Positioning Rail for the Business Models of the Future
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The future vision for rail (and the transport sector as a whole) is one in which passengers enjoy seamless, affordable and enjoyable journeys. But, as Connected Places Catapult Senior Technologist Phil Moorcroft, RSSB Senior Research Analyst Andrew Gleeson and Student Research Analyst Gordon Wai explain, there will also be significant benefits available for the companies who enable that future vision – providing they ready themselves now.

In the first blog of this series, we saw how the ongoing move towards Mobility as a Service (MaaS) offers the potential for greater customer convenience, seamless multi-modal journeys and additional bundled services.

The key question that follows on from this is how those in the rail industry (and beyond) can position themselves – not only to play their part in delivering the wider transport system of the future, but to also be in the forefront when it comes to creating new value and new revenue streams. It is likely that there will be no ‘one size fits all’ business model that will work for all companies operating in the new mobility ecosystem.

Open or closed?

It may help to envisage the best future business models for delivering rail in a MaaS and NMS environment as sitting on a spectrum from ‘open’ to ‘closed’.

Smart phones can provide a useful parallel here, with Apple’s iPhone a good example of a product that is towards the closed end of the spectrum, with its own proprietary hardware and software, a centrally owned operating system and a vetting process for apps – which are only available on Apple’s dedicated platform. Android phones, on the other hand, are closer to the open end of the spectrum, with third-party manufacturers able to edit the open source software and upload it onto any of their devices.

To picture what an intermediate or mixed business model could be, consider a well-known media brand, Sky, which provides a lot of its own services and products but also allows other content on to its platform in a bid to strengthen its value to customers. Or consider the eBay approach to online shopping, where the company does not itself manufacture or even sell the products on its platform, but instead adds value by creating a marketplace for buyers and sellers.

All of these businesses increase ease, choice and convenience to the customer, while they sit on different parts of the open/closed business model spectrum.

 

Expanded services

For the rail industry, a closed ecosystem approach might involve an ‘expanded services’ model, where rail providers would expand their offering to complementary modes of transport (e.g. ‘last mile’ onward journeys) and services, as part of an exclusive end-to-end bundle that is packaged with the train journey. Train Companies (or perhaps Transport Companies) would own assets, handle sales, and collect revenue. Choosing this model could allow rail to lower transaction costs (less middlemen), increase revenue and value for customers. However, this could mean larger barriers to entry for new services, less incentives to innovate, and would likely require such companies to expand into services in which they have limited experience and might not be best placed to deliver.

Digital marketplace

The opposite, open approach would see the rail industry collaborate more closely with third-party service aggregators operating within a digital marketplace. The rail companies would make their data as freely accessible as possible and encourage third-party sales channels that could evolve to include ticket bundling, end-to-end journeys and, eventually, full integration into a true MaaS ecosystem. Such a model would lead to greater competition and higher incentives to innovate; furthermore, it would require less investment by the rail industry in comparison to the closed approach and would also allow for a more seamless interaction with other modes of transport, as New Mobility Services come online. However, if train operators want to fully reap the benefits that MaaS and NMS can bring in terms of customer knowledge and insight, they should be careful, with a data aggregator model, that they do not fully outsource their customer data. Or if they do, that they receive insight from the aggregator in return.

Alliances in the middle ground

Between the two extremes of pure ‘open’ and ‘closed’ business models, we can imagine a third way – or rather multiple different ways, involving alliances with pre-existing and emerging transport providers. In these scenarios, transport service providers would share data between themselves, and potentially third parties, to offer local platforms that bring increased convenience to their customers.

 

It is worth re-emphasising at this point that there is no single approach that will be right for all situations.

The suitability of the business models considered will depend, for instance, on whether the context is rural or an urban area.

Rural vs urban transport services

Unlike many industries rail services are heavily subsidised in some non-profitable areas, including many rural lines, and this is unlikely to change any time soon, due to the understood social benefits of affordable and green transport. The lack of a strong profit perspective may well mean that the more closed ‘expanded services’ model will make more sense in a rural context – with government or local authorities perhaps working with community-based transport operators to ensure that public transportation needs are met.

On more profitable routes or locations where there is greater supply and demand for other transport services and modes, e.g. inter-city, inner city and commuter lines, the more open digital marketplaces are likely to flourish.

 

The data imperative

There will also be internal factors that need to be considered, e.g. how well the transport operators’ capabilities are already aligned to these new business models. The financial services sector is a great example of where the traditional incumbents have had to change mindset to embrace digitalisation and accept that they might not be able to achieve some objectives by themselves.

Data is, of course, the underlying resource required to create a true MaaS ecosystem and customer data will be the focus of the next blog in this series, but lessons can be learnt from the Open Banking Initiative where government has mandated the use of open standards and APIs to open the sector to competition and innovative.

Beyond transport services

In the rail sector this type of initiative could not only enable the growth of MaaS but also enable transport operators to become increasingly vertically integrated and/it joint-up with services outside of transportation altogether, opening the sector to new sales channels and partners. For example, local attractions could sell subsidised rail tickets as a way to entice additional visitors. Or, imagine moving into a newly built apartment which includes transportation services as part of the rent, and the opportunities this could create for joined-up investment in urban planning.

Conclusion

Expanded Services providers? Digital Marketplace agents? Strategic Alliances partners? To create, share and capture the most value from the coming New Mobility Services ecosystem, rail companies will need to identify where in the value chain they are best positioned, what future business model is best suited for them, and how they can start to adapt accordingly.

 

Next week, Liz Davies, Professional Lead Data and Modelling, RSSB R&D, and Ron Oren, Principal Strategy Analyst, CPC, will discuss how mobility services providers can make the most of customer data.

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Phillip Moorcroft and Andrew Gleeson
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