Automakers Try to Compete With Tech Companies

18 December 2017 Dashboard Insights Blog
Authors: Jeffrey A. Soble

Why do we need Android Auto or Apple Carplay? Why are our vehicles’ infotainment systems not just built with Android and/or iOS software? These questions ran through my mind as I was reading a recent story from Quartz.com pointing out that tech companies have enough cash to buy most of the auto industry. Think about that – in just cash and equivalents, the tech industry has enough value to buyout the entire enterprise value of the automotive industry. Yet, they do not. They do not want to.

My phone updates routinely.  Apps, operating system, whatever.  My car, I have to go to the dealer.  Bloomberg Technology reports that, perhaps, GM will be able to update software “over-the-air” by 2020.  2020!  The map in my navigation system needs updating and they want to charge me over $100 (and that was on sale).  The map on my phone is updated every day for free.  To update my map, I need to order a disc, that is then put in my car.  Perhaps, I could make an appointment, go to a dealer, and have the map updated.  On my phone, it updates using 4G when I am not even looking and takes a matter of seconds.  Simply put, the tech in my car cannot compete with the tech in my phone.  This is incredible, especially when you consider that my phone gets more powerful with every iteration, without sacrificing size.  My car has essentially unlimited battery life for the tech, and plenty of space for the tech, but it cannot compete.

Perhaps the tech industry sees little value in owning an automotive company. As reported by Quartz, certain financial metrics of a tech company are far more favorable than an auto company. For example, 75% of cashflow goes to production for auto manufacturers compared to 35% to 60% for tech. Tech companies are also able to spend 3-5X as much on research and development.  Tech profit margins are 2-3X of auto companies. Phones, apps, software, etc. is where the money is to be made.

Including in your car. The infotainment system is a gateway to revenue.  Already your car’s infotainment system is being populated with apps. When your car becomes autonomous (or semi-autonomous, or more autonomous than today) the average passenger will suddenly have more leisure time. And content providers will suddenly have a captive audience that will stream, rent, buy, and otherwise charge people in cars.

This all brings us right back to the beginning. Car companies do not want tech companies in their infotainment systems. Access, sure, that ship has sailed already. But embedded, building, making, and selling their infotainment systems.  That revenue stream, and the potential future revenue stream, is where the money can be made by tech companies without ever needing to buyout the entire auto industry.

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