Digital apps are the ground floor for new era

The global motor industry is facing its greatest challenge – and opportunity – since Henry Ford's Model T began rolling down a production line.

According to Ola Henfridsson, Professor of Information Systems and Management at Warwick Business School in the UK, the R&D avalanche that has introduced smartphones to the world could have even wider ramifications for the car industry. And, says Professor Henfridsson, the established players in the industry had better jump on the bandwagon – or be left in the dust.

"If you can develop an Android community with so many useful apps, think what could happen with cars," says Professor Henfridsson, who has consulted to GM, Saab and Volvo in the field of digital innovation for the past eight years.

"Much of the value of today's car and the cost of developing it is related to the digital technology. When it comes to lowering fuel consumption or new safety features it is very much about the digital infrastructure, which requires a totally new skill set for the people developing the car.

"It used to be that competition within the car industry was locked into the boundaries of the car manufacturers, but suddenly there are non-automotive companies taking parts of the markets. Microsoft [is] heading into it along with Google and others. Why is it that Google has 10 driverless cars on the streets of California? Because they are imagining a future where a car communicates with its environment, where what will be important in a car's functionality is not something that GM or Volkswagen can deliver.

"Suddenly, you can see that the car industry needs to engage with the 'crowd', where anybody with £300 [AUD $588] and a good idea can become an entrepreneur."

We've already seen car companies recruiting app developers – with known corporations like Apple and Google frequently acting as intermediaries – to create new apps for in-car infotainment systems. The next step is likely to be in satellite navigation, which is already moving from standard integrated systems on board to Internet services like Google Maps, which can provide voice prompts through the car's audio system, and beyond – with apps to guide you where you want to go, developed by third parties and downloadable to the car via your smartphone.

From there it's a hop, skip and a jump to apps for driver-assist technology – including the basics of speedometer functions extrapolated from the GPS locator in your phone. We're facing a headlong rush into a future culminating in open-source apps that could even tune the car's engine on the fly to suit the driver's preferences – more performance, strong torque at lower speeds, improved fuel economy.

Naturally, the inference to be drawn from this is that, taken to the ultimate extreme, car companies become the automotive equivalent of a typical desktop computer manufacturer – sourcing not only the individual hardware components from other suppliers, but also the operating system and suites of programs and peripherals in accordance with individual customer preference.

The car would be manufactured as a basic shell, from a series of modular components – and with some bundled software pre-loaded – leaving the customer the option to download any additional apps required. If the hardware and software components were to be rationalised across the whole industry to such a high degree, old-industry principles like economies of scale would cease to influence the cost of R&D or manufacturing to the extent they do currently.

"In the past if you wanted to be successful in the car industry you needed a huge amount of investment," says the professor.

"The car industry has been so focused on scale, that it is only a few companies who own those resources who have been controlling what has been going into the car. Now, we will see the birth of customer-driven DIY developments in the car. An app store for cars, that is what is coming, anyone can design apps for cars.

"Instead of one navigation system you might have 10, or some navigation aid nobody has thought about before and you might be able to sell advertising through this app. Plus opening up to the crowd addresses some of the customisation issues car manufacturers make for local markets. Traditionally they want to minimise them because it drives up cost, but this turns it around, as a small app developer in each country can do those adaptations and it won't cost the car manufacturer a penny.

"Also, normally in the car industry you need a four or six-year cycle in car development to get your investment back, but this will change. Software can be reproduced at a minimal cost, at the point when you share with the Android community.

"GM asked a company to develop a new navigation system. It took them 18 months – it's an expensive process and would then be expensive for the customers. The Android community contains up to 20 navigation systems at the moment, it can very easily be adapted for a bigger screen for the car. So, now, your development costs can be so much lower and quicker."

The worry for the established car industry, as Professor Henfridsson points out, is that if anyone can develop and integrate systems at low cost, the cast-in-cement business model by which the automotive industry has operated since Henry's Model T will become irrelevant – and some manufacturers will presumably fail to adjust to the new world order.

Furthermore, this new business paradigm has already been witnessed in operation, with the music industry turned on its head as CDs gave way to digital downloads.

There is, of course, an additional concern for the automotive industry – losing control of its intellectual property as it farms out more of its R&D projects to third parties. But Professor Henfridsson argues that car companies would be better served by becoming 'platform owners'.

"An app that can tune your engine could have been done 10 years ago," he says.

"At the point GM or Audi allows third-party developers to design apps to tune their engine there would be hundreds of them. They may not allow access to the braking system, engine, or power train immediately, but it will soon come. There is a middle ground, where you can have 60 or 70 trusted vendors. But why not have other people innovate on your platform? That is what you want to be, a platform owner like Facebook. It is very old fashioned to sell a whole product these days.

"This is coming, car manufacturers know it and they can't stop it. We will see a totally new car industry when digital takes over.

"It will change everything, there will be new brands that might be connected to Google rather than a car manufacturer. It is a do-or-die issue for the car industry."

The full article quoting the professor has been published in the Warwick Business School's magazine, Core.