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A CES Auto Preview with Axel G. Heyenga

Tien Tzuo
CEO, Zuora

Over the last five years, CES has quietly transformed into one of the most important car shows in the world. This January over 175 companies will be showcasing their new transportation and vehicle technology, including top brands like Daimler AG, Fisker, General Motors, Turing Auto and Waymo. The keynote speaker will, once again, be General Motors CEO Mary Barra.

This week I’m talking with Zuora’s Axel G. Heyenga, an automotive expert, about the way car companies are using the event as a way to transform their brands and their products. Axel previously worked for Adobe’s Industry Strategy Team — focused on Automotive — and has over 20 years of experience in brand, marketing and industry strategy.

Welcome, Axel! So tell me — how did CES transform from an electronics trade show into a car show with some electronics on the side?

Well, I wouldn’t go that far — there are still acres and acres of electronics at CES. But over the past few years all of the other big car shows — like Detroit — basically accepted the fact that CES is an incredibly important platform these days, and scheduled themselves away from head-to-head competition with it. I think they recognized that car companies want to be seen as technology companies.

Why is that?

Well, automotive OEMs are under massive pressure these days. They want to be seen as leading, not trailing. Unit sales are expected to decline by twenty percent over the next twenty years. For young people in particular, owning a car isn’t a huge aspiration anymore. There’s already been a lot of money burned on transformation efforts that haven’t panned out. On top of that, they’re still dealing with tremendous supply chain issues caused by the pandemic. And of course, Tesla has a big head start in the EV space as well as real InCar services supplied over-the-air (OTA). Not to mention the fact that Google and Apple are also lurking out there to grab the opportunity — Apple might have a car on the road in 2025. China Automotive OEMs are also coming around the corner in 2022 with fully connected and highly engineered products.

It makes sense. For all these giant tech firms to maintain their growth rates, they’re going to have to enter into new industries. And auto is next. It’s not a matter of if, but when.

Yes, because despite all the doom and gloom, there’s a huge amount of opportunity at stake. I mentioned that unit sales were declining, but guess what? The total number of miles driven is expected to increase by 66%. So we’re still going to be using cars, just in different ways. And as someone once famously said, your margin is my opportunity. The whole industry is poised for more change in the next five to ten years than they’ve had in the last fifty.

Now obviously I know Zuora works with eight out of the ten biggest automotive OEMs in the world, and from my discussions with these companies, I certainly agree with your assessment that big changes are coming. How would you describe the new market that all these companies are chasing?

There’s a huge amount of opportunity in connected services — McKinsey is predicting $86 billion dollars in in-vehicle purchases that will be initiated from inside the car over the next three years. They also predict that all these new connected services are going to add $1.5 trillion in net new revenue over the next ten years. That’s revenue from sources that don’t exist today! That’s why all the big tech firms want to place themselves between the drivers and these new digital services.

So what kinds of services are we talking about?

Maybe your car manufacturer has a partnership with a parking provider, so you have access to a number of different lots, and all the transactions are conducted by the vehicle itself. Maybe at the end of your work day your groceries and dry cleaning are waiting for you in your trunk, which turns into something closer akin to an Amazon locker.

Or let’s look at features. Maybe you live in Canada, and you really like the idea of stepping into a heated car in the morning. Or maybe you only need heated seats in the winter months. For your commute, maybe you want a more autonomous-like experience, but you want sharper handling and a longer range on the weekend. All activated OTA and paid by usage.

So, your car as a mobile device — pun intended. But also your car as an edge device that attaches you to a broader network, a point of contact with your preferred transportation brand. Your car company knows your commute, your favorite bands and podcasts, your seasonal transportation needs, and you can switch out vehicles accordingly. You don’t just own a GM car, you subscribe to GM.

Exactly. These car companies know they need to find new revenue streams fast, but more importantly, they need to reinvent themselves as true direct-to-consumer companies. I think they need to learn from companies like Apple and build their own “walled gardens,” or customer ecosystems. That doesn’t mean an entirely closed network, of course, but they need to own the connected experience. Think of all the work that a company like Volvo has put into the concept of driver safety — now how do they translate that into an app-store like ecosystem? People need to feel safe and secure based on brand values. Otherwise, these companies run the risk of turning into commodified hardware providers.

I agree completely. I’ve written previously about how car companies are at risk of turning into IBM in the 1980s. I get that everyone plugs their iPhones and Androids into their cars, but if the OEMS don’t own their own operating systems, they’re sunk. It’s yet another reason why car companies are turning into tech companies. So how are you going to be looking at CES this January? It’s been two years since the last one.

Look, I’m a car enthusiast. I live in Munich, for God’s sake. I love bells and whistles as much as the next guy. There’s going to be a new Mercedes EV, for example, that sounds amazing. But honestly, the problem with this industry is that it’s run by engineers. Everyone wants to show off their new features and designs.

I personally will be paying very close attention to how these companies talk and act less like vendors, and more like service providers. I’ll be interested to see how they attempt to change the conversation away from stuff like make, model, trim, color and accessories. They need to move to a model that talks more about usage, customer value like mileage-based insurance, driver roadside assistance, payment automation, modular feature activation, media and entertainment. And building a kind of “digital chassis” that can enable all these services, anywhere and at any time.

Cars in the future will be equipped with every possible feature and function available. Based on our own needs, we’ll be able to activate and subscribe to all these services and features from inside our car. This will totally change how we buy and sell cars. We’ll be moving away from a model that prioritizes selling a fully equipped vehicle at the highest price possible, to selling a vehicle at an attractive price and then leverage recurring revenue through ongoing services.

So instead of buying a hugely expensive instantly out-of-date piece of technology that does nothing but decrease in value, now we’re signing a mobility agreement with an OEM. Maybe it looks like traditional vehicle ownership, or maybe it doesn’t. Maybe it looks like something closer to a rideshare agreement. Regardless, it’s constantly optimizing and changing to suit our needs.

Exactly. There’s this whole idea of the “Customer Journey” that describes how we bounce back and forth between online and physical experiences before ending with a purchase. Ta da! And the whole concept is really outdated, right? If anything, that journey should look like an infinity loop! It never really ends, because the point of sale is only the start.

Just look how the pandemic affected the industry. It virtualized dealerships. It normalized a modular, drag and drop buying experience. It enabled contactless test driving and maintenance. At the same time, however, customers are saying that dealer interaction and experience are hugely important factors in their decision to purchase. Next year, for example, retailers are expected to open more stores than they close since 2017. So the car companies really need to build their own customer ecosystems that establish those relationships, online and off.

Because if they don’t, someone else will.

Exactly.

Thanks, Axel!

Thanks, Tien!

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