In Part 1, I talked about the imminent transformation of business models in the automotive industry. In Part 2, I will focus on strategies for growing revenue.
Ford Sync illustrates several strategies to grow revenues from a "platform + apps + services" approach. First, a single software product can be sliced and diced based on software features to create packages targeting specific consumer segments. This helps Ford create Sync offers at different price points based on customer need and willingness to pay, without having to incur manufacturing costs for a specialized hardware model for each need. For example, the "wifi hotspot" is available in one package but not in others. Simply put, this allows auto manufacturers to generate revenues from customers that care about such features without having to manufacture a hardware model. Second, you will note several services bundled in Ford Sync, some thrown in as part of a package while others that require a subscription. For example, vehicle health reports send engine diagnostic information to the Ford portal – this service included in all packages. Personalized traffic alerts and satellite radio, on the other hand, require a subscription plan. Lastly, features like HD Radio mimic iTunes in the sense that they use a "pay per song" model.
With such a "platform + apps + services" model in place, an auto manufacturer's revenue possibilities are really up to their imagination. For example, for consumers that don't want to pay for a monthly subscription for navigation services, they could offer the option to activate navigation maps of a particular region for a short duration just for the weekend. For entertainment, they could offer movies or video games for rent for the duration of a long trip. Auto manufacturers can also dream up additional services to deliver via the platform. Such as storing a vehicle's maintenance history in the cloud and making it accessible to a new owner should the vehicle change hands. Just like General Electric's TRUEngine program which helps GE engine owners "maximize your asset's marketability and ensure it receives the full range of GE's world-class support. Through our online TRUEngine database, appraisers and buyers can quickly confirm an engine's qualification status by Engine Serial Number (ESN)." Another example: Ford has partnered with an auto insurance provider to track and transmit mileage data which can result in better insurance rates for drivers[i]. Besides providing endless monetization opportunities and lots of recurring revenues, such imaginative services also grow customer loyalty, not just for the auto manufacturer but also its ecosystem, such as the Ford's insurance provider partner.
Like Ford, the electric vehicle segment has already embraced many of these ideas. Electric car manufacturers like BMW have partnered with car charging networks like Coulomb Technologies. The dashboard of these cars feature services such as showing drivers maps of charging stations and the ability to reserve a charging spot in them. Like roaming user profiles in the desktop and smartphone world, we conjecture that in future drivers would be able to record and store their driving profiles in the cloud and download them to any vehicle they happen to drive. Imagine logging into any car, and when you do, your seat adjustments, thermostat settings, favorite radio channels, games and more would be available.
It should be obvious by now that ubiquitous Internet connectivity of cars is the key enabler for "platform + apps + services" models. As Gartner[ii] points out, "A connected vehicle experience provides the opportunity to move beyond a vehicle-sale-centric business model and toward a variety of monetization opportunities focused on the sum of the automobile ownership, driving experience and user-related aspects."
We see a tremendous opportunity for automotive manufacturers to grow revenues by transitioning to software-driven businesses. The remaining question is how one goes about it. In our experience, a software-driven business transformation will require auto manufacturers to:
- Re-think product packaging and business models based on how consumers want to use cars and related apps and services. As the Ford Sync example illustrates, car manufactures will need to segment their customers more and create tailored "platform + apps + services" offerings at different prices points.
- Track and manage entitlements. Every driver and car could be configured differently based on the device platforms (e.g. dashboard system), related apps and services. Layered on top are the different ways drivers might have purchased apps and services, ranging from try-before-you-buy, subscription models, freemium models, pay-by-use, outright purchases and so on. All this can become quite complicated very quickly, but tracking and managing consumer entitlements is an essential pre-requisite to making "platform + apps + services" real.
- Automate the entire app, device platform and entitlement lifecycles. These lifecycle processes include: app installation and activation; subscription management; firmware and app updates; device platform provisioning, configuration management, device monitoring and remote management; app upgrades and other changes to entitlements. Internet connectivity is a key enabler for automation of firmware and software updates, as it is for data uploads from and downloads to cars at the heart of many of these processes.
While it is easy to describe the above recipe, executing on it can be a daunting challenge especially since auto manufacturers have very little experience running software-centric businesses. Acknowledging these requirements and putting plans in place to address them is just what you need to unlock 10X financial returns and be the apple of your customer's eyes!
Read this Related Gartner Research Report:
Innovation Insight: Original Solution Orchestrators Extend Innovation in the Demand-Driven Supply Chain The manufacturing business is changing. To remain competitive and drive growth in the face of a demanding marketplace, device manufacturers are differentiating themselves by rethinking their business models and product strategies. Today, more and more manufactures are transforming their business models to be more solution centric, where software drives differentiation and value.
[ii] “Predicts 2013: Mobile, Cloud and Information Fuel the Automotive Era of Smart Mobility” Thilo Koslowski, Gartner, November 2012