building more trust with users. Uber has a poor reputation of treating drivers so this could be another point of differentiation for the platform. Although paying drivers more may result in higher prices, Daimler can use the Mercedes brand to position the platform as a higher-end offering. The combination of quality, service, driver loyalty could create strong network effects.