Juergen Reers and Samit Ghosh examine some of the many software strategies for automakers in the emerging mobility ecosystem
The way car buyers think about vehicles is changing. It used to be all about performance, reliability and safety. Now consumers are increasingly viewing a new car as the ultimate connected device. Personalized entertainment, real-time digital functions and user-centric services are becoming USPs.
Accenture research shows that revenue from digitally enabled services will increase more than tenfold by 2040. That means this is a critical moment for established OEMs. As the software-defined vehicle becomes the primary competitive arena, new profit pools are emerging and new entrants are pouring in to capture them.
User experience is the new battlefield
Chinese EV startup Nio is an example of how the automotive industry is changing. The core ethos of the brand is user experience. And that starts with the sense of community it seeks to build not only through its digital services, but also through the physical spaces (dubbed Nio Houses and Nio Spaces) where members can meet, connect, work, and relax.
In the end, of course, it is the vehicles themselves that count. And here, too, the focus is on an optimized customer experience. Drivers and front passengers can order services such as valet parking and battery replacement directly from the vehicle and with NOMI, the brand’s personal digital assistant, can give the mobility experience a new kind of emotional and personalized character. Even VR services and 3D cinema experiences for passengers are planned for the future.
Nio House in OsloStack up control of the new ecosystem
As the focus of the entire industry expands from manufacturing vehicles to providing mobility services, the automotive technology stack is expanding. OEMs now compete on everything from the underlying physical and digital infrastructure (including charging, parking, and vehicle-to-everything (V2X) communications), to vehicle platforms and software platforms, to emerging digital front-end services and mobility experiences.
A key challenge for established OEMs is that this technology stack is much broader than that envisioned by traditional automotive business models. And some of the fastest growing industry players are targeting the entire spectrum with a “full stack” approach. Take Tesla. While the company has been innovative in its approach to automotive manufacturing and research and development, much of its market value is based on its focus on the future growth of digital mobility and other services. This ranges from offering your own insurance services to transforming the car interior into an entertainment platform. Not only that, Tesla home chargers and solar panels have the potential to create a whole new parallel energy market.
Full stack or not?
Should incumbent OEMs emulate such a full-stack strategy? It offers perhaps the greatest potential for revenue growth and customer retention, not to mention complete ownership of valuable customer data. But it requires significant investments in infrastructure and technology. And the sheer breadth of the strategy increases the complexity the business must manage across the ecosystem. With investment budgets and resource capacity already stretched, this may simply not be a viable option for some.
It may not even deliver the desired returns. Because a market in which every single OEM tries to maintain their own proprietary platforms is unlikely to be sustainable. There just won’t be enough room for differentiation. Or enough customers to create the critical mass needed to ignite a vibrant developer community.
By 2040, revenue from digitally supported services is expected to increase more than tenfold
This is all the more relevant as non-automotive tech giants launch their UX booklet. Android Automotive OS, for example, optimizes Google’s operating system for use in automotive infotainment systems and has already been integrated into Volvo and Polestar vehicles.
However, there are several alternatives to full-stack control that should be considered. The first is to focus on in-vehicle services, which means addressing several of the higher layers of the stack, including user interfaces and services/applications.
Usually this involves working with third parties to provide certain aspects of the stack, which means giving some control off to other players. However, this often happens at layers of the stack where there is little value in competing with market-leading solutions like operating systems and cloud frameworks. BMW and Mercedes-Benz are examples of OEMs that enter into partnerships with providers such as Google or go completely open source.
Another option is to focus on domain stacks. This means developing specialized services that operate in partnership with third-party hardware and hardware-related software across the stack. Examples include Waymo and Pony.AI, which offer advanced software using AI and machine learning to enable autonomous driving. And Baidu, which provides an operating system for software-defined vehicles.
This approach can be very effective in the right context. But it can also be restrictive for providers and customers. Providers have limited control over hardware quality and therefore the driving experience, while customers have limited ability to customize services to maximize value for their brands.
Many OEMs enter into partnerships with providers such as Google or rely entirely on open source white labels
A third option is to provide white label platforms to other automakers. This includes selling unbranded offerings — hardware, software, or both — to OEMs, who then market those offerings under their own brands. Existing examples are Flextronics and Qualcomm.
However, in order to make this kind of long-term platform game a success, OEMs need to manage the complexities of architecture alignment and process control. They must also be able to provide comprehensive maintenance and support to customers of these services.
Find the path to future growth
The above strategies show that there are multiple ways to thrive in the emerging mobility ecosystem. It’s not just about owning the full stack. It’s also not a binary build or buy question. By partnering with the ecosystem, OEMs can seek their own key control points across the stack that enable the business models they want and unlock new profit pools.
Such a strategy can still be very effective and extremely profitable. For example, check out how Amazon has focused on controlling the backbone of its e-commerce marketplace rather than trying to own every single component within it.
A market in which every single OEM tries to maintain their own proprietary platforms is unlikely to be sustainable
It’s true that traditional OEMs must first catch up on some challenges, including the need to shift to continuous development and shorter cycle times, adopt systems engineering and model-based development (MBSE), adapt company culture to more agile ways of working, and look for in-demand talent in the field software development. Again, working with partners will be key to provide the necessary innovation, agility and capabilities.
OEMs must now carefully choose where to play in the software-defined mobility revolution and determine where they can most successfully apply their heritage and core R&D competencies. It is now time for them to embrace a conscious, continuous reinvention of the entire business, centered on a strong digital core and new ways of working.
About the authors: Jürgen Reers is Managing Director and Global Lead for Mobility X at Accenture. Samit Ghosh is the Managing Director and Head of the Midwest for Accenture Industry X