I am happy to join The Future of Cars with Game Changers throughout this year to help bring readers insights from the people in the driver seat who are making this happen. We’ll delve into industry challenges and solutions that support ecosystem industries, all to help you succeed in transforming your business and business networks for success in the new digital networked age. Tune in to the business channel to hear today’s top technology and business strategy, thought leaders share expert insights on how the automotive industry is shaping the future of change. The following abstracts are taken from Episode 06 of the Future of Cars “The Automotive Customer – Customer-driven Value” which aired on June 21, 2016. My colleagues on the episode are Rick Varner (@RHVarner) from Gartner and Otto Schell (@Otto_Schell) from General Motors.
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Opening intros (10:55)
Bonnie: Bill. Tell me. I’m sorry if I butchered the pronunciation of this woman’s name. She sounds like a guru. She’s very young. She’s all over the place. I have a list here of all the summits and conferences she’s been speaking at since 2012 on Digital Marketing.
How does this relate to what we’re talking about today, Bill? “Take a risk because what works today won’t work tomorrow, but what worked yesterday may work again.” Is that a tautology, circular reasoning?
Bill: Oh, I think it is. I actually…part of the reason I chose the quote was that Amrita, she is coming from that new age of millennial and younger generation thinking.
I think that there are a number of things that can be leveraged going back to traditional value creation in business models in automotive where we have this really robust supply chain. It’s just that we have to understand how we’re going to work differently together with all of the digital opportunities that land in front of us.
McKinsey, and I think we mentioned this in a previous show, is forecasting $1.5 trillion in value creation from content produced, marketed, resold, packaged, licensed coming out of the digital car by 2030. I think really the opportunity here is to figure out who is going to create the content? Who is going to drive the value? How is it going to be disseminated?
We have these networks in place, these more conventional networks in place between the automotive companies, the suppliers, the dealers. Even if you go into the tech and transport industries, which are really converging with automotive, what we view as a car today just isn’t going to look anything probably like the new car of 2030, 2040.
I do believe that there’s a real great opportunity to leverage what we have in place from yesterday, but we have to look through it with a brand-new lens because obviously some of the things that you do and clearly some of the things that you do with physical trade where you have something you can touch, feel, and you can actually commercialize it, it’s really a value-based business model creation that you’re looking at when you’re dealing with digital assets.
I think [there] is the real opportunity and it’s also that thing that has people scratching their heads a little bit trying to figure it out. Everybody, to Otto’s point, everybody is trying to go at it a slightly different way, but at some point we do have to come together to commercialize and standardize. We’ll talk about that on the show. I’m pretty sure.
Bonnie: I’m pretty sure we will.
McKinsey has some pretty great ideas around value creation for the automotive:
Second segment: conversation around integrated components and impact to the driver-consumer (27:55)
Otto: At the end it’s all about our products have to maintain out of these thousand pieces and they fly with 200 kilometers over the streets, connected or not connected, autonomous or not autonomous. We have to find a bridge between being faster or using different technology using different networks but still to have quality in mind with much, much shorter circuits. I think you have to find ways to configure that.
Bonnie: Thank you, Otto. Bill Newman, can’t wait to hear what you have to say. Agree, disagree?
Bill: I think Otto is for sure, Otto, you’re one of the great innovators that we see in our business. I think the opportunity is really just beginning with the car. How does a company that’s used to building a tangible product with thousands of parts when they’re able to create information that has no physical essence, how do you go about them packaging and modeling that?
We have some early examples of that from Automotive 3.0 with the info-tainment systems and some of the safety and the radio in the car, if you will, type of products that we learn to confederate with law enforcement, with vehicle safety, and other industries when we did that.
Going back to Rick’s point, I think the folks in the tech business have been doing this for a very long time. I think that as companies begin to transform so that in the future an auto company really doesn’t look like an automobile company, it looks really more something to the order of a tech company that actually provides some type of service or product in mobility like Otto, I think you were referring to.
I think that some of the lessons that we’ll learn will come probably from the tech industries and the transportation industries that have had to deal with value creation with a product that has no physical essence and learning to monetize that in a way that it doesn’t go back to what the commodity price of aluminum and steel are.
It’s how you cost it, how you price it, how you sell it, how you monetize it. How do you capture it on your balance sheet? Those are all things that we’ve done some work in but we’re about to learn a lot more that we don’t know already. I think that’s really where the tipping point is going to come.
There are a lot of very different ideas about how to go and do that. Again, to I think the point we made in the last segment at some place along the commercialization curve, we have to figure out to do that in a standard recognized fashion that also resonates with the consumer who is going to buy these digital assets generated from the vehicle, generated from mobility, and have value to them and find it useful in their day-to-day lives.
Segment Three: On the topic of product selling to the digital consumer and what that means for suppliers and OEMs (35:45)
Bill: A lot of people are talking about [monetizing digital assets created by the driver] and how do they best do it. Whether you’re talking about taking these assets created by their cars so this can be your drive behavior when we talk about insurance, but it can also be where you drive to. Maybe instead of, to Otto’s point, maybe instead of me driving down to Indianapolis during the week, I get a coupon to take the shuttle flight from Detroit Metro down to Indy.
These things just end up coming in to your box and because we understand your behavior, we can begin to predict what different products, services, offers could be provided to you. We have, in digital marketing we’ve been able to position offers to consumers in many different industries for a very long time, probably five, ten, 15 years even going back to the early days of e-mail marketing.
Coming back to some of the things that Rick, you were also saying earlier of being able to harvest all of that information and going to 1-2-3-step channel connections knowing about products that I’m using, knowing how I’m using them, knowing where I’ve been with them, knowing what my behavior is when I use them.
That really opens up a vast new set of opportunities where back to Otto, your point; really the car company becomes mobility. The point that is going to be very interesting is that a lot of that content is being generated by parts of the suppliers are making right.
We talked in one of our previous episodes about the connected vehicle and the connected platform. How that gets commercialized, monetized, licensed, royalties? In many ways like the music business where if I create content and you play my content whether you download it or you listen to it on a stream that I get a share, but it’s really a micro-royalty.
We’re going to start to move in to that pretty quickly now with some of these non-physical digital assets that are being created by the vehicle platform. We have to figure out how to share the wealth to the supplier community. That’s going to be a hard nut to crack.
You’ve got one point of view where the OEM says, “The branded vehicle is mine.” You’ve provided all your content up to the platforms. What do I do if it’s not mine? I think suppliers are going to have a stronger hand at the table deciding how that royalty share happens in the future.
Segment four, again on the connected supplier and the talent required (41:29)
Bonnie: Bill Newman, I’m looking at your notes. Let’s talk about connectivity. I don’t think we covered this yet, Bill.
You say, “Different OEM’s are approaching connectivity and the talent required to connect platforms,” that word “talent” in this context intrigues me, Bill, “in a different manner forming a spectrum on the one side by the intellectual capital,” and you’re talking about…I’ll let you talk about the case studies there, “from that to develop our own to even wait and see.”
“Auto suppliers want to move to digital live businesses but they’re increasingly looking to the automotive OEM’s for leadership.” Are they finding that leadership, Bill? Talk to us.
Bill: I think that you can see it play out in the morning paper if you pick up The Wall Street Journal or The L.A. Times or The New York Times or Chicago Tribune. I think that there is a certain share depending upon the OEM’s supplier position based on what a company needs and how they want to acquire the talent.
On the suppliers’ space, they’ve had to figure out how to collaborate with a number of down tier suppliers for a very, very long time to a point now where many companies that we talked about in one of our previous episodes.
For example, Delphi has had, this is public domain information, has had to have…they want to do vehicle to everything and they want to have a very connected platform in terms of how they deliver information, services to the instrument panel of a car than in a traditional vehicle model we have today.
They’re going downstream and they’re acquiring companies — fiber-optic cable companies, information brokering companies so that they can build up their platforms.
When we go a little further upstream to the OEM brand level, I think that there’s a question of does the talent that we want to, that we believe we need or maybe that we recognize we don’t have but we believe we’ll need will come from inside our four walls because we’re smart guys and gals and we can figure this out given enough time?
Or, are we going to go proactively on a hunt for something that we’re not quite sure that we need yet or we don’t exactly know what we’re looking for? Because again, technology is moving so quickly we have to commercialize something in five to ten years that doesn’t exist today.
Or, are we going to be kind of somewhere in the middle and we’re kind of going to go back to the old skunk work days of defense programs in the Cold War where we’re just going to confederate within our current supply chains and value create that way based on a certain set of parameters on where we think the market is going tomorrow and where it is today?
It’s really interesting to watch how this is all played out. You’ve got a real up-tick in M&A activity particularly in the last 12 to 18 months. It stopped being [so fast] now because we’re in a more tapered growth market.
You see some companies including very large global OEM brand companies that are really taking a wait-and-see or they’re sitting on the sidelines right now before really committing to any form of semi-autonomous connected vehicle research or in to new business models.
I think that the ones that have waded into the pool and are at least knee-deep have a really good opportunity to be way out ahead in perhaps the logarithmic curve moving forward than those who are kind of trying to figure out how to put the toe in the water.
And finally the predictions round, where we are heading and close (50:35)
Bonnie: Bill, I want you to officially finish the topic you started. We are in the Predictions Round now. Bill, why don’t we just ask you for your predictions as a wrap up to your topic? What do you think? What do you see? Do you like 2020? What year do you like?
Bill: It seems to be somewhere between 2020 and 2030. I think in 2020 we’re going to see a little bit of a flat line and a more consolidation of the base. If you look at Roland Berger or IHS or something on predictions, I think there are some market forces that need to sort themselves out. That’s on the market side.
I think the technology side; we’re already in to semi-autonomous vehicles. You buy a car now and it yells at you when you divert from one lane to the other. I know our friend, Larry Stolle can’t stand those cars. I’m just representing Larry because he’s not here today.
Bonnie: But he’s listening, yes.
Bill: Yes, I know he’s listening and he’s laughing right now.
They’re doing some override things already. I think getting to a place though where, Otto you were talking about, where we’ve got cars that really resemble more of the pod mobility, almost as an alternative to transportation, light rails, those kinds of things. We’re probably looking at 2030 I’m thinking in terms of some systemic accommodations where lanes on freeways narrow and you’ve got lanes for autonomous pods and you’ve got the rest of us poor people who are trying to drive in the regular lanes.
All that’s coming. I think that really that convergence is going to happen between now and 2030. Coming back to it, to the topic of today, how do you commercialize? How do you monetize? How do you make sure that the value chain is supported? I think those business models are going to look very, very differently in another 15, 20 years.