The experience of owning and driving a car is changing. Whether you want to use the jargon of ‘software-defined vehicle’ or talk about connected cars, OEMs are undergoing considerable transformation to ensure they can offer customers what they want (‘smartphones on wheels’, as McKinsey describes them).

This change has been happening for some time, front and back of house. Marc Andreesen’s famous 2011 essay, Why Software is Eating the World, features the car industry as one where software was “eating much of the value chain”. But, as with all change, the pace can be hard to predict, with OEMs fine-tuning their offerings, rethinking user interfaces and subscription offerings, as they react to evolving consumer preferences.

And aside from the car itself, with its potential for in-car commerce or over-the-air updates reducing trips to dealerships and introducing new functionality (see Techcrunch for a good definition of an SDV), there’s also an expectation amongst customers that their interactions with an automotive brand throughout the product lifecycle will be slick, too. This is no simple feat in an industry defined by its brick and mortar dealership model.

A massive undertaking for OEMs

Digital commerce is a challenge for the sector, according to Denny Pezic, global vertical lead for automotive and mobility at Valtech, which works with OEMs on commerce capability.

“You’ve got the in-car commerce piece, the up-front commerce piece as well, i.e. purchasing the vehicle, the more traditional after-sales commerce piece – and these are all right now independently treated and managed experiences within the [typical] OEM,” he says. “From a customer viewpoint, they shouldn’t be, right?”

“And I think that’s the learning curve right now for OEMs… they’ve got to break down their own silos that worked fine for the past 100 years, but that don’t work in this software-defined and digital commerce environment. Because, as a customer, you don’t want to have [many] different logins or payment setups for your car with the same brand,” says Pezic.

Simply put, OEMs might be defined by marketing and sales on one side and engineering and technology on the other, but these two sides need to work together closely on the experience of owning a connected car.

As the aforementioned 2021 ‘smartphone on wheels’ article by McKinsey puts it, OEMs and suppliers must “shift their current development processes toward a cyclical, more integrated pattern and establish R&D steering approaches that connect software and hardware development along the entire life cycle of the vehicle.”

Is buying a car really as painful as a trip to the dentist?

Pezic says that a lot of the change happening now is being “driven by OEMs”, who want to deliver more convenience for their customers, and are cognisant that in past years, some car buyers have viewed a visit to the dealership as one not dissimilar to “going to a dentist”.

Even so, it’s hard to move away from a successful business model to “a different type of product” and add “new capability… throughout the whole organisation,” says Pezic.

“It’s not an easy transition,” he says, and he compares the challenge for OEMs to that faced by the established mobile phone manufacturers at the start of the smartphone era.

“We’ve seen how in that industry, Nokia struggled and Blackberry struggled, to compete against these new guys that were coming in from the ground up with [a different] philosophy. So, that’s the hard part for the OEM.”

The value of software? Apple CarPlay and Android Auto can make or break a sale

The smartphone is an apt analogy for connected cars as customers increasingly think of their cars as an extension of their phone.

Apple CarPlay and Android Auto (and Automotive) offer the same convenience through in-car infotainment systems that customers are used to on their phones. And, crucially, as Pezic points out, it’s not something the user has to set up separately.

Tesla created its own ecosystem, but the EV brand has a “strong fan base”, much of which was built up whilst the infotainment element “was not as hot of a commodity as it is now,” says Pezic, who highlights recent backlash against GM on the issue. Last year, the Chevy, Buick, GMC and Cadillac manufacturer announced it wouldn’t be supporting CarPlay and Android Auto in future EVs, instead developing new software, notably powered by Google.

Indeed, it’s not difficult to find social media posts from disgruntled potential buyers saying that lack of CarPlay support from GM would mean they may look elsewhere. Pezic himself ran a poll on LinkedIn, “just to gauge, is it really that much of an issue?” he says, with roughly half of respondents being adamant about the need for these systems.

Connected cars: subscription revenue opportunity

It’s no secret that many OEMs have ambitious targets for revenue generated from digital services within the vehicle.

Valtech and Pezic have worked on commerce capabilities with OEMs in recent years because, Pezic says, “we see a big need for enablement,” driven by the trends of “electrification and… the massively growing capabilities of the connected vehicle”.

“More than 95% of cars [manufactured] are going be connected vehicles by the end of the decade, and more than 50% of all vehicles on the road,” he adds.

Connected car subscriptions have, of course, seen faux pas committed by OEMs as they get to grips with what customers want to be offered as on-demand features. Pezic argues for a common sense approach, saying that selling any “relatively basic function,” which involves the paid activation of “hardware that clearly you’ve sold to me when I bought the car,” is generally not something customers will appreciate.

This is a fast-evolving area as OEMs trial new and improved subscription options, and though on the one hand some consumers may instinctively resent extra payments to get the most from their vehicle, it’s also hard to ignore the growth of the subscription economy in many different industry verticals.

Indeed, the reception for subscription services is warm, according to 2023 research from S&P Global Mobility, which found that “of 4,500 respondents who had experienced a free trial or an existing subscription on a model year 2016 vehicle or newer, 82% said they would definitely or probably consider purchasing subscription-based services on a future new vehicle purchase.”

Subscriptions features from OEMs are varied but notably include hands-free highway driving tech, infotainment bundles and enhanced connectivity.

Valtech Mobility has recently collaborated with Audi on Audi Themes, a digital marketplace which allows customers to choose imagery and ambient lighting themes (including categories such as Disney and Star Wars). Pezic describes Themes as “the idea that you’re able to provide the platform for creators, not unlike an app store, to create experiences for within the car”. And though current functionality is around display and lighting, the idea is “to extend into sound and other features that can be adjusted within the vehicle”

Personalised experiences in a unique environment

Pezic is clear that he doesn’t see a need for OEMs to create new app ecosystems to replicate or compete with what’s already out there in the smartphone world, but, he says, “there is a uniqueness within the automotive space – within the vehicle itself – the very unique elements of sitting in a car and feeling even the social element of… families coming together.”

The vehicle is “a confined room with confined or specific capabilities [and] within that is an opportunity for OEMs to create something of a value add for consumers…,” adds Pezic.

Of course, there are other practical functionalities that are very specific to the car setting, such as parking, with Valtech Mobility partnering with Parkopedia to integrate parking and EV charging services within infotainment systems.

This is “the right kind of thinking,” according to Pezic. OEMs should be asking, “Where does it make sense for me to be [part of the customer journey]?”

Ultimately, he adds, the connected car means that, irrespective of sales models, “all OEMs will need to build out a solid commerce capability to be able to engage with the customer in a way that feels seamless.”

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