Google Automotive – Out of GAS?

Nanny regulator comes to the rescue.

• It is no coincidence that it is the German regulatory authority that is taking issue with Google’s automotive business model as it is German industry that has the most to lose should Google turn cars into Android handsets on wheels.
• The German Federal Cartel Office has informed Google that its Google Automotive Services (GAS) offering may harm competition by bundling together its app store, Google Assistant, Maps and so on and that it may order an unbundling.
• Google’s defence here is relatively robust in that it will argue that the app store is open for anyone to write to and therefore anyone can compete with its own services.
• Furthermore, unlike Apple, Google does allow 3^rd party app stores to exist on Android which are already being used or are planned to be used by car makers to deliver apps to users independently of Google.
• However, what the regulator is really complaining about is the power of default which Google has already used to great effect to completely dominate the Android handset industry.
• This refers to the fact that almost all users tend to stick with the default setting of a digital device and never change it even when something better may be available.
• This is why it makes complete sense for Google to pay Apple billions of dollars every year to be the default search provider on the iPhone even though this can be changed with a couple of taps.
• In Google Android Automotive with GAS, all of the Google ecosystem services are installed at the factory and are set as default when the vehicle is sold to the user.
• This means that almost all users are likely to stick with Google services and not bother looking around for alternatives even if better options exist.
• This is what the German regulator says may violate its competition rules, but I think that this is more about Germany’s exposure to automotive manufacturing and the risks that represents to the economy should the digital ecosystems take over the automotive industry.
• Germany makes some of the best vehicles in the world, but their real intellectual property lies in petrol engines and transmissions meaning that moving to EVs opens them up to much greater competition.
• I still think that the Germans have a big lead in manufacturing high-quality machines that last for many years without falling to bits but the EV makers (including Tesla) will catch up with time.
• This combined with the digitisation of the vehicle and the potential for far fewer unit shipments in the future, puts German industry in great peril.
• The one hope is that they are able to access the potentially lucrative market for digital vehicle services but if they have already ceded the digital vehicle to the digital ecosystems, then this most likely to be a non-starter.
• In this scenario, the German vehicle industry could halve the number of cars it sells which with greater competition and no digital revenues, would have a cataclysmic impact on its health.
• This would result in forced consolidation and mass layoffs which is something that Germany will be very keen to avoid.
• Hence, there is a strong incentive for the German regulator to lend a hand to its automotive industry and help it establish digital relevance in the vehicle.
• This speaks volumes of how badly the German automakers are faring in this regard and there is not much evidence that they will be able to turn things around on their own.
• Both Apple and Google are aggressively coming after the vehicle which they see as the next device to be digitised and yet another opportunity to expand the reach and monetisation of their digital ecosystems.
• The OEMs are so far not putting up much of a fight and spend most of their time fighting each other rather than realising that they share a common and much greater threat in the form of the digital ecosystems based on smartphones.
• I remain pretty pessimistic about the outlook for the car makers in general especially when they need the help of the regulator to keep the invaders at bay.