written by Thomas Bartman, Senior Researcher, Forum for Growth & Innovation

Chamath Palihpaitiya recently wrote about a phenomenon he calls HaaS, or Hardware as a Service, and its potential to transform the future of our cities and our lives when a company like Tesla, which he analyzes, offers on-demand autonomous driving services.

He believes that the coming changes will be revolutionary to the way we interact with physical assets but I see the change as a much more incremental step on the longstanding process of replacing ownership with access. I’m most interested in how the technology underpinning these assets will increase asset utilization and decrease prices, enabling many more people to consume them than previously.

His view of HaaS seems to differ from existing lease arrangements only in how the service delivery is integrated with the physical asset. In traditional arrangements, like using Uber today, you’re provided hardware as a service just the same as a fleet of autonomous Teslas would. The only difference is that the Uber has a person at the wheel and the autonomous car will have a computer.

Technologically, this is a big difference and it will have a big change on our labor force as millions of taxi drivers, truckers and the like are no longer needed. But for customers, will the user experience really change all that much? I don’t think it will; I think it will be a more nuanced improvement. Ultimately, both the Uber and the autonomous car get people from here to there and are available practically 24/7. Consumers’ ultimate need will remain “get me from here to there safely and affordably.”

Transportation today is a largely modular product. A manufacturer makes the vehicle and a separate company or provider delivers the service. Combining them will move us to an interdependent system where the brains are integrated with the brawn. This will be a fascinating transition to watch because profit will transfer between the components. Profits that formerly went to drivers will now accrue to manufacturers; it’s also likely that asset utilization will go up and prices will go down dramatically for consumers.

I think that’s the real story here. Connected hardware will be available 24/7 and doesn’t need breaks or sleep. This will allow the operators of these services to increase asset utilization, lowering costs and prices. These lower prices will expand access to millions of people who presently can’t afford to use services like Uber. Similarly, the ability to optimize across networks will make traffic less severe and improve efficiency.

Chamath also mentions that he believes the insurance industry will change dramatically and I think that’s correct but it’s also a key reason why fully autonomous vehicles are further away than many prognosticators predict. The technological challenges aren’t likely to be the main barriers to adoption. Instead, integrating autonomous driving into our existing legal and moral structures will likely be the hurdles that slow its adoption. That’s not to say it won’t happen or happen soon; all of those challenges can are surmountable but they will not change at Silicon Valley speeds.

For that reason, I’m more certain that products like the iPhone, which he also mentions, will move to the hardware as a service model more quickly than autonomous cars. In fact, we’re already seeing that today. Apple currently offers a lease program that offers a new phone every upgrade cycle for a monthly fee. This seems to be the forerunner of many similar programs that may ultimately include cars.