Automotive Ecosystem Series — Chapter 2: Exploring OEM strategic choices: proprietary, open, and joint

Large automobile manufacturers are following the path of digital transformation. They’re drawing from the success of other industries, as we discussed in Automotive Ecosystem Series — Chapter 1: Digital Transformation for Automotive Manufacturers.

In the second chapter of this series, we’ll explore three strategies of digital transformation for automotive manufacturers. Both OEMs and Tier 1 companies should consider these options when pursuing a transition from a product company to a data-centric platform provider. Here are the key digital transformation strategies for the automotive sector:

· Strategy 1: Build a proprietary platform

· Strategy 2: Use an existing open-source platform

· Strategy 3: Build/join a proprietary alliance ecosystem with other players

All of these strategies are viable for developing digital technology in cars and can suit the needs of different companies. Let’s have a thorough look at each of these opportunities to figure out the option that’s best for your company.

Build a proprietary platform

We all know the story of Apple’s rise to prominence by building their device ecosystem: iOS, macOS, and tvOS merged with the App Store and iTunes. Automotive companies may consider following the same track to become an industry behemoth.

There are many advantages to this platform strategy for automobile manufacturers:

1. Strong control of the platform development timeline and strategy

2. A potentially lucrative revenue model (Apple receives 30% of every transaction)

3. The possibility to attain a prominent market position vis-à-vis rivals

But there are also some disadvantages to this type of platform thinking in the automotive industry. First and foremost, not every OEM is willing to sacrifice billions of dollars and take unprecedented risks in product development. But there are a few other less obvious downsides:

1. Not every OEM has an innovative culture that can support platform development.
2. It’s difficult to build and maintain platform engineering teams to handle diverse non-core automotive issues: networks, data, services, apps.
3. There’s no way to mitigate risks, as a car platform is solely the responsibility of the platform owner. While apps for mobile devices aren’t life-critical, software for vehicles is.

Finally, Apple spent years on platform development while having a unique market position and a loyal customer base. This isn’t something that a single OEM usually has. To get somewhat closer to the market position of Apple, acquiring a fair share of customers seems to be a key precondition for this strategy. One can only expect to arrive at a production-ready platform after several hundred staff-years of development and testing, releasing multiple versions, and trying it out for market fit. To get an idea of how far a platform can go and for more details, have a look at this real case.

Open-source community platform

Implementing the second platform strategy for OEMs resembles what Google did with Android. Despite many common features, similar to Apple, they are different beasts.

Android is reasonably known for its low barrier to entry and is loved by OEMs and app developers thanks to it almost zero licensing cost. What are the advantages of this strategy?

1. More players in the game, meaning a wider variety of services and apps
2. Richer functionality thanks to multiple players contributing to the platform
3. Reduced total cost of ownership

But there are inevitable downsides:

1. Lower-quality apps due to the low cost of entering the market
2. Higher risk of platform abuse (and cybersecurity can’t be lax in life-critical applications)
3. Community-based development is about breadth but not depth, resulting in product unreliability or, at best, long development cycles

Getting an open-source platform to the level of quality required for an automotive-grade system seems implausible. Some drawbacks can be remedied by introducing standards, which the automotive industry is good at. Take the GENIVI Alliance as an example of largely successful community standardization.

There’s also an issue that’s less visible but crucial: Google’s profit margins are about one-third those of Apple. For app developers, it’s hell to develop, maintain, and earn money on Android. An analogous scenario is something any OEM or Tier1 is likely to avoid.

Proprietary alliance ecosystem

The third platform strategy for automobile manufacturers, we believe, offers the best balance between total cost of ownership, time to market, and data monetization: automotive-grade data platforms, such as OLP by HERE technologies. This strategy is becoming a trend, as it provides a single system for location-centric development without being implanted into large OEM or Tier 1 ecosystems.

The idea may be easy to grasp if you imagine an Amazon EC2 set of services specifically designed for the automotive industry. This cloud platform would contain a set of features for data collection and processing pipelines, adhering to strict security and reliability standards. For example, it would include NDS for navigation and maps, dockerized data collection and analysis tools, and access governance based on automotive use cases.

OEMs could leverage the marketplace of and trade data on a service that provides secure elastic compute capacity in the cloud. OEMs could offer their data to various players, including competitors. Likewise, platform users could purchase the data they needed from others or benefit from a range of standard processing pipelines, such as for machine learning and computer vision. These would be readily available from third-party component providers and would be tested and verified by the whole ecosystem. With this option, OEMs could:

1. Retain control of data while getting access to data offered by other OEMs
2. Deploy resources to core automotive areas, such as new sensors, increased mobility, data intelligence, and monetization models
3. Be part of an open ecosystem where third-party vendors could be hired or operate independently and introduce novel software, applications, and components
4. Rely on industry standards and solutions without compromising quality and taking on high-risk exposure
5. Reduce time to market and total cost of ownership for platform offerings

Finally, the road to digital transformation in the automotive industry is one every automaker is destined to follow. In our next article, I’ll share the key attributes every OEM should have to successfully transition to a platform business model and how this strategy can be successfully executed to create vehicles of the future.