The main threat facing the automakers comes from the digital players
Most analysts in the automotive industry agree that connectivity is changing the user experience and will transform industry. The way in which vehicle owners interact with their cars is changing right now. The solutions that are already making this model possible are also creating new ones.
Four basic cases are fundamental to how consumers interact with their cars: in-car content and services, vehicle relationship management, insurance, and driving assistance.
The creation of services for these cases will lead to a repositioning of the market players. Automakers, which previously only concerned themselves with vehicle hardware or systems integration, are beginning to move into developing software, becoming content providers and application developers, which represent entirely new industries for them.
Automotive suppliers are now trying to occupy niches in the field of services, content, and apps. Mind you, these are the dinosaurs of the auto industry.
There are completely new players on the market, namely the digital players (Google, Microsoft, and TomTom), which have spent their entire lives as companies developing software and services for customers. Now they are developing hardware in cars.
Telecom operators have built their entire business on infrastructure and recurring payments. Today they are trying to deliver both content and hardware.
Automotive insurers have always sought to base their business on recurring payments, but in order to be more competitive they are now trying to provide the customer with more services, including safe driving data, ways of improving insurance rates, and how to do this online.
All of this suggests that the historical businesses that these companies have always been involved in are expanding, and the main threat facing the automakers comes from the digital players. They can address all of the niches in the auto market and the automakers are at risk of losing their market, their piece of the pie.
At the same time the size of the pie is not getting bigger. The amount of money that the customer spends on a vehicle and operating it has not changed in decades. If we take, for example, the premium car market in Germany in 2014 and 2020, respectively, then we will note that the driver will spend EUR 56,000 on his car over the course of 5 years. This amount is not going to change. Spending patterns are changing. There will be a redistribution of how the pie is cut up, but the pie will remain the same size.
According to our forecasts, the size of the connectivity share will increase slightly by just 1.5 times. This, of course, will still be important for the market and redistribution of shares. The main thing that we are noticing is that certain customers are becoming dependent on connectivity services, and this effect can be analysed by country and amount of time, i.e., the number of hours spent behind the wheel per week, regardless of the brand.
In other words, if the owner of a Toyota in China uses his/her car for 4 hours per week, then connectivity will not be that important for them. He/she will not have time to use this service but if a BMW owner in Germany spends 2 hours per day commuting to and from work, then this will be a significant factor informing his/her choice.
This will influence how the pie pieces are redistributed, as all that is left for a market player at this point is to fight for one’s share of the pie. In fact, connectivity presents an opportunity to pick up a larger piece.
How can market players break away from competitors that threaten to encroach on their share?
OEM connectivity revenues are vulnerable to competition from the manufacturers of consumer electronics. For example, the head unit interface, which is well integrated in a car’s system, is no longer just the purview of the OEM as consumer electronics manufacturers can now make their own head units. However, it is worth noting that only the automaker has access to the vehicle’s body. OEMs will invest in client services and focus on its advantages (such as HMI).
The automakers themselves may break into the auto insurance market. They may use their own data to act as data and service providers for insurance companies, which would form a new revenue stream.
Connectivity is changing the structure of the OEM. IT/R&D deeply integrated with business will impact on strategy. This means that IT is involved throughout all the business processes of automakers, and connectivity is becoming a factor that influences the choice of vehicle and generates its own revenue.
For example, GM OnStar already is a strategy and a way of winning over customers. Thus, automakers are changing their organisational structure and becoming more than just companies that produce hardware. They are striving to become service companies in whatever way they can.
Robert Schuessler is connected car VP Bright Box Europe. Bright Box company and connected car platform is a turnkey connected car platform that helps car owners to manage their cars remotely via smartphone (to start the engine, to open/close doors, for car tracking). It provides big data for automotive OEMs and insurance companies, and informs them about car malfunctions, mileage, drivers’ behavior, road accidents, etc.
The company’s headquarters are located in Lausanne while most of the development centers are located in Eastern Europe. The company’s management team has many years of experience with software systems in the automotive industry. Connected customers include Nissan, KIA, Toyota, and Infiniti.
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