Unbundling the Automotive Stack

The auto industry today looks very similar to the desktop computer in the early 90’s and the smartphone in the mid 00’s, although it has taken a lot longer to get there. In my view, the two most significant reasons for the domination of the desktop computer market by Microsoft Windows and the smartphone market by IOS/Android:

  1. The commoditization of hardware components &
  2. The focus on being a platform for differentiation.

The desktop computer began with off-the-shelf components and the proliferation of the IBM/PC clones in the decades prior resulted in a steep drop in component costs. Microsoft’s focus on developers during this period gave their platform functionality that was useful, engaging, and differentiated. The same factors applied to the smartphone market. The form factor for these hand-held computers had largely been established; people wanted something that could fit in their pocket with customization and functionality. The phone manufacturers were producing large numbers of similar-looking phones and the prices of batteries and sensors were declining. Telcos’ investment into mobile broadband and the spread of the mobile internet also created a ripe opportunity for IOS/Android to own access to the best software.

Ever since the 80’s, when the major auto OEMs began increasing the level of outsourcing as a way to cut costs, a handful of companies have supplied the majority of parts for cars of every make. Despite what consumer reports wants you to believe, quality, comfort, and safety levels are comparable across the board for similarly priced cars. Today’s average car buyer makes a decision based on minor cosmetic details and marketing. If you need any more evidence of the commoditization, take a look at how the price of cars has changed over the past 25 years. Cars have increased in price at a lower rate than inflation despite incremental improvements on an annual basis.

So what’s next? My view is that the big auto makers will see a major decline in control over the car as software and other peripheral technologies become mainstream. Cars have already developed to a point where users no longer interact with a mechanical product, and it could be argued that cars have already become computers on wheels. When you step on the accelerator or brake, for instance, the action sends a signal to the car’s computer which then decides on how to optimize the use of various mechanical systems. But what cars have lacked in and what will be the ultimate shift of the car to a product sold on software is the connectivity and interactivity of the user with the internet and the world around them. This is all about to change. An enormous number of in-car software solutions are being funded by VCs and we’re in the beginning of a revolution in how we utilize the car. Here is my specific view –

In five years, ecosystems built around Android Auto, Apple Carplay, or some other platform will begin to flourish. Consumers will base 50% of their car-buying decision (price and class being equal) around which platform is partnered with which automaker. The “apps” will help make driving more efficient, safe, and fun.

In ten years, autonomous vehicle and driving assist technologies will be mature enough to allow drivers to spend more time focused on non-driving tasks such as managing in-car entertainment and productivity tasks. Secure and reliable data-sharing between cars and with the internet will allow the user to be connected at all times (cloud-based apps) and for novel uses of car-to-car interaction.

In fifteen years, autonomous technology and the networking of intelligent vehicles will zero out the value proposition of owning a car. Imagine being plugged into a service where hailing a car is cheap, fast, and hands-free. Google has already developed autonomous car prototypes and have been testing self-driving cars on the roads of Mountain View for years now. Uber has built the car network and CEO Travis Kalanick has already stated that his company will transition to a fully automated fleet as soon as it is viable. With the recent partnership between Google Maps and Uber, it’s clear we’re not far off from this future.

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