With the official proposal out for a merger between FCA and Renault the aggregation game has officially kicked off, driven by the need to support the massive capital requirements needed for the transition to the digital car.
When we discussed the radicality of ADX we concluded that digital cars may be starkly different from analog cars; today, I’d like to build on that concept, by focusing on an aspect which, I believe, will become increasingly important in the next 18-24 months: the separation between hardware and software.
In a digital car, software becomes much more important than in its analog equivalent, because it is in direct contact with the user, substantially contributing to the overall User Experience.
It happened before!
It is the same transition which occurred in the ’70s, when the birth of Microsoft (1975) and others gave traction to the idea of a big information technology company ONLY developing software, an element which – at least at the operating system level – so far essentially existed only embedded within the computer you purchased: in the ’50s or ’60s software was something you “wrote” with physical switches – programmers used pliers !!
Microsoft was brilliant (and lucky) to exploit the fact that IBM did not believe in small computers and did not want to commit the resources to write its own operating system as it did for every other class of computers, preferring instead to buy one on the market.
Today’s Microsoft market cap has surpassed one trillion dollar (even more than Apple and far more than IBM’s) and sits on $150b in cash (a little less than Apple) for which it does not have much use, as no investment yields better returns than itself.
Obviously hardware cannot exist without software and vice-versa, but perusing the list of the top 25 tech companies by market cap reveals an overwhelming software predominance.
Consequences for the digital car: the CarOS
This scenario is perhaps even more radical of those we have examined so far:
The car could become a hardware platform running software developed by companies other than the car manufacturer.
This could be very interesting for newcomers, which could focus on developing a performing and innovative hardware platform, relying on third party software; if you want a parallel, think of smartphones, where nowadays nobody (except Apple) would consider developing its own operating system in lieu of Android(*)
Who could develop this hypothetic CarOS (Car Operating System)? None other than the companies which have a great deal of expertise in developing enormously complex software (a field where car manufacturers have ZERO experience) and sitting on a pile of idle cash.
The outlier is Apple, the only proudly integrated and proprietary company, which also happens to be the most successful. For Cupertino the only possible path is the outright acquisition of a brand like Tesla(**) or maybe a chinese manufacturer.
So “Ce n’est qu’un début…” and remember, you read it here, first…
(*) unless they’re obliged to do so, like e.g. Huawei
(**) we already commented on the enormous cultural hurdles such an acquisition would face