Partnerships, services and data are shaping the car industry’s future (Reader Forum)
From monitoring patients in hospitals to manufacturing plants, many industries are transforming with IoT. By 2020, Ericsson predicts that there will be around 29 billion connected devices worldwide, of which the majority (18 billion) will be IoT-based. IoT is slowly becoming the Internet of Everything.
Emerging technologies such as 5G, IoT and AI together with changes in consumer attitudes are encouraging product-based organizations to think differently about services. For instance, some automotive companies are starting to connect cars, collect customer data and use insights to create mobility solutions, in order to provide a better, more personalized service to customers, which grows revenue and also adds value.
Over the next decade, the automotive industry will become more digital. Analyst firm Counterpoint Research’s Internet of Things Tracker forecasts that the global market for connected cars will grow by 270 per cent by 2022. The report also predicts that more than 125 million passenger cars embedded with connectivity are forecast to ship worldwide between 2018 and 2022.
From public transport to personal mobility, from owning to sharing and hybrids of the two; each part of the auto industry will embrace connectivity to a lesser or greater extent. There is a unique opportunity to leap ahead for those who develop new ways to bring together all the elements and all the partners to deliver the journeys of the future – not just technologically but profitably too.
With the potential growth and opportunity for car manufacturers to future-proof their businesses, what are the key areas that they need to think about?
Beyond the vehicle
Customers today want convenience and have high expectations when it comes to digital experience and the range of services available to them on their smartphone – whether it’s paying for a utility bill, checking their bank balance, making a purchase online, or booking tickets for a show.
Over the last few years, transport has gone mobile as well: on-demand taxis, car-sharing, and real-time navigation apps integrated with the vehicle are part of the jump to mobile as a way to solve people’s travel needs, wherever they are.
The car-as-a-service (CaaS) model is a move away from the traditional car leasing model, which focused purely on financing the “product” (car). The emergence of the CaaS model has forced carmakers to look at the customer’s mobility needs and create a simple monthly subscription that sweeps up servicing, finance and insurance but also the flexibility to switch cars such as a hatchback for city living but an SUV for holidays and a sports car for weekends.
By making cars less about the product (engineering and hardware) and more about meeting customer needs by using smart technology, software and services to power new services, carmakers can shift from a business model based on one-off standalone unit sales every four years, to one of an ongoing customer dialogue with recurring revenues with subscription-based services and the option to download in-car features over the air.
But they can’t do this alone. They’re going to need help.
A collaborative future
An ecosystem is an open, multi-sided collaboration between different partners. This can be as simple as bridging internally different business units within a car manufacturer, working with current and future business partners or and forming more collaborative relationships with dealerships and enterprise customers.
Solving customer problems requires a broader set of perspectives and the exchange of insights and ideas for new products or services. As important, ecosystems bring together a broader set of capabilities around a digital business platform to prototype and test those new ideas with customers.
In these new multi-sided business models, a partner ecosystem is key for generating new ideas, driving innovation, expanding offerings, extending into the white space between old industry verticals and growing revenue.
A connected car provides two significant data sources: the driver and the vehicle itself. Both can generate considerable insights, which the carmaker and its ecosystem can – with the customer’s permission – use to build closer links with them through new features and services that add value, but it takes a new set of skills to do that.
Our research into partnership ecosystems in the mobility sector found that 29 per cent of automakers are currently partnering with digital disruptors, and this number is expected to jump to 41 per cent over the next two years. By partnering with third party developers and service providers, carmakers can continually develop and sell digital services that will generate new recurring revenues streams from the connected customer.
In Germany, for example, telecom operator Vodafone and carmaker Ford are testing new connected-vehicle technology that makes it easier to find parking spaces in city centres. Parking Space Guidance technology displays to drivers the number of spaces offered by nearby car parks and how to get to them.
If carmakers are to run an effective mobility business, they must also consider practical partnerships that provide them with new capabilities – such as fleet management, logistics, and billing. These partnerships will be key as they don’t currently exist in the automotive “walled garden”. That said, less than a third (27 per cent) of automotive companies are currently planning to partner with the logistics sector.
Get into gear now
While car manufacturers acknowledge the need for partner ecosystems, our research highlighted a divide within the industry. There is a slim majority that are still reluctant to abandon their traditional business models, in which they protect their innovations from competitors through a ‘walled garden’ that mitigates against collaboration with partners.
Changing this mindset is the biggest challenge facing car manufacturers who are looking to gain from co-innovation and the digital ecosystem business model opportunity.
With the connected car industry expected to grow 270 per cent over the next few years, the competition is high. In today’s increasingly digital world, carmakers’ competition has moved beyond their traditional fellow automotive players to include giant web-scale technology companies.
Carmakers must therefore embrace collaboration with multiple partners to benefit from the fresh ideas and innovation that will deliver the new features and services that their customers expect – and which will help their bottom lines.
To thrive, carmakers must have a clear picture of what the customer wants in order to create new compelling products and also stay front of mind and relevant to their customers. If they don’t, they risk losing out to more agile OTT rivals and being marginalized as low-revenue providers of commoditized hardware.
Angus Ward is chief executive of BearingPoint//Beyond. BearingPoint//Beyond helps companies reinvent their business models and grow from efficiency to innovation. Its digital platform solutions provide the start-up advantage to move rapidly from ideas to concept to revenue, with minimum risk and cost.