The Unique Economic Structure of Transportation Market


Uniquely to transportation, government plays a dual role, both as a regulator and as a supplier. This is true for all countries. Government is the largest service supplier in the market through the funding of regional transit agencies as a public service. This setup creates a very unique economic structure based upon heavily subsidized services. Most consumers are unaware of the true cost of providing these services. Valley Transit Authority (VTA), the transit agency of Silicon Valley, incurs a cost of $25 for each bus ride it provides, but it sells the ride to individuals at $2.75. The cost per ride of bus services ranges from $20 to $35 across different states, depending on the region’s area and population density. If the cost per ride is estimated above $35, agencies will likely use the dial-a-ride service (i.e., ad hoc rides to only eligible riders upon request) to replace a regular bus service to strike a balance of cost and service availability.

This economic structure shapes the mobility into three tiers in the US – high-end services, economy services, and car ownership. Public transit dominates the economy services and is funded largely by tax dollars. Private entities also fund some services to make it affordable to their target users, such as employee commute bus. Only the high-end services are priced based on their actual cost, e.g., black car, taxi. Hence fleets can build a B2C business in the high-end market. This means applying the B2C model to the economy service market is not an economically viable approach. Not only does the government have the largest subsidy budget, but also the artificially low transit fare anchors consumer’s price point very low, i.e., too low to give a chance for anyone to build a viable B2C service.

Because of this heavy subsidy-based economic structure, we believe the most sustainable business model is B2B2C with a focus on paid services. For example, an enterprise entity, such as a corporation, transit agency, community, or insurance, finances the services and contracts fleets to provide the services. In this case, riders only pay a nominal fee to use the services. With the B2B2C model, we sell our products to both fleets and enterprises. We add values to them by improving vehicle utilization, providing service tracking and analytics, and more importantly, optimize cost per rides and productivity, which is measured by the number of rides per vehicle hour, an important metric used by both the enterprise and fleet to justify the services. This focus leads us to the $18B specialty transport market, i.e., patient transport paid by insurances, employee transport paid by corporations and member transport paid by communities, as well as the $66B transit market.