How China Is Driving A Connected Mobility Revolution

Forbes Asia, May 8, 2016

Click here to read this article at Forbes.com

By Bill Russo

For the early part of the 21st century, China has been the growth engine of the global automotive industry. Despite a recent slowdown, China will surpass 25 million units in annual car sales in 2016 and has become the battleground for dominance of the global auto industry.

Several driving forces, which are particularly evident China, are disrupting the status quo of the automotive industry:

  • The unique context of China’s urban transportation challenge, the high rate of adoption of mobile device connectivity, combined with the rapid and aggressive introduction of alternative mobility solutions.
  • Disruptive new entrants into the mobility solutions competitive landscape, who draw insights about customers based on their online behaviors and mobility habits in order to offer a diverse pool of new revenue-generating solutions.

The confluence of these forces are changing the landscape of how mobility needs can be served in a rather fundamental way, touching off a wave of experimentation among both traditional automotive and new mobility solutions providers.

The Origins of Disruption

Disruptive business models typically originate from outside the core set of industry players.  Traditional Original Equipment Manufacturer (OEM) business models rely on selling products through an established business-to-consumer (B2C) channel, often through an intermediary sales partner that is either owned or franchised to represent the OEM brands in the marketplace.  Consumers pay to own the asset outright.

The entry point for disruption is through the “pay-per-use” service-based business model.  While this channel has existed for some time in the form of services managed through centralized professionally managed fleets (rental car companies, taxi and chauffeur services), digitally disruptive companies such as Uber, and China’s Yidao Yongche and Didi-Chuxing (created from a merger between rival mobility services from Alibaba and Tencent) have gained rapid and widespread market acceptance.

Once an entry point is established, these services-centric Information and Communications Technology (ICT) disruptors are able to leverage their big data and analytics capabilities to gain insight on consumers and their mobility patterns and behaviors. Essentially, these disruptors view connected mobility services as a natural extension of their ecosystem platform and are viewing the traditional services and perhaps even the OEM hardware business as a way of expanding their ecosystem.  Serving the “Mobility on Demand” market is merely the point of entry for an entire suite of Internet-based mobile connectivity services which may include navigation, route planning, e-commerce, vehicle repair and maintenance, usage based insurance, and other very lucrative “owner services” which are very important to today’s OEM business.

ICT disruptors are leveraging connected mobility services as a means to disintermediate the value chain of the automotive industry and capture a profitable services ecosystem.  OEMs are at risk of their business model being relegated to a high-risk, asset-intensive, commoditized, business-to-business (B2B) channel for delivering hardware to the profitable ecosystem of the mobility services providers.

Reimagining Personalized Mobility

The motivation for many ICT disruptors to invest and compete in this market is to unlock the services revenue that encircles each user.  It is not the mobility service itself that justifies the investment, but rather all the things that we (and our cars) do when mobile.  Making such experiences feel more and more “personalized” to our individual needs and lifestyles, which become apparent based on our mobility habits, will ensure the loyalty of the user to the service provider’s ecosystem.

ICT disruptors are leveraging their core value propositions to deliver a more personalized mobility solution.  These disruptors may not see the car industry as their destination, but are rather “travelling through mobility”.  They view mobility services as a channel for enrollment of users into their broader ecosystem-based platform offering a range of other services.  Chinese ICT disruptors aiming at this “personalized mobility” solutions space include LeEco, Future Mobility, and NextEV.

The table below offers a glimpse of how major Chinese players aim to leverage their core while expanding to and beyond mobility as a service.  Beyond manufacturing smart, connected, electric vehicles or building technology-enabled infotainment systems and mobility services, these visionary companies are reinventing the mobility experience as a whole.  Moreover, they are reimagining mobility as a transaction between a user and an ecosystem services provider, which stands in stark contrast with the traditional model of a transaction between an owner and a manufacturer.

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It is important to keep in mind that as cars become mobility service platforms, the technology on board will become more sophisticated and tailored to the individual end-user’s needs.  ICT disruptors may in fact decide to contract out the actual production of vehicles to an ecosystem partner, with an end-game of earning recurring revenue by providing car owners with data products and Internet services.  While some tech companies may profit from selling hardware, the main focus is on the services that flow through the hardware.

Disruptions typically originate from outside the traditional industry players, which is clearly illustrated in this case.  We are approaching an inflection point where the deployment of personalized mobility solutions will expand exponentially and thereby alter the competitive landscape and business models of several adjacent industries.

Conclusion

Over the past few years we have witnessed how ICT disruptors have pioneered new business models and are in the process reimagining mobility as a service.  The emergence of Chinese disruptive mobility solutions players such as Didi Chuxing and LeEco, with their innovative ecosystem-based strategic approach, offers clear evidence that something new is happening.  This, coupled with the Chinese government’s determination to push new-energy vehicles and build a sustainable transportation infrastructure, demonstrates the potential for China to become the major breeding ground for automotive innovation[1].

Tech disruptors including Apple AAPL +0.12%Google GOOGL +0.50%, LeEco, NextEV, and others may be garnering the most attention, but as we have observed, they are typically “travelling through mobility” as a means to enroll users into their broader service ecosystems.  On the opposite flank, traditional OEMs, who will not easily cede their over 100-year dominance in the auto industry, are pivoting into mobility services.

New players will inevitably join this emerging landscape of competition.  Alliances are also being formed among new and traditional players seeking to access complementary strengths and seize a competitive advantage.

The battle will likely be won by those who understand the true potential of connected mobility services and thereby deliver value to the user in the most personalized, convenient, comfortable, and cost-effective manner.  It is a battle where profits will be won by offering differentiated mobility-related services through a hardware platform that is most suited to the lifestyle of its end user.

Success will accrue to those companies that are best able to reimagine mobility in the context of a place like China:  where mobility needs are uniquely challenging, where innovative mobility experiments are being driven by entrepreneurial activity, and where dreams of exponential business growth become reality.

Follow me on twitter @billrusso

[1] China Drives the Future of Automotive Innovation, Gao Feng Viewpoint, by Bill Russo and Aloke Palsikar, October 2015

 

I am the Managing Director and the Automotive Practice leader at Gao Feng Advisory Company based in Shanghai.  With 15 years as an automotive executive, including over 11 years of experience in China and Asia, I have had the pleasure of working with multi-national and local Chinese firms in the formulation and implementation of their global market and product strategies. I was previously the Vice President of Chrysler North East Asia, responsible for the business operations for the Greater China and South Korea markets. In addition, I have 12 years of experience in the electronics and IT industry, having worked at IBM Corporation and Harman International.

The author is a Forbes contributor. The opinions expressed are those of the writer.

CCTV Global Business: Bill Russo Interview on Electric Vehicles and Urban Mobility

China Central Television Global Business Program, April 25, 2016

A link to Bill Russo’s appearance on CCTV’s Global Business program.  Topics discussed were New Energy Vehicles and Urban Mobility.  Auto show news starts at 18:50. Mr. Russo’s interview starts at 27:55.

Click here to watch the program at CCTV.com

CCTV News: Bill Russo Discusses China’s Auto Market and New Energy Vehicles

China Central Television China 24 Program,, April 25, 2016

 

China 24 04-26-2016 03:15 - CCTV News - CCTV.com English Safari, Today at 10.38.42 AM

 

A link to Bill Russo’s appearance on CCTV’s China 24 program.  Topics discussed included New Energy Vehicles, China’s auto market outlook, and vehicle exports.  Beijing Auto Show story begins at 8:25, and Mr. Russo’s appearance starts at 11:42.

Click here to watch the program at CCTV.com

 

 

Bill Russo Hosts Panel Discussion on Urbanization and Mobility

Beijing, China, March 30, 2016

IMG_1004.jpg Preview, Today at 6.25.21 PM

The Future Perfect Series: Urbanization and Mobility

Urbanization. A Growing Middle Class. Pollution. Grid Lock. How are these factors shaping mobility in China? What solutions are being developed to ease mobility in China? How do you see mobility impacting and shaping lives today and in the future?

Beijing Bookworm, in cooperation with Ford Motor Company, invites you to participate in a discussion with experts from across industries on the future of mobility in China and beyond. It will be an evening of learning, discussion and idea sharing.

Topics for discussion:

  • China’s rapid urbanization and innovative urban mobility solutions for Chinese megacities
  • China’s growing new middle class and new white space of urban mobility
  • China’s ambitions for a sustainable future

Mr. John Larsen, Mobility Director for Ford Motor Company in Asia Pacific

Dr. Hai Jiang, Associate Professor of Industrial Engineering at Tsinghua University

Dr. Kevin Mo, Managing Director of Climate and Sustainable Urbanization at The Paulson Institute.

Moderated by:

Mr. Bill Russo, Managing Director, Gao Feng Advisory Company

Click here to view a video recording of the panel discussion

44.jpg Preview, Today at 6.25.44 PM

Reimagining Mobility in the China Context

Gao Feng Insights Report, February 2016

We are pleased to share with you our paper titled: Reimagining Mobility in the China Context. This article builds on the themes from our previous article titled Digital Disruption in China’s Automotive Industry, and offers a perspective at how the traditional value chain of the automotive industry is being fundamentally transformed by a new wave of “digital disruptors”.

Unlike traditional automotive OEMs and suppliers, these digital disruptors are leveraging mobile internet technology to present new and innovative “Connected Mobility” services to users, and in the process challenging the business model of the automotive industry. The century old hardware-centric business model of individual car ownership and product-based segmentation is transforming into a new form which leverages internet technology to deliver a broader range of services to address mobility needs.  Such changes are happening faster in China than in the rest of the world, where the size and scale of the urban population and the sheer numbers of mobile internet users are much greater than other markets.

In such an environment, China’s Internet giants (Baidu, Alibaba, Tencent) along with mobility disruptors such as LeEco and NextEV are vying to deliver an increasingly connected, electrified, smart and personalized mobility experience.  Coupled with the Chinese government’s regulatory push on new-energy vehicle adoption and sustainable transportation infrastructure, China has demonstrated strong potential to become the breeding ground for the Connected Mobility revolution.   As a result, Automotive OEM and supplier CEOs must learn to reimagine mobility in the China context in order to secure a strong position in this new competitive landscape.

We welcome your comments and feedback on our briefing paper or in general about our firm. We would be glad to meet you in person to share our data and perspectives in a fuller manner. Please let us know if you are interested in meeting and discussing directly how we can help you to operationalize these insights.

Thought leadership is core to what Gao Feng does. We will, from time to time, share with you our latest thinking on business and management, especially as it relates to China and China’s role in the world.

Best Regards,

Bill Russo
Managing Director, Gao Feng Advisory Company
bill.russo@gaofengadv.com

Edward Tse
Chairman and CEO, Gao Feng Advisory Company
edward.tse@gaofengadv.com

Tel: +86 10 5650 0676 (Beijing); +852 2588 3554 (Hong Kong); +86 21 5117 5853 (Shanghai)

Bill Russo to Speak on “Reimagining Mobility in the China Context”

Click here to sign up for the event at Meetup

Date:  March 17, 2016

Location:  naked Hub  3F, 1237 Fuxing Road (corner of South Xiangyang Road), Shanghai (map)

Price:   $25.00 /per person  Refund policy

ADVANCE ONLINE PAYMENTS AT ONLY RMB 150/US$ 25!
Alipay/UnionPay:  https://yoopay.cn/event/Mobility

Meet people from other professions/sectors, share new ideas on how to run your business in a more challenging environment that is Shanghai today.  

For this new entrepreneurs’ event, we have invited Bill Russo, Managing Director of Gao Feng Advisory Company, who will talk about China’s Automotive Industry.

The traditional value chain of the automotive industry is being fundamentally transformed by a new wave of “digital disruptors”. Unlike traditional automotive OEMs and suppliers, these digital disruptors are leveraging mobile internet technology to deliver a broader range of services to address mobility needs. Such changes are happening faster in China than in the rest of the world, and China’s Internet giants (Baidu, Alibaba, Tencent) along with mobility disruptors such as LeEco and NextEV are vying to deliver an increasingly connected, electrified, smart and personalized mobility experience.  China has demonstrated strong potential to become a breeding ground for Connected Mobility innovation. Automotive OEM and supplier executives CEOs must learn to reimagine mobility in the China context in order to secure a strong position in this new competitive landscape.

About Speaker:  
Bill Russo is the Shanghai-based Managing Director of Gao Feng Advisory Company and Head of the firm’s Automotive Practice.  He has over 30 years of industry experience including 15+ years as an automotive executive, and had been in China since 2004.  In his corporate career, he has worked for IBM, Chrysler and Harman International.  He is a highly sought-after opinion leader on China’s Automotive Industry, with frequent appearances on Bloomberg and China Central Television.

Fee: RMB 150 online in advance – RMB 180 at the door
Includes dinner, unlimited flow of beer and soft drinks.

Reimagining Mobility in the China Context VFF Microsoft PowerPoint, Today at 1.18.39 PM

For a copy of our new paper on this topic please email bill.russo@gaofengadv.com

Digital Disruption in China’s Automotive Industry

Gao Feng Insights Report, January 2016

We are pleased to share with you our paper titled: Digital Disruption in China’s Automotive Industry. Recent advances in mobile connectivity, big data and social networks have infiltrated the traditional automotive industry and are beginning to redraw the competitive landscape among traditional hardware companies and digital “disruptors”.

The traditional automotive industry, where technology innovation has primarily been focused on powertrain and safety systems, must now contend with new forms of mobility services that are transforming the business model of the auto industry. The conventional hardware-centric, sales-driven, asset-heavy, and ownership-based business model with sporadic customer interactions is being superseded by more connected, on-demand, cost-effective, personalized mobility services. This new form of “connected mobility” is driving new technologies in the areas of navigation, analytics, driver safety, driver assistance and information virtualization.

China’s automotive industry is at the forefront of digital disruption as this transformation is happening much faster in China than the rest of the world, and China will leapfrog to a new era of personalized and electrified mobility.  The unique context of China’s urban transportation challenge, the high rate of adoption of mobile device connectivity, combined with the rapid and aggressive introduction of alternative mobility and ownership concepts will compress the time needed to commercialize smart, connected car technology and related services.  These conditions may permit China to “leapfrog” to towards a new era of personalized and electrified mobility.

We welcome your comments and feedback on our briefing paper or in general about our firm. We would be glad to meet you in person to share our data and perspectives in a fuller manner. Please let us know if you are interested in meeting and discussing directly how we can help you to operationalize these insights.

Thought leadership is core to what Gao Feng does. We will, from time to time, share with you our latest thinking on business and management, especially as it relates to China and China’s role in the world.

Best Regards,

Bill Russo
Managing Director, Gao Feng Advisory Company
bill.russo@gaofengadv.com

Edward Tse
Chairman and CEO, Gao Feng Advisory Company
edward.tse@gaofengadv.com

Tel: +86 10 5650 0676 (Beijing); +852 2588 3554 (Hong Kong); +86 21 5117 5853 (Shanghai)

Chinese using carpooling apps to get ride home for holidays

The Associated Press, February 5, 2016

Chinese using carpooling apps to get ride home for holidays Google Chrome, Today at 4.24.12 PM

In this Feb. 2, 2016 photo, real estate agent Chen Xiao, top center in white, poses with passengers from left top, He Shaolei, Han Ajuan, Han’s son Miao Ruijing, Zhang Tao and Li Jin before they start their journey back to their hometown for the upcoming Chinese Lunar New Year, in Shanghai, China. They met on the ride-share app of Didi Chuxing, an Uber-like mobile car-hailing service. Carpooling is still unusual in China, but government officials welcome the idea as a way to alleviate the enormous burden placed on the public transportation system during the Lunar New Year holidays, China’s most important vacation period when hundreds of millions travel to their hometowns. Three others in bottom are another group, from left, Zhang Xiaohui, Yang Chuang and Xu Peng. (AP Photo/Paul Traynor)

 

SHANGHAI (AP) — The hundreds of millions of Chinese heading home for Lunar New Year have a relatively new travel option this year: mobile apps to find carpool partners to share costs in what is a novel concept for most Chinese.

The apps give an alternative to pricey airfares and hard-to-score train tickets. Software developer Li Jin in Shanghai used one after he had to abort his flight plans because of last-minute work demands, and found that the only train tickets left going to his hometown in northwestern Shaanxi province were for expensive business-class seats.

Then he tried using the Didi Chuxing (pronounced “dee dee choo shing”) carpool app and found a driver, real estate agent Chen Xiao, going his way.

“She said she still had a free space, so we agreed and now I’m using this way to get home,” Li said.

Li paid Chen 400 yuan ($60) for his seat home, roughly the same cost for a second-class train ticket for the same journey. He shared the ride in a BMW sedan with three other passengers, including a child.

The road trip through clogged highways was nearly 23 hours, twice the travel time of an express train, but Li said he appreciated the companionship.

“I think I will do the same for my return trip after the new year, because I get to know new friends, and it’s an experience,” he said.

Carpooling is still unusual in China, but government officials welcome the idea as a way to alleviate the enormous burden placed on the public transportation system during the Lunar New Year holidays, China’s most important vacation period when hundreds of millions travel to their hometowns. All told, Chinese will make a total of 2.9 billion trips this holiday season, and 2.5 billion of them will be by road, according to official estimates.

“We encourage car-pooling services that are not intended to make profits,” transportation official Wang Shuiping was quoted as saying by state media outlets. “We also remind that parties to the services must be clear on each side’s rights and obligations to avoid disputes.”

Leading the nascent inter-city carpooling market is Didi Chuxing, an Uber-like mobile car-hailing service that has been most commonly used for hailing city rides, but the company began to offer carpooling services for city commuters over the past year and, by the end of September, introduced car-sharing services for inter-city trips among 343 Chinese cities.

Users can pick the departure city and destination city and enter the desired date of travel to find private drivers with the same itinerary and an empty seat.

“We launched this matchmaking function to help us make this inter-city car sharing service another means of transportation alongside planes, trains and other forms of public transport,” Didi Chuxing spokesman Wang Mingze said.

Wang said 300,000 used the service in the first of week of the holiday travel, which began Jan. 24. As the Feb. 8 start of the holiday drew closer, the usage jumped to 100,000 per day, and nearly half of the orders involved trips longer than 500 kilometers (310 miles), he said.

Wang estimated that the platform would serve more than 1 million people by the end of the 40-day travel period.

Another player in the market is 58 Ganji Group, China’s largest online classified ad service, where users have been for years posting carpooling information and which also now has a mobile app. Huang Wei, a vice president, said the site expects to have more than 1 million posts for carpooling this holiday season, up from last year’s 700,000 posts, although the company does not track the completion rates.

“China does not have a carpooling culture yet, but you see a spike during the holiday season, when the demand goes up because people cannot secure train tickets and seek alternatives,” Huang said.

He said the routes posted in online classified ads conform to the migration patterns in China, where migrant workers flow from inner provinces to the more prosperous coastal provinces for work.

Didi Chuxing says it has purchased insurance for its users.

Bill Russo, an auto industry analyst at Gao Feng Advisory Company in Shanghai, said the app is another example how the technology is empowering the public. “It’s growing even more popular as an alternative to individual car ownership or public transportation.”

China Drives the Future of Automotive Innovation

Gao Feng Insights Report, October 2015

We are pleased to share with you a report titled: China Drives the Future of Automotive Innovation.  This new report is the product of a collaboration between Gao Feng Advisory Company and our partners at Tech Mahindra.  Tech Mahindra is a specialist in digital transformation, consulting and business re-engineering solutions, and is is also amongst the Fab 50 companies in Asia as per the Forbes 2014 List.

For global automakers, China represents the greatest opportunity for growth in the 21st century.  Since 2009, China has been the world’s largest market by volume, and will likely surpass 25 million units in annual car sales in 2015.  Over the coming decades, we believe that China will remain the key battleground for dominance of the global auto industry.

However, this battle will not be waged using the conventional automotive technologies which have been refined over the past century.  We believe several driving forces, which are particularly evident China, have the potential to disrupt the status quo of the automotive industry:

  • The unique context of China’s urban transportation challenge, the highpenetration rate of mobile internet, combined with the rapid and aggressive introduction of alternative mobility and ownership concepts, are compressing the time needed to commercialize smart, connected car technology and related services.
  • The automotive value chain is being disrupted by non-traditional players as they enter and compete to deliver mobility solutions.  Disruptive new entrants are utilizing big data to draw insights about customers’ mobility patterns in order to address their “pain points” and offer new solutions for their mobility needs.  Such mobility needs are increasingly being met through on-demand and shared services versus individual ownership.

We believe that the confluence of these forces, along with rapid innovation to address “pain points” associated with mobility in the China context, are positioning China as the catalyst to drive the transformation of the business model and technological underpinnings of the global auto industry.  In this report, we highlight the six themes that are shaping the future of mobility, and describe the key features and functions of future automobiles.

We welcome your comments and feedback on our briefing paper or in general about our firm.  We would be glad to meet you in person to share our data and perspectives in a fuller manner.  Please let us know if you are interested in meeting and discussing directly how we can help you to operationalize these insights.

Thought leadership is core to what Gao Feng does.  We will, from time to time, share with you our latest thinking on business and management, especially as it relates to China and China’s role in the world.

Best Regards,

Bill Russo
Managing Director, Gao Feng Advisory Company
bill.russo@gaofengadv.com

Aloke Palsikar
Senior Vice President & Global Head, Manufacturing Vertical
Tech Mahindra, Ltd
aloke.palsikar@techmahindra.com

Tel: +86 10 5650 0676 (Beijing); +852 2588 3554 (Hong Kong); +86 21 5117 5853 (Shanghai)

Tech Disruptions Impacting the Auto Industry

Beijing, China, October 28, 2015

Audio Interview:  Bill Russo of Gao Feng Advisory Company talks about how convenience-centric mobile users are buying fewer cars

Click here to access the AmCham site with a link to the full audio interview

IMG_5107 IMG_4153

Cars are the ultimate mobile device. And changes in mobile purchasing and big data have changed the way consumers interact with cars, with taxi hailing apps as the most vivid example.

Bill Russo, Managing Director and Automotive Practice leader at Gao Feng Advisory Company, spoke at AmCham China Oct. 28 to address these tech disruptions impacting the auto industry. Russo has nearly 30 years of experience in the auto industry, paired with 12 years in the IT industry. Listen in to the full podcast below to hear what he makes of tech’s latest target.

Q: The China market is adopting new innovations in cars faster than other places in the world. What are these innovations happening here first?

A: The car is a mobile device and today it’s not as connected as other things that people carry with them. So the expectation is high that the car will be an extension of their mobility world.

I think we’re actually saying that Chinese adopt new mobile technology faster than the rest of the world, not necessarily new mobile technology in cars.

When you compare China to anywhere else in the world, it’s much more densely populated and everybody’s connected through some form of mobile device. The Internet population is now well in excess of 600 million, and almost all of them are connected some sort of mobile device.

To the auto industry, one of the disruptions that is plainly evident if you live in China is that people have the choice of whether to own a car. It’s become less and less convenient to drive a car or hail a taxi at certain times of day. Internet companies came in and said that’s another convenience that we could provide. You can book a car through your mobile device. That’s having a disruptive impact on the way people use mobility.