Pitfalls, Opportunity and the Big Mobility Shakeout

The move to mobility promises to be one of the most exciting, disruptive and transformative developments in the history of the automotive industry. It’s going to affect our everyday lives and change the landscape of every country. The only problem is, too many companies are trying to get in on the action.

Three years ago not many automakers believed this upheaval was headed their way. Today it’s a different story. Now it’s hard to keep track of all the startups, partnerships and acquisitions that are creating a brand-new industry from scratch. Every time you turn around it seems like someone is announcing a new venture. And they all want to develop proprietary systems.

Just like the early days of the horseless carriage when there were hundreds of car companies, now we’re reaching a saturation point with mobility companies. Each of them is sure they’ll grow up to be a dominant player. But this is like the early 1980s when so many startups were confident they could corner the market for personal computers. Most of them went bust.

It’s a predictable pattern: Every time a new technology emerges anyone can get involved at the early stages. But then the hard-nosed realities of the marketplace kick in and the weak ones start dropping like flies. That’s exactly what’s going to happen in the new mobility market.

The history of the auto industry shows that almost all new technologies get whittled down to a handful of global suppliers who then get caught up in a cost-cutting race to the bottom.

I doubt any of the hardware and software companies from Silicon Valley realize they’re going to end up being automotive suppliers. They’ll be horrified to learn they can make at best a 10% profit margin, not the 40% margins that make the Valley such a Mecca for startups. That’s when the exodus will begin.

But there will be winners. Some of the startups and some of the traditional players will hit it big. But it won’t be on the hardware or software side of the business. That’s not where the real money is. This big payoff will go to the data miners. And we’re about to see a war over access to data.

This is why Google and Apple have thrown in the towel on trying to develop a car on their own. This is why they’re far more interested in providing mobility services instead. Specifically, they want to control the operating systems for those services, like ridesharing, so they get access to the data it generates.

One billion people get in and out of a car every single day. They go to work, they go home, they shop, they play, and they do a billion different things. Knowing where they’re going and what they’re doing can be very valuable. That data can be analyzed and aggregated, sorted and packaged. And then it can be sold to anyone.

There are two sets of data. One set is generated by the car, such as how all the parts and components are performing. That allows automakers to mine the data for trend analysis. They’ll be able to quickly identify warranty issues, or learn how to set better engineering specifications.

The other set of data is generated by the people in the car; a massive amount of information flowing in and out about where they’re going and what they’re doing. Retailers, advertisers, marketers, product planners, financial analysts, government agencies and so many others will eagerly pay to get access to that information. And it’s a gift that keeps on giving; the cash flow is continuous.

Unlike automotive manufacturing, Big Data analytics driven by Artificial Intelligence does not require large capital investments. That translates into meaty profit margins. And this explains why so many major automakers want to get into the mobility services market. They don’t want to cede this lucrative business to Silicon Valley. They don’t want Apple and Google grabbing all that data for themselves.

But not all OEMs can afford to do this on their own, which explains why FCA partnered with Waymo, the name of Google’s ride-sharing service, to develop autonomous Chrysler Pacificas. That gets FCA a seat at the table. But is Waymo a supplier to FCA, or is FCA a supplier to Waymo? I bet both companies have different answers to that question.

The disruption already has started. It may not be too obvious now, but in a few years’ time it will be plain as day to everyone. We’re headed for a shakeout, the auto industry will morph into something new, and the biggest opportunity is in controlling the data.