Robert Tercek is the author of Vaporized: Solid Strategies for Success in a Dematerialized World.
The automobile has emerged as the newest battleground in the smartphone wars. The struggle between Apple Inc., and Google Inc., for mobile supremacy has expanded beyond the phones and tablets to a much broader field of connected devices. What's at stake? Not just the future of the car, but also the future of computing.
Having trounced all other contenders for the mobile computing throne, including Microsoft Corp., Nokia Corp., and BlackBerry Ltd., the two remaining smartphone powerhouses are fighting for control over smart devices of all sorts, including wearable computers, home appliances, retail payments and even health-care equipment.
Automobiles are a major area of contention because the Silicon Valley giants perceive the car not as transportation, but as a mobile computing platform. The future of automobiles will be determined by advances in software rather than hardware.
Computers in cars are not new, of course. For decades, vehicles have sported electronic control units to manage emissions, ignition, door locks and more. The number of embedded microprocessors ranges from 30 in basic vehicles to more than 100 in luxury sedans.
What's different today is that those in-car computers can be networked, turning the car into something like a giant rolling smartphone. Connectivity will make the vehicle smarter, more aware of conditions, and eventually able to communicate with other vehicles on the road. That's how automobiles will emerge as the proving ground for several important advances in computer technology, including cloud robotics, deep learning and other forms of artificial intelligence.
It's a growth opportunity. Market research firm Business Insider projects a tenfold increase in sales of connected cars, from seven million cars sold globally in 2014 to 69 million by 2020.
No one doubts that wireless connectivity will add great value to motor vehicles. The question is, who will capture that value? The car manufacturers? Or the Silicon Valley giants who siphoned the profit out of mobile phones?
Soon mobile apps will appear in dashboards, courtesy of Apple CarPlay and Android Auto, software systems that connect them to smartphones. That will satisfy consumer demand.
But it's a mixed blessing for car makers because, after inviting the Silicon Valley powers into their domain, they may find their own products reduced to commodity value.
"Infotainment" and maps are just the thin end of the wedge for Apple and Google. As consumer preferences solidify into stubborn habit, one of those companies will take over more functions of the smart car until it is positioned somewhat like Microsoft in its 1990s heyday, with its grip over the PC industry.
Auto makers find themselves on the defensive. Software is hardly their strong suit, and they have slim chances of building a robust app-developer program. The fear is that they will end up stuck producing low-margin hardware while Apple and Google siphon off the profit from the content, apps and data services sold into smart vehicles.
Will the car makers go the route of commodification, following the dismal trajectory of computer makers such as Dell Inc., and Compaq Computer Corp., smartphone makers Nokia and Motorola, and consumer electronics companies such as Sharp Corp., and Panasonic Corp.? Or will the auto companies emerge victorious, independent of ecosystem hegemony by developing their own operating systems, robotics and mapping solutions?
This standoff could be a golden opportunity for BlackBerry's QNX if that company's management demonstrated the strategic vision to rally its automotive partners around a neutral ecosystem. It's QNX's game to lose. Today, QNX provides superb operating system software to more than half of the auto industry, including Acura, BMW, Chrysler, Ford, GM, Jaguar, Mercedes, Porsche, Toyota and Volkswagen.
QNX could be leveraged as the base for a broad range of auto-specific applications. But this opportunity is fading fast. Without a rich ecosystem of apps to enhance the value of its operating system, QNX is unlikely to extract a significant premium from the auto makers. The eventual arrival of a free operating system for cars, either Linux or Android, will erode QNX's pricing power. Most likely, QNX will be buried under layers of software from Apple and Google. Car owners will grow accustomed to a user interface that comes from Silicon Valley, not Ottawa.
Car makers are not waiting for QNX. Recently, in a bid to evade dependence upon Google, three German manufacturers joined forces to acquire the digital-map assets spun off from Nokia for $3-billion (U.S.). Meanwhile, Google is cranking up the heat by focusing on the future of cars. Google autonomous vehicles are already street legal for experimental purposes in four American states; eventually the company will license the operating system to car makers. Apple has reportedly hired 200 automotive engineers and executives from Detroit to work on its own auto program, codenamed Titan.
We've entered a new century that will be increasingly defined by software, not hardware. I call it the "vaporized economy" because value increasingly resides not in hardware or physical goods, but rather in invisible software that can be downloaded over the air. In this new economy, the rules are different from the previous century of mass production. Intangibles are more valuable than hard assets. Data is more important than physical products.
When it comes to satisfying customers, software trumps hardware every time because it is quicker and easier to modify to meet evolving demand.
None of these lessons has been learned by auto builders, however. They are still infatuated with the romance of the road and their mechanical marvels. Those are concrete artifacts from the by-gone industrial era. As a society, we are moving away from that era into a new world defined by software. The mobile giants understand this situation better than most because they invented it.