Car-as-a-service era is here

What if you were able to try out driverless features in your car for one month at no charge? If you liked it a lot, you could buy an annual subscription. When your subscription runs out, you could renew it through your smartphone. On a weekend, you might want to upgrade the driverless feature from “commuter style” to “race track style”, and be driven at breakneck speeds on a racetrack.

Google’s driverless car, which was awarded a driving license in Nevada in May 2012, is a guide for the technology-driven transformation of the automobile industry. Observers are dreaming up possibilities as exemplified by “if you give a car the abilities of race car drivers (instead of the average driver) and combine them with “conservative software” used for standard driving then you can develop a safer driving experience.”

Such possibilities are endless. At their core, they speak to the looming transformation of business models in the automotive industry. A business that is characterized by occasional vehicle sales today is soon to become the “car as a service,” creating an on-going relationship between auto manufacturers and consumers with recurring revenues from sales of apps and services. The recipe driving the transformation of automotive manufacturers consists of essential ingredients, “platform + apps + service.” This is seen in Google’s driverless features, which were retrofitted onto a Toyota Prius and enabled by a combination of hardware platform (e.g. laser radars), breakthrough software and Internet-enabled services.

Until recently, comparing Apple to Ford would have been dismissed as a meaningless exercise. However, Apple’s formula of “platform + apps + services,” exemplified by the iPhone platform + iPhone Apps + iTunes content, serves as an indicator of the payoff that automotive manufacturers can expect, if replicated correctly. The table below shows that Ford and Apple are roughly similar by revenue. However, Apple’s market capitalization per dollar of revenue (3.1 in the table below) is 10 times that of Ford’s.



Despite this difference, these types of returns are very much within reach, and Ford, in particular, is heading in that direction.