Cars are becoming like iPhones (and carmakers could become like Blockbuster and Kodak)

Tesla’s superior software represents one of its biggest competitive advantages over other automakers. That’s not news, and neither are comparisons between a Tesla vehicle and a smartphone. Readers of this column are well aware that Tesla regularly uses over-the-air updates to deliver bug fixes, new features and performance improvements such as added range and quicker acceleration—just as a smartphone or a computer software package does.

Above: A look at the tech-centric Tesla experience (Twitter: Tesla China)

However, as Tom Raftery reports in a recent Forbes article, Tesla has now begun to take this concept to a new level, by offering optional over-the-air updates for a fee. Tesla owners can now pay for a slightly quicker 0-60 time, or to activate rear seat heating. The company recently announced that it will offer the Full Self Driving package on a subscription basis.

As I pointed out in my history of Tesla, the company’s success is based on two highly disruptive innovations. Its first great coup was to transform the popular image of electric cars from golf carts for granola-eating nerds into coveted status symbols for the rich and cool. The second—harder to explain, but ultimately more important—was to apply the transformative power of software and the internet to the auto industry.

This was of course no original insight on my part. At the time of Tesla’s founding, several industries were already in the process of being turned into ones and zeros, and by the 2010s, it was plain that almost every field of human endeavor presented opportunities for those who dared to digitalize.

Marc Andreessen, in his famous 2011 essay Why Software Is Eating The World, presented the examples of two software companies (Amazon and Netflix) that quickly made brick-and-mortar rivals (Borders and Blockbuster) obsolete, and explained why other industries, including automotive, were poised to follow the same path. “In today’s cars, software runs the engines, controls safety features, entertains passengers, guides drivers to destinations and connects each car to mobile, satellite and GPS networks,” wrote Andreessen. “The trend toward hybrid and electric vehicles will only accelerate the software shift—electric cars are completely computer controlled.”

Of course, cars, like phones, are still hunks of hardware—metal and plastic won’t be replaced by electrons anytime soon. However, conventional wisdom is that the electrons are where the money is (after all, money itself increasingly consists of electrons, not bits of paper or discs of metal). Nowadays we speak of a “hardware/software stack,” or a “value chain,” and the companies that provide the software links in the chain seem to be the ones that have the most fun.

Savvy auto industry execs are well aware of this trend, and their greatest fear is that their companies will become providers of low-margin hardware, while faster-moving tech firms reap big profits on software and services.

Apple, to which Tesla is so often compared, straddles both worlds. It uses its hardware devices as platforms to sell software, and Mr. Raftery points out that Tesla is beginning to do the same.

Could Tesla take a page from Apple’s book, and create something akin to the App Store, enabling third-party developers to develop apps for its vehicles? As Raftery writes, “there is nothing technologically stopping them from doing so.”

Above: Tesla even introduced gaming into its vehicles (YouTube: Tesla)

Volkswagen, the most forward-looking of the legacy automakers, may also be exploring a software-centric model. “The car will become the most complex internet device we have known so far—the car will become a software product,” wrote Volkswagen Group Chairman Herbert Diess in January 2019. “For that reason we have to become a software-driven car company.”

The tech giants are already on the road. Apple is making a play for the vehicle touchscreen with Apple CarPlay, and may be developing even more interesting things under the mysterious Project Titan. Analyst Ming-Chi Kuo has speculated that the tech trendsetter is working on an Apple Car that will feature “better integration of hardware, software and services.”

The octopus-like Google has extended at least three tentacles (Android Auto, Android Automotive, Waymo) into the automotive space.

Many EV drivers have chosen to lease, rather than buy, their vehicles. This can be a cost-effective option for businesses, and for individuals who want to have a new car every three years, it offers a hedge against battery degradation and the risk that ever-improving EV technology will ravage resale values (both situations became issues for early LEAF buyers). For similar reasons, several automakers are exploring subscription models for EV batteries.

In fact, some believe that car ownership is on the way out. The consumers of the future may prefer to go a step further from leasing, and embrace some form of Transportation as a Service (TaaS)—such as Tesla’s Robotaxi network. Of course, Robotaxi users will just hop in and out, paying for each ride, but Robotaxi owners could prove to be likely customers for a menu of software services (how about an AI algorithm that predicts when a rider is about to throw up, and automatically stops the car and rolls down the window?).

It’s also worth noting that maintenance and spare parts, traditionally a reliable profit center for automakers and dealerships, will be much less of a factor in the electric transport era. Selling software services could be a way to replace some of that lost revenue.

Mr. Raftery foresees a future in which car users will rent, not buy, their rides, trading them in every few years for new models with new batteries (and paying extra fees from time to time for nifty software-enabled features).

Does this sound like a model for producing more mountains of hardware, sucking up the planet’s raw materials, maxing out landfills, and betraying the environmental promise of electric vehicles? It doesn’t have to end up that way.

Raftery points out that a TaaS model, in which cars are swapped out for new ones every few years, could actually be quite sustainable. According to a recent paper from the famous battery boffin and Tesla collaborator Jeff Dahn, Tesla’s new battery cells could last for up to two million miles—far longer than the typical life of a vehicle. If this proves true, it could enable a new model of car ownership. Today, we tend to envision replacing a vehicle’s battery pack, but what if it turns out to be more cost-effective to keep the battery and replace the rest of the vehicle? Raftery reminds us that cars are the most recycled consumer products in the world—about 80% of a typical vehicle ends up being recycled.

Above: A look at a Tesla store (Twitter: Tesla China)

Some of the possibilities we’ve discussed may seem unrelated to our starting point, which was the concept of using a car as a platform to sell software. However, as many a tech visionary has noted, once you start thinking of any product or service as a problem to be solved with software, some very surprising things can happen.

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Written by: Charles Morris; Source: Forbes