Just as connectivity is continuously fuelling mobility in our offices, schools and homes, it is also transforming businesses including the automobile industry in ways that radically flip what the word ‘car’ now means.

No longer is an automobile just a product that transports you between two points, it also performs services as it takes you to your destination. Recent developments in self-driving, electrification, and mobility services are driving this trend. Cars are no longer dreary spaces to pass time in while awaiting the arrival of a destination, they can also be places of musical communion or personal refuge with recreational platforms equipped to provide highly personalized entertainment in transit. 

The prospect of making this ‘product and service’ business a viable reality will require a considered convergence of multiple business models. Original Equipment Manufacturers (OEMs) will not be able to function in isolation, instead they will increasingly seek to team up with clean energy producers, data analytics experts, software developers, personal entertainment providers and traffic safety regulators to co-create tomorrow’s evolved next-gen automobiles.

The disrupted automotive ecosystem

It would be no exaggeration to say that these are challenging times for carmakers as they race to keep pace with a changing auto ecosystem that is seeing major upheavals. Let us consider a few of these.

First, customers are no longer focused only on the product and its performance. Their expectations have in fact gone beyond manufacturing to enter the domain of services, electronics and software. 

Second, as a result, auto majors are finding it imperative to morph into tech companies by leveraging the unique business opportunities offered by disruptive technologies. Take Artificial Intelligence (AI). Today, not only can AI provide customers with a full-fledged home entertainment experience in their cars but also procure time-critical information about an accident scene by leveraging insights from IoT. 

Third is the Electric Vehicle (EV) revolution that has all the leading automakers in the fray. Volkswagen and General Motors are gearing up to launch EVs by 2030, and many others, too, are in the assembly line. EVs are now being touted to take on the disruptive role of smartphones in the auto industry—a disruption that could phase out for good the only kind of fuel-powered vehicles we have ever known. 

Fourth, and arguably the most game-changing trend in recent times in this industry, is the exponential growth of the personal mobility market. Already, it’s tough to imagine a world before ‘mobility on demand’ became the buzzword and Lyft and Uber became a way of life. This radical business model that promises to replace car ownership and impact urban planning is bound to grow in the coming years.

But more than anything else, what is clear is that, as these technology-driven changes gain momentum, they will transform how OEMs do business.

Those that snooze lose: Automobile companies must pivot

The need to stay relevant has led major automakers to heavily invest in futuristic technologies that combine software and physical devices. Ford’s $1 billion investment in Argo AI, a tech start-up, is a prime example of the effect technology is having on the automotive industry. More of such partnerships are emerging in the sector as they add immense value for consumers.

It is most important for all players in the industry to understand how to step up to changed times. For OEMs in particular, the key to survival will lie in strategy. They will need to be proactive in anticipating market trends and changing consumer preferences, and be open to tweaking their business approach accordingly. Also, the growing realization that they cannot do it all on their own will push them gradually to team up with tech companies. For instance, Toyota is collaborating with Amazon and Pizza Hut for its self-driven vehicles. And Lyft is partnering with GM and Jaguar Land Rover. 

Then there are the value-additions OEMs can bring into the new ecosystem, for instance, in the way that Google has: it has teamed up with Walmart to enable shoppers at the retail giant get a shuttle ride with Google’s self-driving car, Waymo. 

But most of all, what is clear is that as unprecedented connectivity continually transforms the automobile industry, car manufacturers and digital service providers of alhues will have to learn to create new business models. Both will need to invent new ways of doing business that leverages the expertise of each while delivering an outcome that fuses the best of both.