The auto industry was founded on the business model of providing four wheels and a body in exchange for money. But that evolved.
Automakers became masters of upselling. They looked at what people were buying from the aftermarket and then added those features to their vehicles.
Fancy name-brand audio systems with rear-seat screens, roof racks, running boards and wheel options all came about because an auto executive somewhere wanted to get the money that buyers were spending in the aftermarket. It worked. It’s not even possible to put an aftermarket audio system in a new car.
And that increasingly long list of standard features? They drive up the base price and profits. Of course buyers can afford this because many car brands now have captive finance companies that provide easy, long terms. They did this to make money on loans and leases. It worked. When was the last time you were at a bank for a car loan?
But selling hardware is limiting. There’s only so much money people can spend, and it’s often years before they’ll do it again. So what’s the next revenue frontier? A major shift from hardware.
Auto companies are going to use their vehicles as platforms to sell services and to monetize data.
We’ve all heard the old stories about how automakers would cut corners on the tiniest things, because even $1 saved is significant when building hundreds of thousands of vehicles.
Imagine then the interest in the potential that data and in-car services present. It’s far more than $1 here and there, and it doesn’t take giant assembly plants and robots to make.
In a story at automotivenews.ca, Stellantis expects to get US$21.6 billion in annual revenue from vehicle software by 2030. How? For example, it might sell a subscription to increase horsepower in an electric vehicle.
Even though capability and technology have advanced, vehicles pale in comparison to what mobile devices can do. Automakers therefore look at the interactive cockpit as a wormhole to revenue. That is once the capabilities are unlocked and car companies begin thinking beyond hardware, more like Apple and Google. Then the money will start raining down. And the forecast is for a deluge.
In a recent Automotive News Canada story about how the intelligent cockpit will revolutionize auto revenue, “There’s going to be an inflection point where the data’s more valuable than the metal and plastic,” said Flavio Volpe, president of the Automotive Parts Manufacturers’ Association.
That’s a huge statement. We’re not just talking about satellite radio subscriptions or GM’s OnStar concierge service anymore, but a much higher level of interactive in-car services. According to the story, the intelligent cockpit opens the door to subscription services for everything from heated steering wheels to in-vehicle safety coaching.
“It’s going to allow the manufacturers ... to provide additional services that can be monetized,” said Sherry Calkins, vice-president for connected-car and platform solutions at telematics company Geotab.
But what else? That could entirely depend on the user.
For one, how about a feature that keeps me ahead of red lights? And an app that sends me the menu for that shawarma place I keep seeing on the drive home but have never tried? Touch the screen to have the special of the day delivered. Perfect.
As ridiculous as it seems, the ideas — and revenue — are as limitless as third-party developers.
Intelligent vehicle systems can also collect vast reams of behavioural data on drivers, said Volpe, which will be valuable to insurers, banks, retailers and numerous others.
Vehicle electrification gets all the big headlines these days, but I think more importantly for automakers, those vehicles will become software platforms. It’s not just hardware anymore.
Now sign me up for some of that extra horsepower.
