I. As public transportation continues its tech-driven evolution, whole network “software & service” solutions represent the next frontier of transformation.
Over the past five years, cities and public transit authorities/agencies (“PTOs/PTAs”) have increasingly invested in transportation infrastructure projects, including investment in digital technologies to modernize public transportation. Annual investment in the sector has increased by $10bn over this period in the US alone. PTOs/PTAs have prioritized investment in projects that enable them to adapt to newfound unpredictability of demand post COVID-19 with a focus on ridership recovery and boosting network efficiency.
Five years ago, the break-through technology was the creation of microtransit, where AI-driven dispatch algorithms optimize routing in real-time to dynamically match passengers and vehicles. Microtransit filled a gap in existing fixed-route networks, particularly in areas of lower density such as suburban or rural environments. Having witnessed the benefits of microtransit, today PTOs/PTAs are increasingly looking to drive similar efficiency gains across all the components of their network. Whole network software solutions allow PTOs/PTAs to leverage a single software platform and dynamic algorithms to manage planning and operations across all modes of transit. This enables them to more effectively pool operational resources, centralize network data, and automate key workflows. The result is a more cost-efficient delivery of transit services, which in turn allows agencies to invest their savings in improving the quality of the network, creating a virtuous cycle that drives ridership.
However, implementing these systems often requires significant change management and operational “know-how”. For PTOs/PTAs, these may be small gaps such as capabilities to market digital applications to riders. For a municipality lacking a dedicated transit authority, this could require significant support such as the ability to source vehicles and plan integrated networks. To overcome these challenges, both customer groups are increasingly seeking providers that offer a mix of software and services (“Software & Services”): a single vendor who can provide both software and operational support to deliver a solution tailored to their needs.
II. The Software and Services market represents a massive growth opportunity.
Excluding rail, we calculate the total addressable market for whole network software and services to be $250bn for North America and Europe. In North America, historic underinvestment in traditional buses relative to Europe has created unique market conditions. Europe has a mature and large traditional transit market, creating opportunities to extend transit to areas and hours not well-served by fixed route, including replacing under-performing fixed-routes, and to drive fixed-route ridership by enabling first/last-mile connections. North America offers ample white space to create both net-new transportation programs as well as enhance existing networks with more than 7,000 PTOs/PTAs and 40,000 municipalities and government entities that are potential buyers of public transportation solutions.
In North America, we estimate that $38B can be immediately served with commercially available Software & Services platforms. Today these platforms have the capabilities to service the full network solutions for small networks (<250 fixed-route vehicles). Over time we expect that the providers of these solutions will expand the breadth and depth of their offerings to deliver whole network solutions for medium and large networks.
The competitive landscape is fragmented, with very few integrated Software and Services solutions. The majority of providers are either software specialists who serve specific tech needs with point solutions, or legacy transport operators who need to assemble a bundled package of point solutions across multiple software providers. Via is currently the most advanced player providing integrated Software and Services, both in the comprehensiveness of its solutions and the scale of its deployments, with more than 650 customers in over 30 countries, making it the market leader.
Globally, when accounting for Asia, Latin America, and Africa, the public transportation software and services market represents a $545B opportunity. Over the next five years, public investment in modernization of public transit is expected to remain strong - supported by stable transportation budgets which are largely local and bipartisan - with a forecast growth of 5% annually, reaching a global addressable market of $750bn by 2030.
III. New opportunities driven by technological innovation will emerge for public transportation tech providers in the next 5 years.
Beyond existing solutions, some emerging trends will provide additional opportunities for public transportation tech providers to expand their offering.
First, the expansion of smart city initiatives is increasing demand for planning, analytics & design solutions. Providers can address congestion pricing and tolling projects, through to developing comprehensive digital twins that enable cities to fully model and reshape their urban infrastructure.
Second, Autonomous Vehicle (AV) technology is maturing and the first commercial services have been deployed, with further expansion in the coming years (in ~20-40 cities worldwide by 2030). If the cost of operating robo-shuttles continues to decrease and becomes attractive vs. human driver-based fleets, AVs will be increasingly integrated within public transportation networks. AV fleets will complement existing driver-based fleets, as human presence will remain mandatory for some cases (e.g. paratransit) and for certain services (e.g., fleet management). AV public transportation services will therefore most likely be operated as a partnership between AV-tech companies (e.g. Waymo) and public transportation platform providers. The latter is critical for integrating the fleet within existing network planning & scheduling, for optimizing dispatch of the vehicles, and more broadly for fleet management.
In conclusion, as transit agencies and cities seek to modernize, public transportation tech providers have a unique opportunity to redefine urban mobility, making public transportation more efficient, accessible, and sustainable.
