02 Oct Driving Towards the Car-as-a-Service (CaaS)

Software, hardware platforms, the Internet and wireless technology are reshaping industries more quickly than at any time in our recent history.  Through the use of technology, products are rapidly being turned into services. Also, channels are being streamlined or eliminated to reduce friction and get product manufacturers closer to their customers.

The auto industry is not immune to these new opportunities and the challenges created by technology that are redefining their traditional supplier and channel relationships. The following is a high level overview of the automotive customer value chain and a vision for where the business is going in the very near future.

HISTORICAL ERA

For over 100-years, there has not been a significant change in the way that cars have been sold and maintained through a highly integrated franchise-based dealer network. This system has evolved over the years into a multiple billion-dollar industry and created prosperity for the manufacturers and the entire ecosystem. The system looks like this.

                                             OEM -> DEALER -> CUSTOMER

This has been a good deal for everyone involved. The OEM’s could focus on product and manufacturing while the DEALERS could focus on sales and service. This symbiotic relationship is going to begin being significantly disrupted due to increasing advancements in automotive technology that will lead quickly to 2 new eras – Connected Car and Car-as-a-Service (CaaS).

CONNECTED CAR ERA

In this current era the sale of the car has not changed at all from the historical value chain.

                                               OEM -> DEALER -> CUSTOMER

The battle for the connected car is about who owns the relationship through the car as a channel to the owners and drivers. The advancement of the connected car has brought Silicon Valley (Google & Apple) and Mobile Service Providers (AT&T & Verizon) into the competitive mix for creating value to consumers. Today the OEM’s are creating partnerships with these new entrants to help sell vehicles.  However, at the end of the day leading companies like Toyota and Ford want to make sure that they have their own independent platform. Google, Apple, AT&T are all playing nice today, but we should not kid ourselves that they want to own and monetize that relationship with the owners and drivers.  The interesting thing about this era is that the DEALER remains relatively disconnected to these changes, but their inability to define their own strategy within the connected car will come at a very steep price in the future.

CAR-AS-A-SERVICE (CaaS) ERA

While the Connected Car Era is still in its infancy, the CaaS Era has already begun with large businesses being built utilizing new auto use cases and disrupting traditional auto business cases. Examples include ride sharing (UBER/LYFT), car renting (Zipcar and Cars2Go) and even OEM experiments (GM investment in Lyft and BMW trial in Seattle). Also, Tesla has been aggressively building its own direct to consumer distribution model that is completely at odds with the current DEALER based model.

While I am not certain where these business will end up, I am 100% confident that they will permanently disrupt the value chain for DEALERS because all of these models basically will invert the value chain putting the OEM or other companies in the position of directly providing cars to the end users.

                                                    OEM -> Customer

                                                    Google -> Customer

                                                    Apple -> Customer

                                                    UBER -> Customer

Passenger Car ownership will become fuzzy in these new models, and in the long-run revenues will be generated by providing the service of the car rather than making the CAPX purchase or OPEX lease. It is unclear the role that the DEALERS will play in this era, but I do believe that maintenance of the car could still be an opportunity for local service providers with business models different then today.

CONCLUSION

The Connected Car and Car-as-a-Service businesses create new multiple billion dollar opportunities for companies. New companies are going to take valuable market share and revenues from existing suppliers and channels in the ecosystem. In fact, companies like UBER today have market caps that rival and exceed Ford, GM and Toyota.

Every business should take stock and evaluate their competitive position in the market going forward. How each business transforms itself is critical to its future competitive existence and long-term value proposition.

For more information, please contact us at Driven Growth.