The automobile as a smart device in mobile lives
Eric Free, Flexera
With the maturity of smart phones, we have seen a previously uni-purpose device – the mobile phone – become a platform for organising our pedestrian lives, writes, Eric Free, the senior vice president for strategic growth at Flexera Software.
Our personal daily experience – previously playing out as a disjointed series of events requiring tasks, information and communication – has been harmonised by smartphones and applications to create a virtually seamless, efficient and productive rhythm of accomplishment. Need to figure out how to get from point A to B? There’s an app for that on your smartphone. Need to see in the dark? There’s an app for that too. Capture photos and videos at the moment you are experiencing them? Simply reach for your smartphone.
The automobile as an IoT platform
What about our mobile lives? With more and more people spending a greater percentage of their time in automobiles – commuting, running errands and shuttling the kids around – our mobile lives seem just as ripe for innovation as our pedestrian lives turned out to be. Think of all you have to do in your vehicle. You get to work on toll roads. Find parking spots. Pick up meals, coffee and laundry at the drive-through – just to name a few. All of those things are currently disjointed, distracting tasks that take time and focus.
In the age of the Internet of Things (IoT), the automobile can become the device that orders your mobile life in the same sense that a smartphone does in your pedestrian life.
Gartner states that the number of organisations adopting the IoT will grow 50% in 2016, reaching 43% of organisations overall. IoT goods are smart devices replete with data-gathering sensors, powered by software and connected to the internet. They are changing the paradigm, allowing manufacturers to offer infinitely customisable upgradable products and services flowing from a single device. Indeed, IoT devices can morph and change, altering their function and the value they deliver to their owners – based on changing needs and tastes.
When Tesla announced that, for $2500, it was allowing customers to download a software update that would upgrade their car with an autopilot feature – it forever transformed the automobile, the automobile industry and the relationship between individuals and the automobiles they buy. Forever more, Tesla demonstrated that a car is no longer a fixed object, but an ever-changing, ever-customisable service that can be tailored on an ongoing basis to accommodate the evolving wants and needs of the owner throughout the lifecycle of the automobile. Want added convenience when driving? Pay for a software upgrade and now your automobile operates differently – the way you want it to.
Along the way, Tesla has accomplished something that has largely eluded traditional auto-manufacturers: it has innovated a new mechanism for differentiating its products (using the power of software to deliver new products, features and enhancements); it has created a new revenue stream by monetising that software (i.e. selling the autonomous driving software upgrades to existing customers); and it has done all this while minimising manufacturing costs (Tesla is able to slash costs by delivering this new functionality via software, rather than having to manufacturer new hardware parts and automobile models, which is a very expensive proposition).
Tesla has delivered on the dream and promise of the IoT.
A new IoT business model
As manufacturers seek ways to deepen their relationships with customers and grow profits, they will need to become more strategic and provide ongoing solutions tailored to evolving customer needs as Tesla has done. Manufacturers of internet-connected devices are poised to reap the reward of recurring revenues from sales of hardware, upgrades, apps and services. The recipe driving the transformation consists of this essential formula: Platform + Apps + Service. This is delivered through a combination of:
- Hardware platform (the actual hardware device and its component parts)
- Software applications that control features and functionality of the hardware, software and services delivery; and
- Software monetisation (licensing and entitlement management, which sorts out which device features, functions and services a customer has paid for and can therefore access).
This model not only creates tremendous opportunities for innovation – turning traditional manufacturers into platform and service providers. It also creates tremendous new revenue stream opportunities, cost and efficiency advantages – which all amount to increased profits. With services becoming critical to selling solutions, monetising software will be essential to profitability. Such an approach will allow IoT device makers to monetise every single feature in their product – at no additional physical unit manufacturing cost.
This trend is already beginning to reshape the manufacturing space. According to a Flexera Software survey, the proportion of manufacturers adopting this new model is growing rapidly. 30% of manufacturers today develop IoT devices – and 34% more will within two years. 79% of device makers say they are or plan on delivering remote monitoring and maintenance to their product/service mix. And 60% use software monetisation systems to generate revenues from their software-enabled devices.
The key challenge for traditional device manufacturers will be to stop viewing their products as fixed objects with fixed-in-time features and functions. They must start thinking and acting like service providers, constantly delivering new value to existing customers to accommodate their changing needs. And to do this, they will need to understand the power of software, its role in transforming fixed hardware objects into solutions, and the role that software monetisation plays in transforming that new value proposition into revenues – for the automobile industry and beyond.