Research Publication – Automotive Ecosystems – Sitting Ducks – Thematic Update

January 4th 2019: Radio Free Mobile updates its Automotive Ecosystem research product with the publication of Automotive Ecosystems – Sitting Ducks – Thematic Update.

RFM research subscribers will receive their copy directly by email. 

The real threat to the OEMs today is the smartphone. If they fail to drive usage of the infotainment unit in the vehicle then they will be unable to capitalise on the opportunity and other players will simply come in over the top. However, should the OEMs come through, they only have to win a small portion of the $1.6tn opportunity to survive as digital services should be much more profitable than selling cars. The rewards are high but so are the risks and many still may not make it

• Issues and opportunity. RFM finds that there is a substantial opportunity in automotive digital services but to make the most of this opportunity, OEMs must bring their user experiences into line with the smartphone as well optimise them for the vehicle. This is a big challenge.
• Financial mechanics. As long as OEMs move their revenues to digital services, they should be able to withstand big revenue declines. RFM estimates that a good quality digital service should be 4x more profitable than selling a vehicle. Hence with a switch to digital services, an OEM could withstand a 75% decline in revenue with no change in profit or cash generation.
• The smartphone gap. RFM finds that vehicle experiences today remain uncompetitive when compared to the smartphone. Unless this is rectified, users will prefer to use their smartphones in the vehicle, rendering any digital strategy centred on the infotainment unit moot.
• User experience. To fix this problem, the vehicle makers need to make the infotainment development cycle much shorter and ensure that both infotainment hardware and software are upgradeable. This is the first step that needs to be followed by an easy and fun to use user experience that is tailored for the vehicle. Many seem to think that voice and gestures are the answers to this problem but most of these remain clunky and unreliable.
• Digital Ecosystems. Furthermore, the Digital Ecosystems have realised that there are significant rewards to be had and most of them already have an offering for the vehicle. Google, Alibaba and Banma are the most advanced with an offering that completely replaces the software in the head unit and deeply embeds their services within the vehicle. RFM continues to believe that offerings such as Car Play, Android Auto, Car Life etc. exclude digital ecosystems from this opportunity as they have no real access to the vehicle or its data.
• The opportunity. RFM estimates that the opportunity could be worth $1.6tn by 2047 and will really begin to emerge as the trend to electric vehicles and autonomous driving begins to take hold. As consumer spending on transportation declines, there is a great opportunity to entice consumers to spend the savings from transportation on useful and innovative services. As long as OEMs make good margins on their services, they only have to capture a small piece of this opportunity to survive.