When David Hasselhoff was tracking down criminals in the 1980s with the help of his talking and thinking car KITT, the Hollywood invention appeared to be an entirely utopian concept for the fore-seeable future. Today, however, much of what KITT could do is technically feasible. Rapid digital progress is shaking the automotive industry to its foundations. What can its managers learn from the experience gained during the digitalization of the media industry?
A guest article by Stefan Gröner, Strategy Consultant and Head of the Communication Management Department at Fresenius University of Applied Sciences in Munich.
Disruption: a menacing gesture or an opportunity? It’s a question media managers have been asking themselves for years, and one that is increasingly defining the strategic climate of the manufacturing industry. For more than a decade, media companies of all kinds have been battling against rapidly changing market conditions. In the glamorous world of publishers, disruption has many names: for musicians it’s called iTunes or Spotify, for media businesses it’s BuzzFeed or Blendle, for TV managers it’s Netflix or Apple TV. A decade of constant change has made media executives cleverer – well, some of them at least. Which begs the question: What can the automotive industry, which is still going through the initial stages of this sweeping digital change, learn from the experience gained by the media industry?
First of all, it’s important for established players in the car industry to recognize the market conditions they now have to deal with. Strategically, the media sector long suffered from the mistake of trying to allocate a certain channel – for example magazine or television – to their target group’s information requirements. With content being available any time and anywhere, this marketplace has changed fundamentally. There is no longer a market for television or print media. There is a market for information and entertainment. By applying this experience to the automotive industry, the actual market is no longer an auto market but one for personal transportation. Thus the competition isn’t taking place only between established auto manufacturers like BMW or Toyota, but is increasingly shifting towards large digital enterprises such as Apple, Google, and similar companies.
Disruption of the product portfolio: the Google effect
In urban centers, it is already clear that younger generations no longer want to buy their own cars: for them, a four-wheeler in the city is incredibly inefficient and no longer a status symbol. Besides, you don’t need your own car for personal mobility when you have carsharing or ride-sharing. While several car manufacturers have already established successful carsharing models on the market, these are once again being threatened by Silicon Valley digital heavyweights. However, it can be seen that an increase in market providers will lead to a sharp drop in prices, which in the medium-term is causing the business models of DriveNow and similar companies to wobble. Not least because digital providers like Google are much more interested in collecting data and increasing advertising revenues than in capitalizing travel. So if car ownership is becoming a lot less important, then the automotive industry’s business model – selling individually configured cars with high-margin accessories to as many people as possible – is obsolete in the mass market. The marketing of the automobile is instead becoming a high-grade niche business, tantamount to selling exclusive music and film collector’s sets or coffee table books.
Disruption of the product experience: the iTunes effect
While monetizing mobility is the traditional focus of the automotive industry, Internet companies are in the first instance interested in building up a broad user base by making major investment. The plan is to then capitalize on this user base at a later date. Companies like Google are therefore making it their goal to take over the dashboards of modern automobiles to use them as a further touchpoint for their digital ecosystem. With Android Auto and CarPlay, industry giants Google and Apple are already way ahead of the rest when it comes to user experience. Technology departments in the automotive sector should therefore not make the mistake of developing their own on-board technology to try and marginalize potential competitors. Because only those who allow external technologies to integrate with their own will be victorious. Customers want to use their smartphones and tablets in cars, too, and don’t want to encounter any obstacles when connecting them with the vehicle’s interfaces. Therefore, individual dashboard solutions from the automotive industry are certain to fail in the same way as the online selling systems offered by magazine publishers or the download services run by music and film industry majors – which in the end were pulverized by iTunes. In the media industry, it’s generally the case that whoever has the best content will, in the end, win the fight for user approval. In the automotive industry, mobility as an overall experience is, in this regard, the equivalent to content. In the medium-term, therefore, the car is becoming nothing more than a necessary platform for transportation. While major digital companies have up to now only been suppliers, anyone familiar with Apple’s business model knows that it won’t stay that way. For Apple, producing computers and smartphones serves as a blueprint for producing modern automobiles. This is a world where traditional manufacturers will take on the role of companies like Foxconn in the media sector.
Disruption of the driving experience: the Amazon effect
In times when collecting, saving, and evaluating large amounts of data is becoming increasingly easy, control over driver data is a key factor for success on the car market. Cars communicate with databases and other cars and help to avoid traffic queues and accidents. Carmakers are becoming part of a much larger data infrastructure – for example that of smart cities. And: autonomous driving will become the big revenue driver of the future in terms of data usage. It is this sphere in particular where the major IT companies – first and foremost Google – are miles ahead of traditional car manufacturers. In a world where many users already allow IT-company algorithms to decide which book they’ll be reading next via Amazon’s recommendation features, many car drivers will also be willing to relinquish control of their cars and the overall driver experience. Many people will, of course, still see cars as a form of self-expression and will not want to give up driving themselves. But just as the majority of people don’t regularly go to repertory cinemas but instead soak up series suggested by Netflix, the mass market of the future will consist of autonomous driving.
Consequences for the automotive industry
The automotive sector must confront this impending disruption. Whether this will be understood as a chance or a risk rests with each individual market player. But this market change will definitely involve an enormous shift in tempo and fundamentally shorter innovation cycles. That’s why it is imperative that automobile manufacturers are willing to enter into extensive partnerships, adapt more quickly to changes in customer needs, think in an integrated and cross-departmental way, and have the courage to consistently establish new business models. Hierarchical structures – still commonplace in the automotive industry – are counterproductive to change. An experience that has recently caused VW all sorts of problems. The customer of the future will be a digital customer. And how a company treats digitalization will play a decisive role in whether this customer chooses that company’s products or not. Regardless of whether it’s films, books, music, or cars.
If the automotive industry – which renews its hardware and software only every 5–10 years – doesn’t adjust its tempo and joy of iteration to that of the digital industry, it will fail. The same applies to manufacturers who force their customers to use proprietary systems with user experience from the Stone Age. The car of the future will be a smartphone on wheels. A passenger compartment that houses an entertainment experience provided by companies like Apple and Google. It is still in the hands of automobile executives whether the KITT of the future will have the voice of a BMW, or whether drivers in the medium-term will simply be saying: “Hey Siri.”
Text: Stefan Gröner Illustration: Jan Meyer,
Translation: Toby Skingsley