VW – Balancing act

A perfect balance of open and closed is required.

• Volkswagen has articulated exactly the right strategy to give it a shot at becoming a digital company, but if it takes its proprietary stance too far and does not execute well, this could easily become another €3.5bn down the drain.
• RFM research has identified the possibility that both electrification and autonomous driving causing demand for vehicles to more than halve in the long-term.
• It is clear that no OEM in its current form would survive such a shift meaning that a lot has to change.
• One option is massive consolidation, but a preferable choice is to develop a digital services strategy such that software and services profit offsets profit declines from lower vehicle sales.
• In order to do this, I have long believed that:
  • First: OEMs have to move from a ship and forget to ship and remember by having a long-term relationship with their users.
  • Second: OEMs have to stop setting specifications for software and start writing it themselves.
  • Third: OEMs must decouple the design cycle of the infotainment unit from the rest of the vehicle, as setting the specifications 4 -5 years in advance means that even the most expensive units can be outclassed by a $150 smartphone when the vehicle hits the market.
  • Fourth: OEMs have to improve the user experience of the infotainment unit materially otherwise users will continue to use their smartphones instead.
  • This will lead to OEMs being completely cut out of the digitisation of their own products.
  • Fifth: OEMs must leverage the data that their vehicles generate to create unique and monetizable insights that no-one else has access to.
• Volkswagen has announced (see here) that it will invest €3.5bn in the creation of a digital ecosystem of software and services for its vehicles rolling out in earnest in 2020.
• The good news is that the details of this program reveal at the very least a good grasp of the issues that are at stake and a strategy to try and deal with them.
• The aim is to create the “Volkswagen We” ecosystem which will be based on a redesigned-from-scratch software platform that brings all of the digital data generated by the vehicle into one place where it can be understood in context.
• Volkswagen We will be company-wide and will include a proprietary vw.OS upon which the user experience of VW owners will be based.
• This will be complemented by a cloud-based “One Digital Platform (ODP)” where vehicle and user data will be processed, understood and used to create value-added services.
• With the launch of Volkswagen We, VW will engage directly with its users and seek to have a relationship with them during their entire ownership or usage of its products.
• This looks great on paper and I view it as a big step forward by VW, as many OEMs still refuse to accept that these issues exist and that everything needs to change.
• However, as always, the devil will be in the details.
• There are very serious challenges to be overcome with the in-vehicle user experience that even the best in the business have been unable to fix.
• Hence, how VW succeeds where everyone has failed remains a complete mystery and a major risk to the success of this strategy.
• Furthermore, VW needs to very carefully balance the degree to which it opens up its ecosystem and its platform.
• Too little and no one will want to play, and VW will be unable to reap the great benefit of developers and of having access to a much larger dataset outside of its own vehicles.
• Open it up too much and it will lose its edge to sharper, nimbler competitors who will reduce its vehicles to handsets on wheels.
• VW has said that it will soon announce a series of cooperation projects and partnerships which I think will be critical to its success.
• I can be pretty certain that Google will not be a partner as vw.OS is clearly a rejection of Android Automotive, but I would expect HERE (in which it has an investment), Apple, Spotify, Facebook, Intel, NXP, Qualcomm and so on to be the kind of partners to be announced if VW is going to succeed.
• VW has taken the right step in my opinion but now the really hard work begins, and the very difficult and delicate decisions need to be made.