Corporate Innovator: Michael Hetke, CIO at AAA Northern California, Nevada & Utah

Steven Loeb · November 16, 2017 · Short URL:

AAA needs to embrace the future, with autonomous cars and ride-sharing, if it is to survive

I've been writing numerous articles in recent weeks about the exciting and emerging chatbot space, covering the companies that are innovating, the companies that are up-and-coming, and how chatbots are already affecting certain sectors.

Among those major tech companies already making waves in the bot space include Amazon's  intelligent personal assistant Alexa, as well as Lex, which is Amazon's service for building conversational interfaces into any application using voice and text, and Polly, which turns text into speech, allowing developers to create applications that talk. There's also Google, with its Google Assistant, and there's Facebook, which recently bought AI chatbot startup Ozlo to power bots on Messenger. And there's Slack's bot platform, which is used by developers to build bots for the Slack platform.

AAA is another company that is making artificial intelligence a big part of its future, having introduced its self-driving shuttle earlier this year, and testing them on open roads in Las Vegas earlier this month. The company also debuted its ride-sharing service, called Gig, in April. 

I spoke to Mike Hetke, ‎EVP & Chief Innovation Officer at AAA Northern California, Nevada & Utah, about how AAA views artificial intelligence and why it's so important for the company to embrace this technology going forward. 

VatorNews: Can you sum up for me how you view AAA”s artificial intelligent strategy? Why is this technology integral to the company’s future?

Mike Hetke: I would argue that AAA has always been in the business of enabling mobility. We were formed at the turn of 20th century, moving from the horse and buggy to this new innovation called the automobile. At that time, it was a period of rapid innovation as we helped enable the widespread adoption of automobile, creating the first roads and road signs, creating the Department of Motor Vehicles, creating the California Highway Patrol. We spun off them all off as businesses we shouldn't operate but, ultimately, we evolved primarily into roadside assistance and insurance as our two key value points that we would directly own and operate in enabling mobility for our members and the public at large.

I would argue that we see ourselves at the forefront of another massive shift in personal mobility, just like the turn of the 20th century, except this time moving from the traditional automobile and individual car ownership to a world of transportation as a service and, likely, autonomous transportation as a service.

As we think about the potential that autonomous technologies can bring to the personal mobility space, particularly making our roads safer and preventing deaths in personal transportation, there’s a world of potential out there that we, as an automobile organization, should embrace. That's our interest in autonomous technology: understanding how do we safely evaluate and advance the technology to realize the safety potential that is there?

VN: Is this technology that you plan to own like you have with roadside assistance and insurance? Or will it be spun off?

MH: I think the the space is huge. There's many areas to add value across the future of transportation. As I look at our investment thesis, we're investing in a future state that is autonomous, collected, electric and shared. We're making plays across all of those spectrums where we think that our brand can add value and we will find over time where does our brand really bring the most value to our members and consumers at large? Those would likely be new the business models we would end up owning and operating into the future. 

As an example, the launch of the self driving shuttle is positioning our brand in the safety space and understanding human behavior and how we can help advance adoption of these types of technologies. We also recently launched, in April of this year, Gig Car Share, which is the first one way car sharing operation in the San Francisco Bay Area, which directly positions our brand as a potential fleet operator for the future. We also have an infrastructure play in the electrification of vehicles. So, very simply, I'm making several bets across a common investment thesis and, over time, we'll have to understand where does our brand offer the most value? That would be business models we would sustain.

VN: How have you seen the autonomous vehicle space evolve since you began operating the shuttle service? How quickly is the space changing?

MH: It is evolving rapidly. It almost seems like every month we have another piece of the puzzle being advanced with autonomous technology but you can simply step back and look at the quality of life improvements and the potential safety benefits. If we could reach a world where cars drove themselves, there's profound benefits to our lifestyles. If you start looking at some some examples of simple productivity gains by not wasting an hour sitting in traffic on your commute to and from work, but actually using that as productive time while the vehicle drove itself. You can also imagine safety gains that, if the potential that we see in autonomous technology actually comes to fruition, cars will drive themselves far better than any human being could. When we think about how over 90 percent of auto accidents on the road today occur because of human error, if we can eliminate just even a large percentage of that, not even all of it but a large percentage, that's a phenomenal win for society, making our roads safer and preventing loss of life every single year. When we think of autonomous technology from that lens, there's some really profound lifestyle improvements that can be gained by advancing that technology. 

What I think widespread adoption will really hinge on, is when we get to a point where we can get an autonomous, likely electric, vehicle to become cheaper to adopt for the average individual, as opposed to car ownership. I think that will be the true crux of how widespread adoption actually occurs, and there's some really compelling estimates out there that if we can get to a world of autonomous shared transportation, and use it as a service instead of vehicle ownership itself, it likely put $5,000 back in the average American’s pocket. When we realize that the average American today makes $50,000, that's a 10 percent increase in net income for the average American, which is huge. When you think of that 10 percent increase being reinvested back in the economy, there's huge economic gains, in multiple areas, to be gained. So, there's lots of potential in a future where cars drive themselves and our purpose is to help advance that. Not the technology itself, but just to advance the quality of life improvement and potential safety benefits. 

VN: Earlier this year, a report from AAA found that three-quarters of U.S. drivers report feeling afraid to ride in a self-driving car, and only 10 percent report that they’d actually feel safer sharing the roads with autonomous vehicles. How do those statistics inform your strategy? What steps are you taking to make people feel more comfortable with this technology?

MH: That was the exact reason for our Las Vegas shuttle pilot. What happens to that consumer perception when they actually experience this technology for first time themselves and does their perception change after they've taken their first ride in a completely self-driven vehicle? That's part of what we're studying out of Las Vegas, and how can we help consumers become more comfortable in adopting this type of technology?

Again, I think the important part is we have to be able to show the safety benefits and we have to be able to show the lifestyle improvement benefits. Without that, it isn't a better alternative than the next best choice. So, that is the key, that the potential of autonomous technology has to live up to the hype, but if it does, just look back in history. The same thing existed when AAA was born; everyone rode horse and carriage, then you're moving to this thing called the automobile that went significantly faster than horse and carriage. They crashed more often than horse and carriage. They were more dangerous, but thanks to all of the lifestyle improvements that they offered, ultimately, we were able to overcome that and, within roughly 10 to 15 years, over 50 percent of American households adopted the automobile. I think we're on the same path with autonomous transportation and as long as those true benefits for consumer come to fruition, I think you'll see a transition over time.

VN: One of the things that allowed the automobile to flourish were advances in technology that made them safer, like the stop light. Is that what will help autonomous vehicles become more widely adopted as well? 

MH: Absolutely, and any additional enabling technology that helps mitigate those fears helps further enable the adoption. I would say, from AAA's perspective, it's about those benefits really coming to fruition, but, just like any consumer product, strip away the technology scene for a minute, if a consumer product doesn't add material value over the next best alternative, you almost never see consumer adoption. If it does, that's where disruption occurs. So, it really comes down to: can the potential of autonomous technology live up to the hype, and, if so, I think that will be the primary factor driving widespread consumer adoption. Also, particularly, if the economics become advantageous, that's a key lever as well. 

VN: How does the launch of Gig fit into your autonomous vehicle strategy?

MH: Ultimately, we're investing in a future of transportation that is evolving from individual ownership of an asset to shared transportation of a service, and we're believing that the future is likely autonomous shared transportation as a service. Gig Car Share is a key step in that direction by positioning ourselves in the mobility as a service game.

We see a shift today, particularly among younger generations, from desire to individually own a car to leverage transportation as a service. So, in order to meet that need for our  members and the broader public environment, AAA moved into that space to offer the first one way car sharing operation, which is unique in that it gives you almost all of the flexibility of a traditional ride-sharing operation at a significantly lower price that's consistent with car sharing. So, if you're willing to be the driver yourself, with a one-way operation you only have to take the car from point A to point B, you can leave it wherever you need to in environment we operate, and it gives you all that flexibility as if you were taking a ride-share but at a more economical cost if you're the driver.

VN: Do you see yourselves going head to head with services like Uber and Lyft? 

MH: I don't see us going head to head with Uber and Lyft; I think it's a multi-modal ecosystem that creates mobility as a service. There's very specific cases where ride-hailing is a much better alternative. A great example of that is if I go out to dinner and have too many glasses of wine, ride-hailing is an outstanding alternative. There's also, similarly, use cases where car-sharing is a much better alternative. So these things together create a world which is multi-modal, and that's what makes transportation as a service work, and Uber proved this in their launch. They didn't just take over the taxi market, they actually expanded the entire marketplace. I think that's what a variety of different mobility choices do in a particular metropolitan area, so you have ride-hailing to bike-sharing to car-sharing to public transit, all of that working together to enable an ecosystem that actually makes it easier and more economical for the public to have alternatives, as opposed to just traditional car ownership. 

VN: AAA has launched a chatbot on Facebook Messenger. Walk me through how the typical AAA customer uses it. Why are chatbots an essential part of your strategy?

MH: In terms of chatbots, we look to use them to simplify our member experience whenever we can. Where you need a traditional human interaction, we want to make sure we provide that. Where we can simplify that experience and likely get a consumer or member the basic information they're looking for by leveraging artificial intelligence, we want to look to gain efficiencies to leverage that experience.

Ultimately, at AAA our business model is unique: we're a not-for-profit member service organization. The sole reason we exist is to create value for our members, not to create value for shareholders or economic value. So, theoretically, in our business model, we should be running on a lean margin, just to make enough money to weather the inevitable economic cycles and then we should be reinvesting the rest of our profits back into new member value creation. Artificial intelligence and chatbots allows to be even more efficient and more effective at delivering, in certain use cases, what our members want is an area we can leverage to create greater member value, while creating new services, enriching other service, and not having to not raise prices.

VN: How much of your chatbot strategy involves B2B versus B2C?

MH: When you think of interacting with the consumer, we're an omni-channel business. We want to provide a great AAA experience in whatever chain the consumer wants to interact in. When we look at using new technologies like artificial intelligence, particularly in a chatbot form, it is primarily looking to serve very simple interactions with the member when they're looking for very specific information that can be easily provided in a very fast and efficient manner leveraging AI technology. 

There's always B2B alternatives, and I think for AAA, being a member service organization, our primary focus is on delivering value to our members. That's the reason we exist, so we have to hold ourselves really accountable when we start looking at business models and opportunities in the B2B space. There are definitely opportunities in the B2B2C space that we would pursue, so, as long as it links back to creating direct value for our members, then it would be an avenue that AAA would pursue. Of course, as you can imagine, in any B2B relationship, there are many ways to use artificial intelligence when we look even at large data sets coming from vehicles on the road today, etc, to analyze that quickly and deliver tangible piece of information. That's one application that can be used in the B2B space for us.

VN: Can you give me some examples of B2B2C use cases? 

MH: One example today would be a mobile fuel delivery service that we're working on. So this would be a partnership with a particular OEM that's in the alternative fuel space, and unfortunately I'm not at liberty to disclose who that is or what the technology is. We are in the B2B space, delivering a business model so that every car they sell that uses our alternative fuel could theoretically have a mobile valet fuel service by AAA that would show up to refuel that vehicle. They sell a vehicle, we're technically partnered with that particular OEM that they can offset the range anxiety that a consumer may have by knowing they have a lifeline with a mobile valet service offered through AAA.

VN: How are chatbots and AI changing, or are going to change customer service or the way consumers buy cars or get Triple A roadside assistance?

MH: As artificial intelligence gets more and more effective, the opportunities to leverage that technology, to create a positive customer experience, become greater and greater. Very simple examples that we operate, even within our call center today, is for traditional roadside assistance calls that are simple, streamlined calls. When we use artificial intelligence to communicate very quickly, through either a digital platform or a telephonic platform, with that consumer we see increased satisfaction in the overall experience. It allows us to meet a consumer’s needs more effectively. To the degree that artificial intelligence can continue to enable that, we will leverage more and more of it and to the degree that consumers are delighted by that experience, we'll continue to leverage more of it. That's how I would describe the near stage horizon.

The bigger impact of artificial intelligence, to me, is to get much more sophisticated at predictive modeling. We're using some artificial intelligence today to look at profiles of consumer in general and understand all of the thousands of interactions they've had with us over their experience at AAA, and pull in external data sets that can help us know more about our members and be much more proactive to deliver the right solution or opportunity for them at right time. As it continues to evolve you move into this world where we can be far more proactive than we've ever been in our history to create much more meaningful and valuable experiences.

VN: What are some of those external data sets? Does that include social activity? Will you be able to look at someone's feed and use that to know where they're going and what they need? 

MH: Far out in the the future, potentially. I mean, there are those data sources, but there's a whole wealth of publicly available data that isn't just about the individual. We start thinking about the pattern and history throughout all of a member's interactions with AAA, but then we start pulling in news data, weather data, other socioeconomic data. We can start to paint a much better picture of what's going on in the world of a particular member and have a much more educated guess as to what they really need at what time. To the degree we can be effective at that, much like Amazon, as we try to predict shopping behavior for consumers and how do we offer them the right product at the right time, the more value we can deliver to a particular consumer. 

When you start thinking of the world of possible, when we start looking at external data sets and patterns, we might be able to start creating patterns to know where particular individuals go from a commute perspective, and types of services they would want along their commute, and we can help proactively provide be able to provide those for them and make it easier to find the things they want. 

VN: How close are we to getting to that point?

MH: Big data is the cliché word but I think we are close. It just takes a focus on whittling down large complex data sets to really tangible insights that are actionable. There's many technologies that we're on the cusp of and there's many in this space that are starting to make big advancements, so I do see it as near term future where we can be much more intelligent about almost anything that we deliver as a service business. 

VN: Tell me about A3Ventures. How does having a venture arm help AAA advance its technological goals?

MH: I formed A3Ventures as part of our innovation strategy. It directly reports into me.
In terms of the philosophy, A3Ventures was created as a separate division outside of our core business operations to serve as the innovation and capital investment arm of AAA Northern California, Nevada & Utah. It is a separate space, free from the distraction of our core business, to focus on the development of transformative new sources of value for AAA.  It is both a direct innovation lab, with our people building new products and services from the ground up, for example Gig Car Share, as well as a capital investment arm to invest in external startups as a strategic accelerator.

VN: Is there anything else you’d like to mention about the chatbot space or AAA’s bot strategy?

MH: I would just say, as we look at large emerging spaces like this, and transforming spaces, if you think about it from a corporate innovation perspective I think there's different types of innovation. When we look at AAA’s innovation agenda, I'm innovating from a transformational innovation perspective. Ultimately, over a long enough period of time, if I look at our core business value proposition, that simply erodes. We can argue about how long that timeline is but, as cars become more intelligent, as cars crash into each other less often, that rescue moment on the roadside or that insurance claim rescue moment becomes less and less valuable for consumers as it happens less and less frequently. Ultimately, our innovation agenda is to make material investments across that autonomous, connected, electric and shared horizon for the future is about reinventing our brand and reinventing our value proposition in that future state.

I think any corporate innovator has to first thing about what type of innovation am I trying to create? Am I transforming my business or do I have a long runway left on my businesses and am I looking to incrementally grow and innovate? If I were to wrap a bow around what AAA is doing and why we're doing it, the ultimate business case is simply: over a long enough time horizon, if we don't fundamentally change our business model, we stop adding value to our members and to the public in general, so we're focused on reinvesting our money into figuring how we create greater value for our members and the public in the future. 

(The Meet the Corporate Innovator series is brought to you by Advsr, a startup advisory firm in the business of starting conversations and sparking big ideas.) 

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Mike Hetke

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EVP & Chief Innovation Officer AAA Northern California, Nevada & Utah University of Arizona