On the incredible, shrinking cost of urban transportation.

Honey, I shrunk the transit costs. (“Honey, I Shrunk The Kids,” 1989.)

Take a major cost driver, and then design your product with the assumption that it goes to zero.

I call this claim the “Big Ass Assumption” (BAA). The BAA that a critical cost component goes away isn’t as crazy as it sounds. As Mark Suster points out, deflationary economics are often the driving force behind both (i) market expansion and (ii) new use-case creation for older technologies.

  1. Automobiles will move from merely 5% utilization to something approaching 80–90% when part of a fleet. The amortized cost per mile will fall by at least an order of magnitude from this effect alone.
  2. Drivers will be removed from the equation. An analysis by John McDermott suggests that, for UberX drivers in Los Angeles, the ratio between hourly driver earnings and vehicle costs per mile is 3:2. Without the driver, 60% of the cost of the ride would be removed.
  3. Auto insurance will become cheaper as accidents drop dramatically. Today, a per mile policy with Metromile runs around $0.09/mile including the base fee. More than 90% of auto accidents today are caused by human error, and KPMG estimates that more than 80% of these accidents can be avoided with autonomous technology. It’s conceivable that we could see another order of magnitude reduction of costs here.
  4. As consumers become increasingly more reliant on “transportation as a service,” ownership of cars will shift from individuals to enterprises — the latter of which have massive purchasing leverage with OEMs. The market for computing infrastructure went from individual usage (e.g. a server in your bedroom), to shared ownership (e.g. a server in a co-lo), to full rental (e.g. a server in Amazon Web Services) in a few decades, causing the disruption of companies who make computing hardware. With AWS driving server costs down by 50% every 3 years (or, an order of magnitude every decade), imagine the fate of GM, Ford, and Chrysler when their products are further commoditized and deflated.
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