Business models of Self-driving cars - Part 2

Update: Part 1 sparked some interesting thoughts on social media and folks raved about interesting 'car-as-a-service' subscription offerings such as 'Clutch' in Atlanta, Mercedes, BMW, Porsche, Cadillac, and Volvo care starting at $600 per month. Toyota has also announced its plans to roll out a similar service in 2019. There was also a passionate perspective from Tesla/Chevy Cruze owners (or leasees) about the financial virtues of owning an EV. Back to the autonomous car business models.

The real "software is eating the world" story of autonomous cars is the 'Android' style platform model led by a motley crew of tech players, auto component suppliers, and some innovative automakers.

The Apple model of vertical integration is logical for incumbent auto giants and brings in technology capabilities to their current product line. However, a number of savvy companies are expanding their technology platform by licensing it to auto manufacturers.

The Autonomous Technology Platform - The "Android" model

The idea is pretty simple...Equip a regular car - new or existing with autonomous capabilities - by building a platform that combines the hardware/sensor/Lidars and the artificial intelligence brains. It is similar to buying a Samsung phone which at its heart is running Android O/S.

By focusing on autonomous technology platform instead of the entire car, this strategy offers some unprecedented opportunities that have not seen daylight yet. The players here are diverse and fall largely in three different categories.

The Young Turks - The first category members are auto ancillary manufacturers and allied industries that have the auto engineering know-how but tend to play at a lower spot in the auto manufacturing value chain. A classic example of this is Delphi/Aptiv. This segment has some interesting potential in the future, especially if/when it goes directly to the consumer.

Imagine if they were to offer a hardware/software kit that can be installed in any modern car to make it autonomous. There is a massive incumbent market of non-autonomous cars and probably a lot of those folks would want to modernize their current chariots.

With a traditional SAAS model for autonomous software/hardware's continuing maintenance and an 'over-the-air' updates, combined with unlimited in-car wi-fi, auto-insurance etc., such offerings would probably result in a pretty large market cap business.

Challenge - A lack of direct B2C type service delivery experience, limited understanding of software and digital interaction models may cause their offering to be too engineering like, and not have enough emphasis on end-user experience and ease of usage.

The Tech Mongols - With deep technical roots to solve challenges of artificial intelligence and machine learning for autonomous driving, and equally deep pockets, these players are designing the future of transportation. These companies may have nothing to do directly with auto manufacturing but are the classic example of 'software is eating the world'.

Google/Alphabet's WayMo and Uber fall in this category. Today, these players are focused on extending the current Uber/Lyft model and will upend the taxi market, but it won't be surprising to see them also extend into the conversion opportunity for modern non-autonomous cars. It would seem more logical for Waymo than Uber to reach out into the existing car market, as an extension of Google's relationship with users. After all, more data of where you go and what you do is lucrative for marketers - especially of those who are on non-Android devices and cannot be easily tracked.

Challenge - Perhaps the biggest challenge for Waymo/Uber of the world is public perception and their ability to counter the apprehension of too much power in the hands of tech companies. The recent unease with social networks and Silicon Valley companies ever-increasing power is unsettling for politicians and public alike - and may cause a backlash that has nothing to do with the technical superiority of their platform.

The Auto Moghuls - If you are one of the largest automakers and have made some decent inroads into the autonomous technology solution space, why not partner with your competitors and add more fuel to the autonomous platform race. GM is embracing this strategy with Honda to infuse more investment into their autonomous platform/newly sprouted start-up called Cruise.

By pooling resources, this strategy enables GM and Honda to bring autonomous capabilities to their own vehicles, and also increase the sophistication of the platform itself. With their internal auto engineering expertise and world-class ability to commercialize these technologies on a global scale, Cruise will definitely be a platform to watch out for.

In addition, this model lends itself well to the fleet of 'Robo-taxis' that GM seems interested in launching. Its the automakers getting in on Uber/Lyft/Waymo's game. Also, for smaller automakers that do not have the economies of scope and scale for autonomous platforms, such as Subaru, Mazda, Nissan, and others, this is perhaps an attractive club to join.

Challenge - Coopetition or collaborating with competitors comes with its own series of challenges. This business model has several advantages and as long as a clear framework of trust and governance is shared by the players, it can create a significant advantage. However, given the cut-throat competition in the auto market, this is a delicate balance to be maintained.

Today's car related customer service is largely deferred to dealers and other third parties - and it is a well-oiled channel management machine for most of the incumbent automakers. However, in the new world of autonomous cars - especially when they are running on a common platform, how will these services be delivered. Would they a better fit for a centrally managed call center, with sophisticated software integrations with the vehicles' sensors and diagnostics that require a different type of skill set. How will it affect the brand perception and quality of service?

It ain't an oil change...Autonomous car users of tomorrow will want to press a button and be redirected to someone who can help with their car's software - which may be rather different from the services that a dealer offers.

Summary: The autonomous platform participants of the 'Android' model would need to significantly differentiate their end customer's user experience to stay competitive in the marketplace. One can argue that cars themselves are the differentiation - as the non-autonomous ones are today. However, as we move into an era where we will drive less and tap on screens more, designing an end-user experience that hides the generic autonomous platform and offers a pleasant and branded experience will be key.

The challenge with the 'Android' business model for autonomous vehicles is similar to the one that exists with Android phones - a clear lack of differentiation in the digital experience.

As a technologist, it is a great era to be living in. As these tectonic shifts occur, we can merely marvel at the advancements that are occurring at a dizzying pace. Do join me in sharing your thoughts and comments on this, and if I missed some key areas. Thanks.