In The Beginning
The convergence of automakers and the tech industry has been building for years. Automakers were eager to incorporate the knowledge that tech giants such as Apple and Google have gleaned from years of creating digital consumer products and integrate this consumer-centric savvy into their vehicles. This was a fast way to differentiate their product offerings and quickly add value to their vehicles.
For the tech companies, whose markets had been rapidly maturing, the automobile looked like
“virgin territory” and a great way to entice consumers to buy more of their products and services. Joint agreements were soon announced between Apple, Google and several automakers.
In a 2014 press release, Google announced the formation of the Open Automotive Alliance. This new group consisting of Google, GM, Honda, Audi, Hyundai, and chipmaker Nvidia. Their published mission statement is below:
“The OAA is aimed at accelerating auto innovation with an approach that offers openness, customization and scale, key tenets that have already made Android a familiar part of millions of people’s lives. This open development model and common platform will allow automakers to more easily bring cutting-edge technology to their drivers, and create new opportunities for developers to deliver powerful experiences for drivers and passengers in a safe and scalable way.”
This followed a similar announcement in 2012 by Apple announcing partnerships with BMW, GM, Mercedes, Jaguar, Audi, Land Rover, Toyota, Chrysler and Honda to incorporate “eyes free” Siri-compatibility into the car.
This spirit of cooperation was also evident as recently as April 2014 when during the SAE World Congress, CTO/EVP of industry giant Delphi, Jeff Owens stated, “There’s no doubt the future of the industry is heavily dependent on building a bridge between Silicon Valley and the auto industry”. Clearly, the view from Detroit regarding Silicon Valley and the tech industry was a rosy one.
The outlook from the West Coast appeared to be equally optimistic with Tracey Grose, V.P. of the Bay Area Council Economic Institute commenting, "The future of the car is in Silicon Valley, we're getting this entirely new ecosystem around automotive parts.
Clouds On The Horizon
On the surface, this looked like a classic win-win. Car companies would receive an immediate injection of tech wisdom and tech companies could integrate their devices and services with the previously untapped auto market and everyone would sing Kumbaya. Many people in both industries were expressing optimism that this convergence would result in a synergy that would benefit both industries as well as the consumer. What could possibly go wrong?
Well, what a difference a year has made. It looks like battles are erupting along several fronts. On the first front, it looks like Apple and Google are both planning to go beyond just working with automakers to integrate their systems. Instead, they are following the lead of Tesla and are developing their own vehicles.
Activist investor, Carl Icahn, who owns approximately 4 million Apple shares,had this to say in late 2014 about Apple’s interest in the automobile market, “At $1.6 trillion, the enormous addressable market for new cars is approximately four times the size of the smartphone market. It's estimated that people spend an average of 1 hour every day traveling, mostly in cars, but not everyone drives, implying that the average time that daily commuters spend in a car is much higher. We believe the rumors that Apple will introduce an Apple-branded car by 2020, and we believe it is no coincidence that many believe visibility on autonomous driving will gain material traction by then.”
At this point, Apple is remaining relatively tight-lipped about its plans to become an automobile manufacturer, but this strategy of neither confirming or denying is consistent with how they have handled previous rumors regarding forays into the music and cellphone business. In the end they quickly became a disruptive and even dominant player in both markets.
From Google, the message is even clearer. Previously, Google has been working on self-driving cars using their technology and combining it with cars already in production. But they are now not making any secrets about creating their own vehicle. From a 2015 article in the Detroit Free Press, we have this announcement of Google’s intent. “The goal is to have driverless cars available on the market within five years” said Chris Urmson, Director of Self-Driving Cars, Google. These vehicles would be manufactured in Livonia, Michigan.
A second area of conflict is now brewing regarding the access and ownership of data and the stakes are huge. General Motors expects to realize an additional $350 million in revenue over the next three years from the high-speed data connections it is building into its cars. Annual global revenues from digitally connected cars will grow from $16 billion in 2013 to $40 billion a year 2018 and both industries are vying for their share of this exploding market.
An epic battle over the control of this data is shaping up between the tech and auto companies and the first salvo has already been fired by Ford’s Don Butler, Executive Director of Connected Vehicle and Services. From a recent quote about vehicle generated data, “We need to control access to that data, and we need to protect our ability to create value from new digital services built on vehicle data.” Data is the currency of tech companies and they are not going to go quietly when it comes to having their access to data limited. Apple's CarPlay and Google's Android Auto are both examples of the tech industry's attempt to appeal directly to the consumer regarding data and circumvent the automakers restrictions.
At the minimum we have at least 2 tech giants poised to become future automobile manufacturers and current manufacturers already restricting data access to their tech “partners” It appears that it is now game on between the auto and tech industries and frenemies are now rapidly becoming enemies. Revenue from automobile based data is still a relatively small percentage of both sectors total business models, but data is poised to become a large revenue driver and no one is certain what will come next.
The automakers, with over 100 years of experience, certainly have the lead in manufacturing, and have learned some fast lessons from the tech world. But tech companies are built for speed with much faster R&D and product cycles. Will these two industries that represent over 10% of U.S. GDP peacefully co-exist or will there be winners and losers? Could mergers and acquisitions be part of the future story, and what would that look like? One thing is for certain, we are early in the game.