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The Future of the Auto Manufacturing Industry

Editorial
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What if you were able to try out driverless features in your car for one month at no charge?

If you liked it a lot, you could buy an annual subscription. When your subscription runs out, you could renew it through your smartphone.

On a weekend, you might want to upgrade the driverless feature from“commuter style” to “race track style”, and be driven at breakneck speeds on a racetrack.

Google’s driverless car, which was awarded a driving license in Nevada in May 2012, is a guide for the technology-driven transformation of the automobile industry.

Observers are dreaming up possibilities as exemplified by “if you give a car the abilities of race car drivers (instead of the average driver) and combine them with “conservative software” used for standard driving then you can develop a safer driving experience.”

Such possibilities are endless. At their core, they speak to the looming transformation of business models in the automotive industry.

A business that is characterized by occasional vehicle sales today is soon to become the “car as a service,” creating an on-going relationship between auto manufacturers and consumers with recurring revenues from sales of apps and services. The recipe driving the transformation of automotive manufacturers consists of essential ingredients, “platform + apps + service.”

This is seen in Google’s driverless features, which were retrofitted onto a Toyota Prius and enabled by a combination of hardware platform (e.g. laser radars), breakthrough software and Internet-enabled services.

Until recently, comparing Apple to Ford would have been dismissed as a meaningless exercise. However, Apple’s formula of “platform + apps + services,” exemplified by the iPhone platform + iPhone Apps + iTunes content, serves as an indicator of the payoff that automotive manufacturers can expect, if replicated correctly. The table below shows that Ford and Apple are roughly similar by revenue. However, Apple’s market capitalisation per dollar of revenue is 10 times that of Ford’s.

Despite this difference, these types of returns are very much within reach, and Ford, in particular, is heading in that direction. Ford Sync is an early example of a next generation a connected software-driven dashboard or vehicle information and communications system. Ford offers Sync in four editions based on levels of features, bundled services and optional subscription plans as summarised below:


Sync

Sync with Voice-Activated Navigation

Sync with MyFord

Sync with MyFord Touch

Handsfree calling

X

X

X

X

Entertainment

Voice-activated music search, Bluetooth audio streaming

X

X

X

X

Voice-activated radio tuning

X

X

HD Radio (pay per song)

X

Satellite radio (subscription)

X

X

Navigation

X

X

X

X

Subscription Services 

X

411 business search, Personalized news, weather, sports, traffic alerts

X

X

X

X

Vehicle Health Report

X

X

X

X

Wifi hotspot

X

Ford Sync illustrates several strategies to grow revenues from a “platform + apps + services” approach. First, a single software product can be sliced and diced based on software features to create packages targeting specific consumer sectors.

This helps Ford create Sync offers at different price points based on customer need and willingness to pay, without having to acquire manufacturing costs for a specialised hardware model for each need. For example, the “wifi hotspot” is available in one package but not in others, allowing auto manufacturers to generate revenues from customers that care about such features without having to manufacture a hardware model.Second, you will note several services bundled in Ford Sync, some require a subscription, while others are part of a package.

For example, vehicle health reports, which send engine diagnostic information to the Ford portal, are available in packages. Personalized traffic alerts and satellite radio, on the other hand, require a subscription plan. Lastly, features like HD Radio is available as a “pay per song” model, similar to iTunes.  

A “platform + apps + services” model allows an automanufacturer endless possibilities for revenue.

For example, consumers can have the option to pay for navigation maps for a short duration, such as a weekend trip, rather than paying a monthly subscription. Manufacturers can also offer entertainment, such as movies or video games, to rent for a weekend or a longtrip. Additionally, manufacturers can offer a vehicle’s maintenance history in the cloud. This information will stay with the vehicle and can be passed along to a new owner. An example of this is in General Electric’s TRUEngine program which helps GE engine owners “maximise your asset's marketability and ensure it receives the full range of GE's world-class support. Through our online TRUEngine database, appraisers andbuyers can quickly confirm an engine’s qualification status by Engine Serial Number (ESN).”

Ford has also partnered with an auto insurance provider to track and transmit mileage data, resulting in improved insurance rates for drivers. These creative services provide Ford with endless monetisation opportunities and recurring revenues, in addition to an increase in customer loyalty for not only Ford, but for their entire network, such as their insurance provider partner.

Electric car manufacturers like BMW have also embraced these ideas as they’ve partnered with car charging networks like Coulomb Technologies. The dashboard of these cars feature services such as maps of charging stations, and include an option to reserve a charging spot at each station. We predict that in the future, drivers would be able to record and store their driving profiles in the cloud and download them to any vehicle they choose to drive, just as a smartphone records roaming history. In addition,drivers would be able to log into their car and receive the correct seat adjustment, thermostat settings, radio channels, games, and more. 

Internet connectivity anywhere, anytime in cars is the key enabler for “platform + apps+ services” models. As Gartner points out, “A connected vehicle experience provides the opportunity to move beyond a vehicle-sale-centric business model and toward a variety of monetisation opportunities focused on the sum of the automobile ownership, driving experience and user-related aspects.”

The transition to a software-driven business provides tremendous opportunity for automotive manufacturers to grow revenues. So how do you make the transition? In our experience, a software-driven business transformation will require auto manufacturers to:

  1. Re-think product packaging and business models based on how consumers want to use cars and related apps and services. As the Ford Sync example illustrates, car manufactures will need to segment their customers more and create tailored “platform + apps + services” offerings at different prices points.
  2. Track and manage entitlements. Every driver and car could be configured differently based on the device platforms (e.g. dashboard system), related apps and services. Layered on top are the different ways drivers might have purchased apps and services, ranging from try-before-you-buy, subscription models, freemium models, pay-by-use, outright purchases and so on. All this can become quite complicated very quickly, but tracking and managing consumer entitlements is an essential pre-requisite to making “platform + apps + services” real. 
  3. Automate the entire app, device platform and entitlement lifecycles. These lifecycle processes include: app installation and activation; subscription management; firmware and app updates; device platform provisioning, configuration management, device monitoring and remote management; app upgrades and other changes to entitlements. Internet connectivity is a key enabler for automation of firmware and software updates, as it is for data uploads from and downloads to cars at the heart of many of these processes.

Some things are easier said than done, especially when automanufacturers have little to no experience running software-centric businesses.However, a detailed plan outlining these requirements is just what you need to make the transition and unlock 10X financial returns!

Tom Canning is Flexera Software's VP for Asia Pacific.

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