Competition is no longer determined by the latest design of a luxury model or improved gas mileage from a midclass carmaker. It isn’t even a question of who has the best features or what’s under the hood.
Instead, convenience and utility best horsepower and fuel efficiency. Also working against the carmakers: Younger generations are increasingly choosing to opt out of the tedious process associated with acquiring a license in the first place. According to the University of Michigan Transportation Research Institute, the percentage of people ages 16 to 44 with a driver’s license has continuously decreased from 1983 to 2014.
With 16 year olds, in particular, the decline has been even more conspicuous, from 46.2 percent to 24.5 percent. As populations continue to explode in urban areas—10 of the 15 most populous cities in the US now cross the 1 million threshold—car ownership is becoming more of a challenge, with parking and traffic congestion eating up precious time that commuters can’t spare.
These are just some of the roadblocks hitting the automotive industry as more and more consumers shift to ride sharing, biking, or any other hassle-free mode of transportation. But beyond the vehicle itself, consumer expectations of what a car provides are shifting.
Within the current automotive landscape, several companies did not exist prior to the 21st century: electric and semi-autonomous carmaker Tesla Motors; the Chinese digital electronics pioneer LeEco; automaker Lynk & Co; and ride-sharing company Juno, profiled as "the anti-Uber" by The New Yorker, to name a few.
These newcomers are making inroads into a previously impenetrable industry that marketed the thrill of driving, or the ironic notion of being "driven."
"Car companies are starting to take notice of user behavior changes," says Fura Johannesdottir, Group Executive Creative Director, R/GA London. "It’s going to be interesting to watch the changes in the coming years and see how companies adapt."
Two years ago, while working with Volvo, Johannesdottir discovered the automaker was already focused on addressing autonomy. "They had been testing a self-driving car in Göteborg," she says. But for all the advancements and ethical questions many are trying to figure out about autonomous cars, she believes the industry must first move in the direction of service over product.
"They need to shift their focus to the driver and change their business models around the cars," she says. "We have done a lot of thinking around how you can help drivers drive better, be more sustainable, be better at foreseeing traffic, have the car adjust to their needs, create services that remove friction, etc. Those are the big changes."
As is the case for many industries today, such changes are the result of the massive proliferation of technology that has spawned the connected devices now so embedded into the fabric of everyday life. Consumers are dependent on conveniences that didn’t exist a decade ago. Software, for instance, is expected to perform just as well as smartphones inside our vehicles. The connected age, then, is finally encroaching on the century-old automotive industry.
"Consumers’ expectations around cars are shifting toward more connectivity and intelligence," says Chris Colborn, EVP, Global Chief Design and Innovation Officer, R/GA. "This may cause some brand defection, as historically loyal buyers start questioning if they should stick with their current brand based on an evaluation of enhanced software features versus just the hardware."
Colborn and Johannesdottir both recognise the challenges automakers face, but they also see opportunity for the industry to reposition itself amid growing consumer demand for convenience. Research and consulting firm McKinsey & Company released a report last September that outlined the opportunities around today’s connected, intelligent cars, specifically focusing on the ability to monetiSe car data.
"In general, customers are interested in data-enabled features that make mobility safer or more convenient and save them time or money," the report revealed, with 60 percent of respondents willing to share their personal data if it was relevant to safety and convenience features. The report goes on to describe the value proposition of turning car-generated data into valuable products and services, hinting at just one aspect of transportation becoming more service oriented.
"Data can reflect back to you your personal experience and how to optimise it," says Nick Law, Vice Chairman, Global Chief Creative Officer, R/GA. "The experience would be more about me rather than the car. As a driver, your experience in a car is still mostly about driving. But as soon as that goes away, connectivity will engender a wider range of behaviors."
In what is perhaps one of the largest repositories of driving data and one of the first iterations of the connected car, Waze’s traffic and navigation app leverages billions of data points from millions of drivers that use its platform every day. Julie Mossler, Head of Brand and Global Marketing at Waze, sees that data as the company’s most valuable offering for drivers and the auto industry as a whole.
"We are no longer just a commuting app," she says, "but the underlying strategic data for the transportation industry, and thus a critical player in the changing scape of mobility." Waze’s next big bet: tackling global congestion with such programs as Waze Carpool, which uses data to match drivers and riders traveling to and from work in similar destinations, and Connected Citizens, a free data exchange that lets users trade real-time traffic information.
"We’re actually increasing the value of each car and the likelihood that consumers will use cars over another commuting option, all while creating a better experience for the user by reducing traffic and creating more connections within communities," Mossler says. Rethinking transportation as a service is only one step in addressing the forces at play in the auto space. In today’s connected, always-on world, consumers have come to expect seamless interaction with the technology and environments around them.
It’s no different when they enter a car. Whether they’re young, carefree, and single; a newlywed; or a parent moving the troops in their growing family, that seamlessness becomes imperative for getting from point A to point B, as R/GA London’s Group Creative Director Chris Williams describes it.
"It’s about having cars that are more integrated into our lives," he says. "They need to be more predictive for us." Williams is hinting at a world where vehicles anticipate drivers’— or passengers’—needs before they do.
Simon Wassef, Executive Strategy Director, R/GA London, agrees. "The car needs to be more conscientious and aware of your life," he says. "It needs to learn and use data to influence other parts of your day to day: what I’m doing, where I’m going and who I’m with, my work schedule, how I drive, and it should know when I’m stressed and then be able to connect me with something to help me deal with my stress. And not only that, it should tell me, ‘There’s your favorite Starbucks. Why don’t you stop in, get a coffee, chill out, and then continue the journey?’
"We’ve talked about smart homes and the role that connected products are going to have in people’s homes," he continues. "Now, the car is becoming an extension of that kind of conscientious living."
Transportation as a service is not a new notion. Any which way you look, there’s a new headline about the "Uber of," the "Airbnb of," and the "Netflix of" almost anything—all with the emphasis on the service being provided in a streamlined interface. When Uber and Lyft first hit the scene, in 2011 and 2012, respectively, the main concerns were how these cars would affect existing taxicab fleets in major cities.
Today, the success of ride sharing is prompting automakers to do their own head-scratching. We may be entering the era of the "Autobnb," which is how New York magazine contributor Robert Moor described Tesla Co-founder and CEO Elon Musk’s driverless, car-sharing vision for the industry.
"Transportation becomes a utility," says Sam Meyers, Principal at Balderton Capital, based in London. "As people truly begin to pay to get from A to B rather than paying for the asset that gets them there, car manufacturers themselves risk becoming commoditised."
"Today we see the rise of the operator brands. I think of my journey as taking an Uber rather than thinking of the fact that I arrive in a Toyota or a Volvo or an Audi. In the future, however, we might even see another layer emerge on top of the operator, as travelers consider all options and choose the cheapest or most convenient way to travel, comparing across Uber, Lyft, public transport, cycling, and beyond, or even buying a bundle of transport each month rather than each specific type," he says.
Some car manufacturers are embracing this reality. Software experts are better at optimising in-car experiences by building reliable, seamless mobile interfaces that canbe mirrored in cars through smartphones (via the apps Here, Enjoy, Waze, or Google, for example). But original equipment manufacturers (OEMs) have caught on, making their own strides.
To further explore mobility and autonomy, they’re partnering with ride-hailing fleets (Mercedes-Benz parent Daimler’s acquisition of RideScout, an Uber competitor, in 2014), big-data and artificial intelligence experts (GM’s work with IBM Watson to create its first "cognitive mobility platform," called OnStar Go, with availability slated for early 2017), and self-driving specialists (Toyota’s hiring of James Kuffner, the former head of Google’s robotics division, as CTO of the Toyota Research Institute in 2016).
"The new ‘mobility stack’ looks very different from the past," says Meyers. "Car manufacturers assemble hardware and software that they buy from a chain of suppliers, operators manage a specific fleet, and a bundling service owns the consumer, who, in turn, is simply looking to buy a unit of transportation, not a taxi service or a bus ticket. [Automakers] know that this scenario places them in a less lucrative part of the stack—as a supplier to the operator—and are already making efforts to try to climb to higher layers in the stack. If you go to Berlin, for example, you will see car-sharing schemes owned and operated by Audi, BMW, and Volkswagen."
Other carmakers are going it alone, attempting to emulate smartphones in the car and, in some instances, to build their own proprietary services (such as FordPass and Toyota Connected, intelligent ecosystems that exist across apps and in-car features). But if history is any indicator, this could signify a missed opportunity to redefine a car brand in a software-driven world.
"The primary business model innovation of the last 10 years is product service systems," says Saneel Radia, SVP, Business Transformation, R/ GA. "History has proven generally that service wins—if you’re selling a drill, someone’s selling the hole. Finding a way to successfully sell anything as a service inevitably increases utilization rates and customer satisfaction. But OEMs at best currently have a rate around 4 percent. "The best thing they can do right now is get some learning about what it’s like to be a service company," he says.
To rationalise that utilisation rate, automakers must explore the connected ecosystem already forming around consumers. From smartphones to wearables and even to chatbots, consumers are embracing new products and services simply because they’re available, creating new demand at every touch point in their lives.
As R/GA’s Helder Santo, VP, Group Managing Director and Mercedes-Benz USA business lead, puts it, "The more we make the technology natural, the less it will distract from driving and ultimately yield more connected opportunities." It’s why he’s betting on conversational interfaces Ieapfrogging beyond apps for wearables and anything else we’re connected to. "The less you have to interact with one, the more effective it will probably be," Santo says. "The car itself will be a data source, and wearables instead will connect everything. The connected car is just one component of that."
Historically, luxury brands have had to adapt to changing consumer tastes. As Marc Maleh, VP, Managing Director, Data Science and Visualisation, R/GA, explains, connectivity is just the next shift in expectations, much like how drivers gravitated toward huge Hummers in the ’90s only to be later shunned by society for actually driving the gas guzzlers. "The ‘what I strive to drive’ mentality shifted from what is considered luxury, then also again from what is considered bad for the environment or not cool to drive," he says. "It’s constantly shifting. A version of that is to not own anything."
To fully understand what it means to become a service company, or adapt to a world in which customers are no longer individual drivers but perhaps fleet owners like an Uber or Lyft, automakers must face the new ecosystem forming around them. "Companies are diversifying their services to respond to the changing marketplace," says Lauren Isaac, Manager of Sustainable Transportation at WSP | Parsons Brinckerhoff, who as an engineer focuses on how advanced driving technologies can improve mobility in cities. "Ford now has a Smart Mobility group that has purchased Chariot, an on-demand shuttle company, and invested in the Bay Area Bike Share; GM has invested in and partnered with Lyft; Volkswagen has partnered with Gett—and the list goes on.
These traditional OEMs are recognising that vehicle sales may not be their core business in the future." Whether redesigning the infotainment system, engineering autonomous features, monitoring and disseminating real-time data analysis, or any number of unexpected products and services that now seem less unexpected in a car, consumers will start to demand that their rides be as connected a space as their homes, their offices, or any public and retail area. "There’s this whole idea of the connected car and how voice-recognition products like Amazon Echo, Google Home, and others can actually penetrate the automotive industry," says Maleh. "If you have all these systems that have different sensors like a car and different platforms like Echo and even Google Now on your phone, there’s no reason those things can’t communicate with your car."
Despite the headlines that suggest a not-so-distant future in which intelligent, self-driving cars will replace human-driven cars on roadways, we are still a long way off before we can fully embrace autonomy. Yes, ambition will drive some automakers to speed up their timelines for rolling out self-driving models, but a future with full autonomy remains distant.
The Boston Consulting Group estimates that just under 10 percent market penetration will occur globally by 2035. A recent national survey conducted by Kelley Blue Book found that Americans’ expectations about driverless cars are conservative at best. Among 12- to 64-year-old US residents, 80 percent agreed that people should have the option to drive themselves, and one in three said they would never buy a fully autonomous vehicle that lacks optional manual controls, such as a steering wheel or brakes, for human driving. What’s more, for all respondents above 16 years of age, more than 50 percent did not think all vehicles would be fully autonomous in their lifetime.
Still, R/GA’s Law predicts a cultural shift, one that will be "as profound as the sun setting on horse-powered transportation." "Our ability to adopt new technologies seems to be accelerating." he says. "The example I like to use is the [check-in] kiosk at airports. There was a moment where you saw people go to the kiosk and then veer off to the counter. People didn’t want to use it, because somehow it just felt awkward and weird and maybe they didn’t trust it. Now, it’s the exact opposite.
People would do anything to avoid going up to the counter. The same thing will happen with driverless cars." Even so, Scott Shogan, VP, Connected/ Automated Vehicle Market Leader at WSP | Parsons Brinkerhoff, suggests getting consumers past that hesitancy will be a challenge for both marketers and automakers.
"The act of releasing some or all control while behind the wheel is a significant act of trust and a huge leap for people to make, particularly those who have been driving for a long time," he says. "It’s very unlikely that we will see fully driverless vehicles as the first commercial offerings; more likely are the partially automated systems where the vehicle can operate in automated fashion under some or most circumstances, but where humans must be at the ready to take control," Shogan says. "It is this transitional phase—where humans must learn not only how to trust the system but when to trust the system—that will make gaining acceptance much more complex. This will be a huge task for marketers to overcome, but even more so, it will be a fine line for automakers to walk."
Amid all this skepticism about the future, consumers tend to agree on one idea: The ability for car data to connect and communicate with other vehicles is a good thing. The Kelley Blue Book survey showed 60 percent of respondents think it’s more important to share vehicle information, rather than keep it private, if it meant safer, efficient roadways.
That’s why in today’s car fleets, connectivity and, increasingly, intelligence are table stakes, and building those experiences into platforms consumers can use now is integral to any new product set or service.
"For too long, we have adapted ourselves, and our cities, to work for our cars" says R/GA’s Wassef. "Now that the nature of driving and owning a car is a more seemingly shared experience, automakers are going to need people that know how to build those experiences and define customer journeys. What will it mean to ‘own’ a car? That includes the steps leading up to buying a car, but then also from that moment when you drive out of the showroom, what happens next?
What kinds of relationship and loyalty structures, ongoing service, and behavioral intelligence can keep influencing us and helping us do what we want to do?
"Mobility by definition is about movement and connectivity," he continues. "When you think about the role of the connected vehicle in our lives—and the things that it can touch and will be able to do—it’s exciting. But the partnership between software and hardware is still uneasy. Carmakers are going to need someone to join those worlds together."
Tara Moore is managing edditor of FutureVision