Business Cities

From the Model T to P2P: How Automotive Innovation is Changing Detroit (Again)

Uber’s car service seeks to improve transit in Detroit. But how will Detroit’s automakers respond?

San Francisco’s Uber has turned the limo and cab industry upside down by offering a car service that books rides on demand from smartphones. Users can request vehicles and complete transactions entirely through a mobile app. This method creates efficiencies that don’t exist in traditional limo/cab offerings: upon request for a vehicle, the app sends the picture, name, and direct contact number of your driver to your smartphone. GPS enables real-time tracking as the driver approaches your pickup location, and upon reaching your destination, payment is automatically processed (gratuity included) through the app. In short, Uber has radically streamlined the customer experience for both driver and passenger.

Uber Head of Operations Ryan Graves

Uber Head of Operations Ryan Graves (Photo: Ryan Streveler, Midcoast Studio)

Uber’s business model centers around it being first and foremost a software provider, noted Ryan Graves, Uber’s head of operations. We spoke with him on a recent visit to Detroit to support the company’s local expansion efforts. Rather than building a fleet of vehicles and hiring drivers—activities that would legally categorize Uber as a taxi or limo company—Uber has aligned itself with existing chauffeuring companies. These partnerships enable Uber to piggyback on vehicle fleets and manpower, while bringing efficiencies to the operational side of the business through better technology.

Uber’s launch in Detroit this month marks the 29th market to date the company has entered. In a city known as the birthplace of the automobile and hailed as a beacon for innovation in the early 20th century (the Silicon Valley of its day), Uber’s presence poses a greater threat to Detroit automakers than many realize.

The increased accessibility of transport via ride-sharing and car-hailing mobile apps could in fact lessen the appeal of personal car ownership altogether. Will technological advances in the next decade ultimately result in driverless cars, hailed on demand from your smartphone?

Entering Transportation’s Disruptive Age

In his book Accelerated Disruption, Groupon founder and Chicago businessman Eric Lefkofsky notes that “excess supply, fragmented buying, inefficient processes—are the building blocks of pain” that serve as indicators of an industry ripe for disruption.”

detroitsizeUber has capitalized on all three by targeting the limo/taxi industry, and is seeing firsthand the risk associated with being the first mover in the disruption of a stalwart industry. The startup has faced a firestorm of backlash ranging from antiquated regulations (and accompanying lawsuits in cities including New York and San Francisco) to a baseless rape accusation in Washington, DC.

Yet Uber has been aggressively entering into new markets. Founder Travis Kalanick operates under a philosophy of “Don’t ask permission; ask forgiveness”—a mindset that works in markets like DC, where he recently found an ally in Mayor Vincent Gray. In other burgeoning markets, the response to Uber’s presence has been mixed, but there are indications that the tide may be shifting.

Uber received a cease-and-desist order in Boston because current legislation didn’t account for the use of a smartphone in commercial transactions. Uber appealed to the public, and an outpouring of support from Boston residents led to the state granting Uber an exception.

This week, the dismissal of a lawsuit filed by the livery car industry in New York paved the way for app makers there to offer electronic hailing of taxicabs throughout the city, a service Uber first began testing last fall.

Additionally, Uber has experienced some criticism for adjusting its pricing across cities to accommodate varying levels of demand. When asked about Uber’s market demand pricing strategy, Graves noted:

“Every market has a different price. We take into account all the alternatives, from limo to taxi, and try to understand where we should price ourselves and what quality of vehicles we can allow. For example, in London the Uber experience is very high end. Jaguar, Mercedes, BMW—expensive vehicles, but relative to the London black cabs it’s really not that much more. In Detroit, pricing is quite low. It’s a less wealthy city compared to some, so we need to make a play at a mass market and not just a very top tier.”

The "People Mover" in Detroit's Greektown (image via Shutterstock)

The “People Mover” in Detroit’s Greektown (image via Shutterstock)

Detroit’s Transit Woes

In many ways, Uber’s presence in Detroit is sorely needed. The city’s 133.8 square miles give it a geographic area larger than Boston, San Francisco, and the borough of Manhattan combined. In the Motor City, personal vehicle ownership has trumped public transit for the last century. Improving transportation options has been a hotly debated topic.

“In most markets we focus on the downtown core and then we get pulled out into the suburbs,” explained Graves. “In Detroit, it appears to be the opposite. Ultimately, we’ll adapt to Detroit’s differences.”

Uber’s foray into the Detroit market this month couldn’t be more timely. As in many mid-market cities, Detroit’s car services, often considered a luxury, have fallen on hard times during the economic downtown.

“Detroit has had rough years,” Graves acknowledged. “But we want to get invested early in the kind of transformation that is happening downtown. This is a downtown where there are so few transportation options that it became a no-brainer option for us.”

Uber’s presence in the Motor City raises the question: Can Detroit’s massive automotive manufacturers embrace innovation in an era of rapid change and progress?

Lately, the race to bring disruptive technologies to the automotive sector has been heating up. Both GM’s venture capital arm and Fontinalis Partners, led by Ford Chairman Bill Ford, have been making strides in the transportation-sharing economy and are investing in startups that aim to transform the automotive landscape.

Fontinalis Partners got into the peer-to-peer car-sharing service Wheelz, while GM Ventures made a sizable investment in San Francisco-based RelayRides, investing alongside Google Ventures. As new players begin to populate the transportation economy, Uber has responded with a white paper detailing its intention to roll out peer-to-peer ridesharing services (think Airbnb for cars) through its platform.

Whether the future of automotive tech lies in autonomous vehicles (Google’s self-driving cars) or decentralized peer-to-peer car sharing, or both, technology is at the forefront as we reimagine the future of transportation.

This article is published in partnership with GrowDetroit, a non-profit organization dedicated to helping foster Detroit’s emerging entrepreneurial and startup community. The future of transportation will be among the topics discussed at Techonomy’s second Detroit conference, being held September 17 at Wayne State University.

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