Dancing with the devil?

We're all familiar with the concept of the connected car, mainly from the point of view of how it affects aftersales with the ability to provide over-the-air updates and to capture data from the car such as fault codes, wear levels and other information that would improve planning of aftersales needs.  This in itself is not straightforward as the independent aftermarket community lobby for improved access to that data, seeing any restrictions from the manufacturers as anti-competitive.  That is not the focus of my blog for this week, but rather the much promised El Dorado of a new era of digital revenues for manufacturers yielding much higher profit margins than the cars themselves or even parts supplied for after sales.  Most manufacturers have something in their strategic plans showing billions of benefit that will come from this leverage of connected cars.

That prize has always been on the horizon.  I remember working on it around 2000 before Bluetooth came along.  We concluded that manufacturers would never be able to replace the smartphone and their extended ecosystem in providing services which customers would potentially want to use outside of the car as well as when they were in it.  That vision of a whole new high margin revenue stream however has remained, continuously rolled forward, not quite in reach and not fully articulated in terms of what services customers would want to buy.  We have seen the recent controversy around the efforts by some manufacturers, notably BMW, to sell features on demand such as heated seats.  One of the challenges in that area has been how do you handle features that have been installed by one user when the car then changes hands?  Does the car then revert to base specification or can the features remain and the records associated with that VIN be updated?

In a recent conversation with Earl Hesterberg, most recently the CEO of Group 1 and prior to that Vice-President of Sales and Marketing for Ford of Europe, he was equally sceptical about the prospects of manufacturers securing new digital revenue streams.  You can watch the short video here.

I’m also looking with interest at the developments in China, where the domestic manufacturers compete as much on the digital capabilities inside the car as they do on the hardware of the car itself.  That trend is then exaggerated by the entry into the car world of consumer electronics manufacturers such as Huawei and Xaomi.  Their products have been described as ‘smartphones on wheels' and the car can form part of an extended family of products based on the same operating system providing seamless access from one to another for the user.  It is still unclear what that business model looks like, and whether digital services income might allow the cost of the car to be subsidised by other in-life revenue, much as happens with printers and their consumables.

This was highlighted for me last week in news coverage of the functionality of the latest Apple CarPlay. This will not only improve access to functions on your iPhone from within the car, it also allows functions in the car to be controlled through CarPlay.  This apparently could include controlling the heating and adjusting driver settings.  The offer is not just some part of the Apple vision – this functionality will be offered soon by Aston Martin and Porsche, brands who put a great deal of effort into providing a distinctive cockpit environment.  Now however, much of what the driver will see will replicate the look and feel of an iPhone.  When you hand over such an opportunity to the third party, how can you possibly still believe that you will have control of digital services bought by the customer?  Is it actually an admission of defeat or a recognition of reality, that if you can't beat them join them?  Will features that I buy on a future car be selected through the manufacturer app displayed on CarPlay in my car and then charged through my Apple Store account with Apple taking a percentage of the revenue?  Is this finally an admission that traditional manufacturers cannot play in this space?