Connected vehicles have become mandatory for car manufacturers, leading to heightened attention to the digital service portfolio. Detecon has conducted an analysis assessing the extent to which differentiating features can impact the market and determining what basic tasks will be required of manufacturers.
Development and relevance of digital services in the automotive industry
The transformation of the automobile from a simple means of transportation into a connected vehicle has been facilitated by the convergence of media as well as the rise in buyer demand for digital services. The integration of cars into networks is not limited to the connection of smartphones with vehicle systems; it also involves direct communication between the vehicle and the outside world through integrated access to the internet. Obtaining current weather conditions, news, or location data as well as the monitoring of traffic conditions are only a few of the possible uses. Warnings about accidents and alerts when drivers are speeding as well as current developments in the field of autonomous driving play a particularly important role for the latter point.
In 2015, a survey questioned 3,700 people about their use of connected car services that were already available at that time. The survey found that 62 percent of the respondents ranked both “increased vehicle safety through automatic hazard early warning systems” and “better navigation” as especially important. Looking ahead to the future, projections indicate that by 2025 about 58 percent of revenues in the connected car sector will be attributable to the “hardware components” of a vehicle while a significant share of 42 percent will relate to the “software” sector. Findings such as these have prompted carmakers to expand their previously exclusive focus on the hardware segment in vehicle development efforts commensurate with their greater understanding of the significance of the interplay of software-hardware dynamics.
In view of the increasing relevance of automotive digital services, Detecon Connected Mobility experts conducted a market analysis of the current digital service portfolio of automotive manufacturers. The aim is to obtain an up-to-date overview of digital services currently available and to lay the groundwork for a discussion on the future expansion of the business field. One key question of the market analysis is whether the service portfolios of the automotive manufacturers display features in the scope of service that differentiate them significantly from one another. In other words, are there any so-called “killer features” in the service portfolios that set any given automotive manufacturer apart from the competition?
Current status of digital service offerings: comparison of manufacturers
The assessment of the current status of the digital service portfolio was based on the analysis of the customer interfaces of three German carmakers — BMW, Daimler, and Volkswagen — that concentrated specifically on the segments “Online Stores for Digital Services,” “Smartphone Applications,” and “Head Units” in the vehicles themselves. The digital services available in these segments were determined, the offers of each of the carmakers were compared, and the services were classified according to service categories.
The market analysis determines a total of 56 different digital services that are distinguishable from one another and can be classified according to six service categories. The figure below depicts these service categories and indicates the number of digital services (n) that can be classified according to these categories.
Figure 1: Overview of the Identified Service Categories
Every service category and every service was carefully reviewed in terms of content. Our key observations and findings are summarized here.
Figure 2: Comparison of the Scope of Services in the Various Service Categories Offered by the OEMs
The range of digital services offered by each carmaker is even today quite extensive. More than 65 percent of the digital services are available from all three OEMs, and nearly 85 percent of the digital services are available from at least two OEMs. While OEMs may set different priorities in their digital services portfolio, the majority of digital services are the same — albeit designated by various service names and sometimes bundled within different packages (monthly payment v. one-time purchase, single services v. service bundle). This indicates a predominantly homogeneous portfolio of services at present.
The greatest differences in the digital service portfolio are found in the “Commerce” and “Safety & Security” service categories:
Differences for the service category “Commerce” are especially striking in the fairly new category Functions on Demand. For example, while one automaker offers the flexible addition of Active Cruise Control or various chassis settings via app, other automakers offer high beam wizards or other functionalities as needed. There is still untapped potential for all vehicle manufacturers in the category of Functions on Demand, however.
Differences in the “Safety & Security” service category are found in particular in the availability of solutions guarding against vehicle theft and in image and video monitoring of the vehicle environment. When it comes to image and video monitoring, carmakers face variances in regional legislation, which can partly explain the lack of services.
Yet the fact remains that, in terms of the full portfolio of digital services, there are at this time virtually no sustainable unique selling points, and a large proportion of the services are already expected and taken for granted by customers today.
So what are the implications for carmakers?
Only few differentian of the service portfolio
As of this moment, there are few features that would differentiate the product portfolios of the various vehicle manufacturers. Without the introduction of unique “killer” features, generating genuine differentiation and uniqueness of the service portfolio is difficult. Of course, it should be noted at this point that digital services, although functionally similar, can certainly differ in terms of quality — design, usability, availability, performance, and other important factors come into play here.
Creating an ecosystem for the customer around the connected car can also help with differentiation and create a lock-in effect. Besides digital services, such an ecosystem includes platforms from automotive manufacturers, smartphones, and other smart devices. Digital services in the ecosystem must be understood as customer touchpoints that accompany customers seamlessly along their customer journeys. The smartphone has an ambivalent relationship in this ecosystem; on the one hand, smartphone apps act as substitutes for some of the digital services offered by car manufacturers, but, on the other hand, the integration of the smartphone into the connected car ecosystem is in itself an important service in the digital service portfolio.
It behooves car manufacturers, especially since differentiation is not limitless, to offer a customer-centric experience that, as a minimum, is of similarly high quality and comprises digital services (apps, in-car, web, ...) and physical elements (vehicle, dealer, ...) if they want to avoid falling short in comparison and running the risk of losing customers to the competition. Moreover, digital services serve as an enabler for other strategic initiatives such as the promotion of electrification (e.g., services for locating charging stations) and make it possible to identify new or changed customer needs by analyzing detailed customer and vehicle data and to adapt the company’s own portfolio of services to satisfy these needs.
Pricing moves to the forefront
However, a second perspective should also be considered, As long as there are no significant differentiating features (as at present), significant price differences for digital services among OEMs will be difficult to justify to customers in the long term. This is based on the premise that customers also consider digital services as a factor when deciding on a vehicle and that the vehicle price does not balance out the cost of digital services in comparison.
Nevertheless, and especially in light of the fact that digital services will account for a significantly increasing share of carmakers’ revenue in the future, carmakers must be able to offer their digital services at competitive prices. Business models such as leasing, rental, car-sharing, and other services with monthly installments are heightening the significance of the prices of digital services even further. Profitable operation requires consideration of the cost side that results from the development and operation of digital services, not only innovation and high quality standards.
Cost savings in development are often viewed critically (and rightly so) as “innovation killers,” but they need not inevitably lead to this consequence. The OEMs considered in the analysis have made major advances in the provision (development and operation) of digital services. Even today, OEMs have product-oriented organizations (following agile and DevOps guidelines) and IT systems based on microservice architectures with a high degree of automation in the cloud and can offer a flexible service portfolio of high quality. Owing to the high complexity and quality demands on the system as a whole, the identification of cost optimization measures is not a simple undertaking.
Outlook: use of strategic and operational levers
This is precisely the point where our consulting services step in, and we use a number of strategic and operational levers to show how IT organizations can walk the tightrope between the highest standards of quality and cost optimization. Our competence is founded on our experience gained from years of strategic and practical work in IT development organizations
Additional fascinating content will follow in the After Sales Study 2021 that will be appearing soon — stay tuned!