New business models in the car industry
April 15th 2013
The car industry faces a number of challenges. Sales are declining, customer needs are changing and environmental standards are getting more and more stringent. Within the car industry we see different business models emerge. Business models that don’t mainly focus on selling cars anymore: concepts like Car2Go – that focuses on mobility instead of car ownership – or ZipCar – based on car sharing.
Case: BMW’s DriveNow
For this blogpost we dive into the business model of BMW’s DriveNow, as it is being offered in San Francisco: the ultimate all-electric driving machine by the minute based on car sharing. How is BMW creating value with DriveNow and what do we find interesting and inspiring about this business model?
With BMW’s DriveNow, you don’t own the car. You can drop the car at any station instead, without having to worry about a parking spot. A special App shows you where available cars, parking spots, and charging stations are. DriveNow customers get self-service with the premium quality that BMW stands for. Customers pay a registration fee of $39 and 32 cents per minute or $90 per day for driving the car.
Who is the customer?
DriveNow is targeted at San Franciscans who want to drive a car – but don’t want to own one – and reduce the environmental impact at the same time.
How is value creation organized?
DriveNow’s key activities are 1) managing and developing the apps, 2) asking customers feedback to improve the service, and 3) engaging with multiple partners to effectively provide the value offered. Key resources that BMW deployed are 70 ActiveE cars, 8 DriveNow stations, and investments from i Ventures, a Venture Capital Company founded by BMW Group, focused on location-based mobility services. BMW engages with multiple partners to create value for DriveNow customers. The main costs are marketing, renewable energy credits, app development and management.
The business model explained with the Business Model Canvas
Below we explain the business model with the Business Model Canvas. This graphic is based on our current view of this business model, based on public information.
Business model canvas from www.businessmodelgeneration.com
What makes this business model interesting?
1. From car ownership to mobility: BMW noticed that car ownership is getting more and more difficult in large cities. Executing a business model that is about selling cars is quite challenging in such markets. BMW therefore deliberately chooses to develop business models that are about enabling mobility in different ways.
2. Business model validation: The DriveNow service in San Francisco is a large business model validation experiment. BMW is testing its entire new business model in the real-world. It tests the proposition of hassle-free mobility (the right side of the business model, which is about value), but also how well the Active-E cars work in a fleet (the left side of the business model, which is about organizing the value creation).
3. Partnerships: BMW chooses to work with multiple key partners to provide value to customers. More value can be provided to the customer by actively working together. At the same time, these partnerships are valuable for all partners as well (it’s a win-win relationship).
4. Organized as a start-up: The business model is executed separately from BMW Group’s business. The DriveNow business model has been set up through the i Ventures Capital Company. i Ventures uses all the resources of the BMW corporate organization, but has the agility of a startup. This is a good example of how corporate innovation and entrepreneurship can be organized (read Steve Blank).