OEMs Are Moving to Outsourcing Their Connected Car Platforms, but Are Platform Providers Prepared for the Opportunity?

With the competitive advantages in the automotive industry shifting from hardware to software-centric offerings, most—if not all—Original Equipment Manufacturers (OEMs) are investing in connectivity. They mostly started by investing on in-house solutions as a means of maintaining their traditional value chain dominance. However, with their connected car platforms currently in their third or fourth generations, OEMs are coming to the realization that their in-house solutions are not flexible enough to deal with the increasing demand for big data analytics and Artificial Intelligence (AI) projects. We are now moving toward a new generation of far more advanced connected vehicles that require sophisticated technologies. As upgrading their own solutions would be costly and time-intensive, a few OEMs, such as Daimler and General Motors (GM), have stepped down their in-house solutions. ABI Research predicts that a wider number of OEMs will be prone to using external expertise, and the question that arises is whether or not platform vendors are ready to take advantage of this opportunity. Microsoft and Amazon currently dominate the market, with the latter highly dependent on specialized intermediaries hosting their services on Amazon Web Services (AWS).

Horizontal providers, such as Amazon, Google, and Ericsson, offer a standardized platform that enables companies from any vertical to connect. Their main comparative advantages are scalability, reliability, and access to edge technologies, such as AI, Machine Learning (ML), and blockchain. However, their offerings may be somewhat generic to OEMs. On the other hand, vertical providers such as Harman, HERE, and Mojio offer targeted and specialized services but lack the infrastructure required to guarantee scalability. Notably, Microsoft combines horizontal and vertical features, although it still lags in specialization in comparison to pure vertical platforms.

On-premises solutions have been struggling to provide the scalability and reliability required by the drastic increase in demand for connectivity and big data analytics. Therefore, vertical providers have engaged in a migration process, hosting their platform solutions on public clouds. The migration process, along with the need for big data analyses, contributed to a dominance of public clouds in the connected car platform segment. Among the main Infrastructure-as-a-Service (IaaS players)—Amazon, Microsoft, Alibaba, Google, and IBM—, Amazon and Microsoft were the best-positioned players for connected car service orchestration. As a result, these companies have become isolated leaders in this industry. Google and Alibaba have demonstrated a different strategic goal, investing heavily in their operating systems aiming leadership toward in-vehicle infotainment and navigation.

OEMs are searching for highly scalable and stable platforms coupled with specialized solutions using edge technology from vendors that do not seek to fight them for market share or band loyalty. As ABI Research’s Connected Car Platforms (CA-1299) Competitive Assessment concluded, none of the most prominent vendors have achieved this yet, although Amazon and Microsoft are close. Additionally, despite the recent willingness to outsource, OEMs are highly protective of data and some prefer to be in control of the final customer experience and branding. Therefore, platform providers should offer flexibility and control so OEMs can build solutions tailored to their objectives. Connectivity vendors should also give auto firms the freedom to integrate their preferred systems and existing services, such as their existing navigation solutions, to the platform.  

OEMs: Car manufacturers lack expertise in software development and fast to market innovations. Therefore, in-house solutions are not only costly and resource intensive—Volkswagen aims to hire 5,000 digital experts until 2025 to build its own operating system—but also risk being outdated when reaching the market. OEMs should use external expertise from vendors offering specialized solutions on a flexible and scalable platform.

Horizontal Providers: Public clouds could adopt a similar approach to AWS and host services for specialized platforms. However, as not many players have market traction at the edge as significantly as Amazon, this alternative would only provide indirect access to the automotive industry. To develop direct relationships with OEMs, horizontal providers will add specialized OEM offerings to their own portfolios by engaging in partnership or Mergers and Acquisitions (M&As) with current niche providers or Tier 1 suppliers seeking scalability.

Vertical Providers: The only way of maintaining market traction in the face of horizontal platform players is by making offerings indispensable. Therefore, specialized providers must use their vast industry knowledge to develop offerings based on OEMs’ and drivers’ pain points as a means of becoming even more specialized.

Although specialized off-the-shelf offerings are the way forward, horizontal and vertical providers must ensure that their solutions enable OEMs to outsource connectivity while securing control of the final experience and branding.