The Consumer Electronics Show (CES) is starting later this week and will be followed by the Detroit Auto Show (DAS). Both shows will serve as venues for the automotive industry to showcase Autonomous Connected Electrified (ACE) vehicles and new Mobility Services. ACE vehicles combined with Mobility Services such as ridesharing, car sharing and multimodal transportation options will give rise to a new personal mobility model that combines car ownership with car access. These innovations and the emerging model are creating two challenges for the automotive industry.
Challenge 1: The existing business models are no longer sufficient. Car manufacturing and distribution is a low-margin business. Today it is supported by vehicle sale and leasing. The emerging car ownership/car access hybrid model for personal mobility will negatively impact the automotive industry’s established business models, as well as the models of other industries that are part of the transportation ecosystem. As a result, of the potential negative impact, the automotive industry in particular is searching for new high-margin, long-term revenue opportunities.
Challenge 2: Automakers will need new ways to differentiate the next-generation mobility offerings. Automakers are big advertisers. But as autonomous vehicles start to share the road with traditional cars, and as car access becomes as important an element of personal mobility as car ownership has been to date, the characteristics each automaker advertises to entice car buyers into dealer showrooms such as design, engine horsepower, fuel economy, safety, reliability, cabin size and luxury, infotainment, will need to be rethought. New enticements will need to be showcased in order for each automaker to differentiate its offerings from those of its competitors.
Over its 100-year history, the automotive industry has faced several challenges, most recently in 2009 during the Great Recession. With the internal combustion engine remaining at the industry’s core during this entire time, and car ownership becoming central to our lives after Second World War, the industry has been able to successfully overcome these challenges. However, the challenges created from the combination of ACE vehicles and Mobility Services along with the models they enable will be impossible to overcome with the industry’s “traditional” playbook that includes mixing of new designs, financial incentives, and more advertising under the same business models. In addition to technology, the next-generation mobility playbook must be based on personalized transportation experiences that can be monetized under a new set of business models.
The incumbent automotive industry (automakers, parts suppliers, dealers, automotive services providers) is starting to work on next-generation mobility solutions as evidenced particularly by the investments and acquisitions OEMs and Tier 1 suppliers have completed, including many startups, developing autonomous vehicle technologies and ridesharing services. Based on a database I maintain, over the past 4 years over $2.5B has been invested in startups working on transportation-related software and hardware technologies, including the investments my firm Synapse Partners has made in Renovo and Divergent3D. Example transactions include Ford’s investments in Velodyne and Civil Maps, Magna’s investment in Peloton, and BMW’s acquisition in Chargepoint, and Nauto. Automakers have also been investing heavily in ridesharing services companies including GM’s investment in Lyft, Toyota’s investment in Uber, VW’s investment in Gett, and Mercedes’ investment in Blacklane. Another $61B has been spent to date on relevant acquisitions including Qualcomm’s acquisition of NXP, Samsung’s pending acquisition of Harman, and GM’s acquisition of Cruise Automation.
But many of the technologies that enable ACE vehicles and certain Mobility Services will become table stakes rather than differentiators. As I argue in my new book The Big Data Opportunity in Our Driverless Future, the key differentiators will be the personalized transportation experiences that can be offered by properly combining these technologies and services with insights derived from the continuous exploitation of big data collected from inside and outside the vehicle. Moreover, while vehicle characteristics such as safety, cabin size and luxury, fuel economy and infotainment will remain important considerations to the user of an ACE vehicle, regardless of whether it is individually owned or owned by a Transportation Network Company (TNC) like Uber, and will continue to be monetized, their monetization will not be high-margin. The monetization of personalized transportation experiences has the potential of higher margins.
Offering personalized transportation experiences will require the industry to re-think the notion of customer and what makes up the transportation experience. Automakers have been placing the driver experience at their design center. Innovations such airbags, navigation systems, multi-articulated seats, dashboard design, halogen lights, antilock brakes, and obviously all engine innovations were introduced with the driver-customer in mind. With the emergence of ridesharing the focus started shifting to the passenger. Autonomous vehicles are making every passenger as important as the person behind the steering wheel (when there is one). So automakers need to broaden their view, place the passenger at the center and learn as much as possible about each passenger.
Under the new hybrid model that is enabled by ACE vehicles and Mobility Services and combines car ownership with car access, the transportation experience begins from the very first time the consumer thinks about owning or accessing a vehicle, and continues with every trip. Tesla has shown us that a superior in-vehicle experience that blends hardware, software and big data technologies has to be as important as a general transportation experience that includes buying or leasing, charging or servicing the vehicle. Planning a trip must involve how to be transported from point A, all the way to what happens upon arrival at the destination at point B. This implies that automakers need to be considering both what happens inside the vehicle but also what happens before stepping into the vehicle and after exiting the vehicle. In contrast, today automakers consider the transportation experience to start when the driver enters the vehicle and end when the driver exits the vehicle. For example, consider the transportation experience whereby one has to be dropped off at a place that will make it convenient and comfortable to walk to a series of meetings that are in relative proximity to one another. The notions of convenience and comfort vary depending on the person and the location. Convenience in Miami during July for a middle aged person may imply that the person won’t have to walk for more than 3 minutes to each destination. Convenience for the same person in San Francisco during the same period could mean a 15-minute walk because the climate is more temperate.
Understanding the passenger and enabling the creation of personalized transportation experiences to address the challenges brought by the introduction of ACE vehicles and Mobility Services under a new hybrid model that combines car ownership with car access, relies on a rich set of insights derived from the continuous exploitation of big data using machine intelligence. Taking advantage of these opportunities will require that incumbents accept to be in the insights-generation business rather than just in the manufacturing and distribution business.