Experts Fail to See It“Americans are a horse loving-nation… the widespread adoption of the motor-driven vehicle in this country is open to serious doubt.” Lippincott’s magazine, 1903.24 “I do not believe the introduction of motor cars will ever affect the riding of horses.” Mr Scott-Montague, United Kingdom MP, 1903.25 “Humankind has traveled for centuries in conveyances pulled by beasts, why would any reasonable person assume the future holds anything different?” Carriage Monthly, 1904.26 Even in 1912, the car was perceived as a threat only to the top end of the buggy market: “Though the shift understandably distressed the affected firms, observers took comfort that the high-grade horse drawn vehicles accounted for a relatively small percentage of the trade; losses here hardly imperiled the entire industry.” Carriage Association of America.27
Exponential S-Curve Adoption Demand exploded. Car sales grew from a base of less than 5% of the vehicle fleet in 1905 to more than 95% in 1925. Adoption happened along an S-curve, with a 10-year phase between 1910 and 1920 taking market penetration from 11% to 81% – almost exactly the same time it took for the smartphone to dominate its market. But this growth was not just a replacement of carriage sales – the car created a whole new market for transport where none had existed previously (see Figure 5, right-hand graph). The primary enablers of adoption were the relentless improvement in the car’s capabilities and its rapidly-falling price. These were driven by increasing investment of capital and ingenuity and then, as demand increased, by economies of scale driving down the cost of production. Business model innovations such as auto finance made the automobile even easier to buy and expanded the market to the middle class, which eagerly embraced the car – by 1926, just seven years after its introduction, two thirds of cars were bought on credit.20 In a virtuous cycle, increased market size attracted more investment, more talent, and more competitors, which brought yet more innovation to drive costs down further and made cars more affordable to more people, leading to increased sales. As demand grew, the market responded and adapted in predictable ways – entrepreneurs, suppliers, and even the government rushed to take advantage of the new opportunities and investment dollars flooded in. Infrastructure was built up around these new industries – road building exploded, the oil industry took off, and gas stations (the first of which was built in 1905) were rolled out, numbering 15,000 by 1920 and 124,000 by 1930.21
Policy Innovation was also adopted along S-curves. The gasoline tax was first introduced in Oregon in February 1919 and within just six years, 91% of U.S. states had adopted it. Within 10 years, every state in the Union taxed gas (see Figure 6).23 This rapid adoption happened in spite of what, in 1900, seemed like insurmountable barriers to the automobile. In fact at this time, the ICE was competing with other technologies such as steam and electric power. Not only were gasoline cars expensive and unreliable, but there were almost no paved roads in the U.S., the oil industry was in its infancy, and there were no gas stations (mobile horse-powered fuel wagons brought gasoline and kerosene to early cars). Nor was there any real manufacturing capacity or supply chains. The rules of the road had not yet been developed and almost no-one knew how to drive, a deadly combination that led to numerous accidents and, subsequently, calls for restrictions and even bans on the use of this ‘lethal’ new invention. A swift and dramatic shift in public opinion was another crucial factor. In 1900, people were broadly skeptical of automobiles, viewing them as expensive, unreliable, and dangerous. Horses and carriages, on the other hand, were known quantities, trusted, and even loved. Few could imagine a world without them. But as cars became ever-more visible and reliable, skepticism turned to fascination and then desire. Conversely, the trusted horse came to be seen as increasingly outdated, dirty, and obsolete. This change in public perception acted as a powerful accelerator of change and happened despite an active resistance campaign from incumbents. All these barriers turned out to be variables, not constants – they fell away remarkably quickly as the drivers of supply, demand, and regulation no longer acted as brakes on adoption, but as accelerators. What had appeared as roadblocks turned out to be little more than speed bumps. We see echoes of these ‘barriers’ in the EV and TaaS narrative today. Cascading Impact Just like the smartphone, the impact of the automobile was felt right across the economy. This was not just a one-to-one technology substitution but a fundamentally different transportation system that opened up extraordinary possibilities. The economic benefits were almost immeasurable – in some ways, the U.S. economy was built around the automobile, its ancillary industries, and the impact it had on wider society. 0
The explosion of the smartphone market also helped drive down the cost and increase the capabilities of all the underlying technologies, which then converged in different ways to disrupt other, apparently unrelated, sectors of the economy.One example is ride-hailing, which only became possible thanks to the smartphone. Uber (founded in 2009), Ola (2010), Lyft (2012), and Didi (2012) have decimated the taxi markets in their respective countries, offering cheaper and more convenient rides. Often hamstrung by century-old regulatory models, licenses, or expensive medallions, established taxi operators have been unable to respond, other than by evolving into ride-hailing services themselves, such as Free Now. By 2016, just seven years after launching from an apartment in San Francisco, Uber had more bookings than the whole taxi industry in America.12,13But ride-hailing is just one dimension in the disruption of transportation. The improvement in lithium-ion battery costs, driven initially by the consumer electronics sector and then by the smartphone market, means electric vehicles (EVs) are now disrupting the high end of the gasoline vehicle market and are about to disrupt the mainstream market. The all-electric Tesla Model 3, for example, is now one of the best-selling cars in the US.14 At the same time, incredible strides are being made in developing autonomous vehicles (AVs). Again the crosspollination is clear – Google, the company that created the first working AV and is helping lead the development of this market, is also the leader in global smartphone operating systems. Global ride-hailing companies such as Uber and Didi, both enabled by the smartphone disruption, have also invested billions of dollars to develop autonomous technology.2001 201787.30.6 3.6 1.7Cellphone SubscriptionsLandline SubscriptionsFigure 2. Cellphone and Landline Subscriptions India 2001-2017 (per 100 People)Data source: World BankRethinking Humanity | Page 13Rethinking Disruption: Technology Convergence and Organizing Systems Driving Societal TransformationPart 1How the Smartphone Disrupted the Oil IndustryThe convergence of ride-hailing, AVs, and EVs will soon create an entirely new form of transport known as Transportation-as-aService (TaaS) – essentially robo-taxis. This will be dramatically cheaper than car ownership, costing up to 10x less per mile and saving the average American family more than $5,600 a year (details are laid out in our Rethinking Transportation 2020-2030 report), and trigger a rapid disruption of the gasoline car, bus, delivery van, and truck markets.But the disruption of internal combustion engine (ICE) vehicles is not just about the dramatic cost reduction of autonomous electric vehicles (A-EVs) – the smartphone has also disrupted the value of individually-owned vehicles. In the past, the car was necessary for dating but now couples meet online. In the past, we needed the car to go to a restaurant or shop for food, but today a host of companies such as Amazon, Uber Eats, and GrubHub deliver fresh produce and ready-made meals to our front door. In the past, we needed a car to go and see a movie, but today streaming services like Netflix and Prime offer a monthly subscription to tens of thousands of movies and TV shows for less than the cost of a theater ticket. Information technology has unbundled and disrupted the value streams of the car, both practical and emotional, to the point where the individually-owned car is turning from an asset to a liability. In a chain of complex causality, the smartphone has enabled the key technologies, products, and business model innovations that will kill off not just the ICE and individual car ownership, but the industry that fuels them – oil.
The oil industry will be a shadow of itself in 10 to 15 years.
We have already seen a plunge in oil price because of Covid-19 when people stopped using their cars because they could not go out.
