Four days before the 67th International Motor Show (IAA) in Frankfurt will end, I'd like to offer a bold prediction: unless a miracle of the kind I can't imagine happens, Germany's automotive industry (car manufacturers as well as suppliers) will suffer a fate similar to that of the smartphone divisions of the likes of Nokia and Ericsson, ultimately resulting in "trollification" by the 2030s.
As Frankfurter Allgemeine Zeitung noted last month, 52% of all patent filings related to self-driving cars belong to German companies, with Bosch alone (which is number one and followed by Audi and Continental)holding three times as many patents in that field as Google and Apple or Tesla not having any significant patent holdings in that field yet. Besides Bosch, Audi, and Continental, three other German companies are among the top 10 patent holders in this field: BMW, Volkswagen, and Daimler.
Patent filings related to self-driving cars are picking up speed, so the landscape will almost certainly change in some ways in the coming years, but not entirely.
So far, major automotive companies have not used patents aggressively. Much to the contrary, they often find themselves on the receiving end of patent troll lawsuits in the Eastern District of Texas and elsewhere, and they tend to support reasonable royalties (such as through the Fair Standards Alliance) and defensive initiatives (including a fake one--"fake" because it's merely about making a statement and doesn't solve a single patent-related problem ever--called Open Invention Network). I'm not aware of any major dispute between two large car makers. Apparently they work out cross-licensing deals quietly and amicably.
But that's because right now those companies are in the business of selling vehicles (and related services), not in the patent assertion business. While it may seem daring to talk in 2017 about what's going to happen in the 2030s (if not before), I am fairly convinced (not 100%, but way above 50%) that we're less than two decades away from the point at which Germany's automotive industry is going to enforce patents aggressively and try to shake down the future winners in the marketplace.
I believe Germany's leading car makers--and some of their key suppliers--are going to be in only a slightly better position than the smartphone divisions of companies like Nokia and Ericsson were when Apple and the Android ecosystem revolutionized the concept of a mobile communications device. I said "slightly better" because brands like BMW and Mercedes have been very strong for several times longer than Nokia's brand at the time of the iOS/Android revolution. Those brands are associated with certain strengths, some of which will remain important even in the self-driving electric future. But apart from that factor, those companies are practically doomed and will have to resort to patent licensing in less than 20 years' time. They won't disappear into oblivion too quickly, but over time they will, and there will be a long period during which they will still be around and you'll still see Mercedes stars on the roads, but where most of the revenue opportunity will belong to leading U.S. technology companies.
One challenge that those German automotive companies may somehow manage to overcome--though they haven't so far--is the one of creating good user interfaces. I've had an S-Class for a few years and the UI is just simply not well-thought-out. One example is the big button that also serves as a wheel. When using voice control to dial a number from my history of calls, that button means "Yes, this number" in one situation and "No, abort the operation" less than a second later--something that would be completely unthinkable at a company like Apple or Google. Another example is that they waste space on the screen by showing the city of a destination before the street name (which then often doesn't fit on the screen at all, or must be abbreviated beyond recognition). Those are simple things, and while it's astounding that Mercedes would ever have come up with a stupidly-designed user interface in the first place, they--and their competitors--may figure this part out over time.
Maybe someone will explain to their software developers the concept of a race condition because the way the thing intermittently fails to activate functions when starting up--or the way the UI occasionally freezes when dialing--suggests to me they have one or more of those in their code. Maybe they'll even understand that they should keep track of the last cities I navigated to so I don't have to select the same city again and again when entering a destination. And who knows, maybe they'll realize one day that they should provide free firmware updates from time to time to keep customers happy, especially when you have really nasty bugs in your software (as they do). Again, none of that is rocket science.
The bigger issues are of the strategic kind. For decades they have largely relied on a core competence: combustion engines, which involve about 200 times as many parts as electric motors. Daimler once invested in Tesla, then exited. With more foresight, it would have acquired it while it still had the chance. Anyway, those companies will lose their #1 competitive advantage.
Once Silicon Valley companies are the technology leaders (which Tesla in some ways already is) in the automotive industry, Germany's automotive companies will also struggle in the "war for talent." Most of the world's best software developers either already are in the United States or are potentially receptive to offers from such world-class employers as Google, where they can make a lot more money than at BMW, like Daimler or Volkswagen, get perks that are heard of in Germany, and often get to work on more interesting stuff. There will always be some talented developers who will choose to come to or stay in Germany, but a majority of the world's best programmers won't even consider Germany, period. Frankly, the cost-benefit ratio of learning German--a hard language to learn and of very limited use--is inferior, and most programmers already speak a least a little bit of English. In all likelihood, the average Google or Apple programmer will simply be better than his counterparts at German automotive companies, and if Apple or Google wanted to hire a very talented person away from a Volkswagen or BMW, they could in most instances.
Even if those German automotive companies figured out the digital user experience (which is doable) and even if they built better electric cars over time, there is, however, one thing that's simply going to marginalize them. It's that self-driving cars will be mobile communications devices on wheels. Speed and similar success factors of the old times aren't going to matter anymore at all. Instead, it's all going to be about what you can do while the car is doing all the driving.
The most lucrative parts of the car value chain are going to relate to productivity, communications, and entertainment applications. Plus all sorts of e-commerce (including "sharing economy"-style) services.
Those parts of the value chain will, without the slightest doubt, belong to such companies as Apple, Google, Amazon, and Microsoft. Of those companies, Apple is believed to be working on a car of its own and even made a joke about it at a corporate event. The others--especially Google--will be open to partnering (as they're already doing in some areas) with such companies as Daimler. But they're going to have all the leverage because of a force that is far more powerful than the leadership of traditional automotive companies presumably knows: network effects.
Short of developing something that would have to be several times more revolutionary than the iPhone was ten years ago, there's absolutely no way that BMW, Daimler and Volkswagen--even if they agreed to a three-way merger and secured regulatory approval for it--could ever get sufficient traction among app developers so they could compete effectively with Apple and Google. Even Microsoft with Windows Phone and with all of its money couldn't.
My app is in the final testing stage. We'll launch in a first market (probably New Zealand, where other games have also been launched early) in a couple of weeks and will quickly expand from there before finally launching in the United States. I know what drives platform choices. A few years ago I thought I would start on Android, then wanted to serve both major platforms at the same time, and ultimately decided to do iOS first, Android later. Before I would consider any other platform, we'd most likely do Mac and Apple TV versions of our game. Thereafter? Maybe, maybe, maybe even a Windows version at some point. But a Mercedes/BMW/Volkswagen version? I just don't see that happen.
Using Android on open-source terms won't be a viable option (at least nowhere outside China). Android is open-source in some ways but proprietary in others. It's no secret that most Android device makers aren't really profitable. Automotive companies can still make low-margin hardware in the future. But the biggest revenue streams are going to pass them by.
Also, a high percentage of the people buying premium cars are Apple customers, and their loyalty to Apple is simply stronger. Just this week I was thinking about this when I saw a German car with an Apple sticker on it. I was thinking to myself: Would anyone do it the other way round and put a Mercedes or BMW logo on an iPhone or a MacBook? Or a Volkswagen logo on an iPad? Obviously not.
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