Software and connectivity in the automotive sector: “The experience per kilometer counts”

One thing seems certain: Without the right software and true connectivity, nothing will work in the automotive sector in future. But what does that mean for automotive manufacturers? And who will have their nose in front and have sovereignty over customer data – the manufacturers themselves or the tech companies? The IAA MOBILITY Visionary Club discusses market requirements and new business models.

Nowadays, they are as important as the horsepower and the chassis: The quality and the offering for in-car software and connectivity have become relevant factors for the purchase decision. “The customer is less and less interested in rpm, and more in experiences per kilometer,” says Anilkumar Hariharakrishnan, Director Product Engineering and In Cabin Sensing at Harman Becker Automotive Systems, speaking in the IAA MOBILITY Visionary Club. As such, software-based services and functions are set to become key differentiating features in the fight for customers in future. If you score well on these, you have a competitive advantage – and a considerable one at that, according to a 2021 Capgemini study. It suggests that software-based functions and services are likely to reach a market value of USD 640 billion by 2031.

From the margins to the middle 

So the market is huge, and that makes the direction of travel clear – it is not for nothing that car manufacturers have been striving for years to become software creators themselves. But a lot of work is still needed here, says Philipp Timmen, Head of Partnerships Europe with the in-car entertainment specialists Zync: “Automotive software is not genuinely appealing at the moment.” Timmen says the customer focus is still missing: “And we also need to find the right business model, allowing the car manufacturers to benefit from it instead of merely being on the margins.”

The battle for the digital home

That’s because the car context throws up these questions:  What device is the customer’s digital experience taking place on? Which device is his or her digital home? In other words: Does the manufacturer offer its own ecosystem, with the car as its fixed point, or is the customer’s smartphone, with all its applications, integrated into the vehicle? If the smartphone wins out as the primary device for the in-car digital experience, then the car manufacturers lose out on all the revenue streams associated with it, warns Oliver Schwager, Managing Director of the consulting firm BCG Platinion – and thus on access to customers, data, and digital business models. “That’s why action needs to be taken now, quickly and intelligently.”

Connecting worlds

One challenge for the automotive industry lies in connecting the customer’s various digital worlds – the home, work, and the vehicle – seamlessly with one another, according to Hariharakrishnan. In order for that to succeed, the sector needs to think a lot more from the customer’s perspective. “We are moving into an era where we need a designed car more than an engineered car. As such, we need engineers who think like designers, to allow us to deliver the high-quality software the customer wants rather than what the industry would like to sell,” he says.

Cultural upheaval

The industry is therefore also facing a cultural upheaval that is changing a lot of things: Working with a focus on software calls for more agile methods and shorter development cycles. It presents new requirements for tests, validation, and collaboration with partners, and calls for different processes, tools and probably even a new self-image. And it changes the business model if the greatest value added no longer comes from selling the car, but is achieved during its use phase, because the customer then pays for new features, updates, and services. “We will shift from a serial system to an ecosystem,” says Schwager.

Solving the questions of principle first

In order for the automotive industry to open up this new, digital market with its new revenue streams, investment is needed now. The first item on the list is reducing friction losses, says Schwager – by which he means, for example, that a technology such as connected charging is still some way off in the future, and that listening to your own playlist in the car is still an experience that merits being made better. “Truly immersive digital experiences will come later. We are still solving the basics. And that needs to happen in the next two years.” Which features will then win out in the car is down to the customers, says Hariharakrishnan. He is convinced that they are willing to pay for digital experiences: “But we need to show people the value of them. A mind-set geared to the customer experience needs to hit home in the automotive industry.”