1996 was the year that brought us the Nintendo 64, the dancing baby, the google.com url registration (a big improvement on its first name, Backrub), the first clamshell mobile phone from Samsung, and also (I grieve to report) the Macarena. It was also the year that brought us the launch of GM Onstar, which ushered in the age of the connected car.
Today, if you’re a software company that’s not thinking about cars, then you’re a lot like the software companies that weren’t thinking about phones in 2007. You’re potentially missing out on the next major consumer subscription platform.
Here Apple offers a useful analogy. The company recorded $17.5 billion in digital service revenue last quarter, or roughly 20% of its total sales. In today’s age of connected devices, there’s no reason why any hardware company in the world can’t follow suit. So it’s not surprising that the auto industry is expected to generate over 25% of its total revenue through new digital services by 2030.
And guess what? The car companies won’t be writing all that code themselves. They’ll be partnering with software companies on a whole constellation of services: usage-based insurance programs, parking systems, shopping & coupon networks, carshare programs, infotainment platforms, car trunk delivery services, the list goes on.
We recently brought together a couple of sharp minds from Adobe and IBM to talk about the huge changes in store for the automotive industry. Sara Carlson, Partner at IBM GBS & Zuora Practice Lead, and Axel Heyenga, Industry Strategy Director for subscription offerings in the automotive industry at Adobe, recently joined Amy Konary, Global VP of Zuora’s Subscribed Strategy Group, to cover an array of topics centered around cars as vehicles (sorry) for direct consumer relationships.
You can download the free report here, but I thought I’d offer up a few key highlights from the roundtable as well as my own observations. There have been a lot of commentaries lately on how auto manufacturers can embrace digital transformation, but I thought I’d come at this topic from another angle: how software companies can take advantage of the coming EV revolution.
Let’s start with probably the most important point:
1. The growth is coming! You better add “automotive” to your omnichannel strategy.
If you still think that the auto market is only for auto companies, you’re missing out on a digital opportunity that’s going to be worth half a trillion dollars in less than ten years.
But don’t just take it from me — take it from McKinsey. Here’s their exact quote: “While the global automotive market is expected to grow from USD 2,755 billion in 2020 to USD 3,800 billion at a rate of ~3 percent p.a., SW and E/E [automotive software and electronics] will grow at a rate of ~7 percent p.a. from a total market size of ~USD 238 billion to ~USD 469 billion.”
Digital services, driven primarily through new EV sales, are set to completely reinvent this industry. Yes, I understand that all those channels in your omnichannel strategy are starting to add up, but if you’re a software company you clearly need to add automotive to that mix.
2. You need to reinvent your subscriber experience.
Cars are still a brand new form factor for lots of software companies. Be careful — history is littered with examples of companies that tried to plug their old UIs into new platforms and failed.
Back in the Eighties, the software vendors that tried to forklift their DOS interfaces to Windows lost out, the same way that companies who tried to port their Windows UIs into mobile phones lost out twenty years later.
If automobiles are new territory for your company, you’re going to need to re-imagine how your service looks and behaves within the context of a big piece of metal that’s hurtling down the freeway at high speed. And that new experience also entails a brand new offering design, which raises my next to my next point:
3. Think about your service offering in the context of an automotive digital marketplace.
The days of everyone buying the same off-white Camry are over. Pretty soon you’ll we’ll be designing our new EVs online the same way we design Nikes today. You’re going to be able to compile a suite of digital services online before you even walk into the lot. And you’ll have the option to add or subtract premium content and features long after you drive off in your new custom colorway EV.
As a result, over the next decade, there will be thousands of new automotive software winners that no one has even heard of today. But just like in the app store, it’s going to be important that your automotive service make it into that “top ten” list.
Here Sara Carlson, Partner at IBM GBS & Zuora Practice Lead, offers two questions to consider. First: How do I rethink my business to offer my customers a unique and differentiated experience based on the core values of my brand? Second: How can I make that experience frictionless and easy for my customers to participate in?
Fortunately, this is an area where subscription models excel; customers are more likely to favorably review an ongoing service that improves itself constantly over a one-off app transaction.
This is why it’s important to remember that:
4. It’s the beginning of a relationship, not the close of a sale.
Once someone rolls off the lot with your service on their new EV home screen, you’re just getting started. In an increasingly competitive automotive subscription market, getting someone to sign up for another month will constitute a huge win. Keep your drivers happily surprised with new features and add-ons.
The service possibilities will be endless: security, infotainment, shopping, ridesharing, predictive maintenance. Today, for example, tire companies like Michelin, Bridgestone and Pirelli are launching services that let drivers know when it’s time to change their tires based on sensors and usage data. The challenge will be in the evolution of your service. As Jeff Bezos notes, today we’re all divinely discontent. We want to be entertained.
5. Finally, think about your value as a data partner to both drivers and OEMs.
Software companies are going to provide massive amounts of value to drivers by providing easy access to things like parking payment services, lease payments, travel and tourism guides, and much more. But by feeding a steady stream of relevant and contextual data back to the OEMs, they’re also going to become a hugely important part of the automotive ecosystem as well.
As Axel Heyenga, Industry Strategy Director for subscription offerings in the automotive industry at Adobe, explains, “services become an enabler for mobility of information.” As a result, data becomes one of your most valuable assets. Think about how that can inform your relationship with an OEM.
Again, please feel free to download the free report, and I welcome your feedback.