Chinese Autos – Handsets on wheels.

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Chinese automakers give away a crown jewel. 

• The willingness of the Chinese automakers to give away digital differentiation to the BATmen (see here) clearly indicates they do not understand how important digital will probably become.
• SAIC was the first to move (see here) in launching a car with the entire head unit powered by Yun OS (Alibaba) while eight other companies including BYD and Chiang are already intending to use Baidu’s CarLife.
• The multinationals are also getting in on the act with Audi recently signing a deal with all three of the BATmen to add their services to the cars that it ships in China.
• I am pretty certain that others will follow.
• From a digital perspective, it makes no sense whatsoever for the foreign car companies to try and create digital experiences for their Chinese customers.
• This is because like Google, Apple, Facebook, Twitter and so on the environment will make it almost impossible for them to succeed especially where their services compete against those of Chinese companies.
• However, the Chinese car companies have no such limitation.
• Hence, they are potentially giving away one of the big long-term differentiators and I am far from convinced that they have any understanding of the implications of what they are doing.
• Fast forward 15 years to a world where autonomous vehicles are everywhere, it will be the brains of the vehicle that largely differentiates it from its competitors.
• If the brains of that vehicle come from one of the BATmen then all vehicles will have access to those brains as it is in the BATmen’s interest to ensure as wide a distribution of their services as possible.
• This could leave the Chinese car makers as commodities with all of the value accruing to the ecosystem owners, just as it does in the handset industry.
• This just one facet of a huge problem that I see in China.
• Outside of the internet industry, there is precious little understanding of how important software and services are becoming and so very little is being done to effectively combat commoditisation.
• Many Chinese companies believe that they will be able to differentiate in hardware but the example of Android shows that any hardware innovation is rapidly copied failing to alleviate the problem.
• There are a few exceptions to this but unless Chinese device makers really begin to internalise the importance of the user experience, a very bleak future awaits them.
• This is how many industries in China remain wide open to the BATmen as the existing players have very little understanding of the threat that the BATmen represent to their long term livelihoods.
• Consequently, in China Baidu and Tencent are the only place where I would feel comfortable for the long term.