It’s fascinating that as the car companies become technology companies and turn cars into rolling, increasingly intelligent computers, they are making many of the same mistakes that wiped out companies like Sun and DEC and crippled firms like HP and IBM. I find this annoying because I believe executives who are paid millions should spend some time learning from prior mistakes rather than costing their firms billions, and even make the difference between whether those firms survive or not.
Let me explain what is going on in this transition, realizing this is as much therapy for me as it is informative for you.https://o1.qnsr.com/log/p.gif?;n=203;c=204663295;s=11915;x=7936;f=201904081034270;u=j;z=TIMESTAMP;a=20410779;e=i
Mainframe to Client Server Computing
A little history: We started with the mainframe. IBM got to critical mass first and then brilliantly used a leasing model to turn into a service so you didn’t buy an incredibly expensive computing experience; you made monthly payments, which included the hardware, software and services. This created a strategic problem on two levels. IBM became a monopoly, which got regulators focused on it, and the market saturated so it started to think tactically. The firm then broke out software and sold it separately, and at an additional cost, sold the hardware, and then started to mine the buyers for money. Over a decade, it went from dominant in the industry to almost out of business.
Let me stop there. The lesson people should have taken was that technology as a service, when done right, can lead to a level of dominance where one vendor can effectively control an entire world market. While you can, for a short time, make more money by selling products rather than service subscriptions, it is a far weaker model for dominance.
With IBM’s fall, we had client/server computing, an initiative largely led by Sun Microsystems, but a market that was largely divided initially among DEC, HP, IBM and Sun. This had lower hardware cost but each vendor was highly proprietary and many thought they could license out their hardware or software to competitors because it was so much superior.
Microsoft and Intel entered the segment with their own standard offerings championed by a different class of vendors (Compaq and Dell, etc.) and the shared standard offerings began to collapse the market around the more standard, and thus lower-cost, alternatives. Microsoft made a pricing change, which resulted in massive unplanned charges to buyers. This drove people to Linux as an almost religious alternative that was even more vendor independent. When the dust settled, DEC and Sun were gone, HP was substantially weakened, and only IBM, with OpenPower and Linux used strategically, could create and sustain an offering.
This showcases that standardized cross-OEM offerings are more powerful than their proprietary alternatives and that, in competition, this cross-vendor model can wipe out the vendors that are attempting to compete with a more proprietary solution at scale.
Currently, the biggest threats to the market are Azure from Microsoft and AWS from Amazon. IBM has also moved to having a similar offering in an acquisition called SoftLayer. So, over a period of around half a century, the technology industry finally realized that the first model that surrounded the mainframe. technology as a service, was the more sustainable one and that a market defined by common standards was far stronger than one defined by independent proprietary offerings.
The Car Industry
When it comes to autonomous driving, the car industry, with the noted exception of BMW, which I think gets this, falls into two camps: the folks who have the technology and don’t want to share it, and those who don’t have it and want a free ride. The ones developing the technology believe, like the client server folks did, that their unique technology is so good that their competitors will license it at a huge premium. In short, the folks who are driving the change (spending on R&D) are mostly all trying to be the automobile equivalent of Sun Microsystems or DEC.
Now there is one big difference between the technology industry and the automotive industry. The tech industry is based on moving, storing and analyzing data that isn’t very portable and slows dramatically the ability to move between vendors. This slows the market’s ability to move from model to model. For instance, if a firm wants to move from a mainframe to UNIX or from UNIX to Windows or Linux, it’ll take years, which does give the related vendors time to respond. Therefore, HP and IBM are still around. If the transition had been faster, both firms would have likely failed, along with DEC and Sun.
The car industry is based on people. How hard is it for you to move from buying from Ford to buying from Jaguar, or from buying a car or using a service like Uber? The speed could suggest that the car companies won’t get the time they need to convert. (It does explain why Ford is looking at creating an Uber-like service.)
Let’s end this with the closest thing to a real mainframe model right now, Uber/Lyft. Google and Amazon are likely both coming into this area and both of those firms potentially could out-execute Uber. So, if the model holds, unless the car companies start collaborating and sharing the load, the future of the car industry will belong to firms like Amazon, Google and Uber, and most of the existing car companies will be referred to in past tense.
Wrapping Up: Obsolescence for Car Companies
One of the fascinating things we hope that artificial intelligence will help fix is the inability of executives to want to understand why the path they seem to prefer is suicidal. With confirmation bias, we all have a tendency to filter information so that it supports positions we’ve already taken. In this case, the major car vendors all suffer from this, except for BMW, which seems to get the Linux lesson, and possibly Ford, which sees the danger of cars as a service and seems to be positioning against it. But unless something changes, the car industry is about to see the same thing the tech industry has experienced, that cross-vendor standards and sharing tends to drive those out of the market that don’t participate, and that the service model can trump the sales model. In short, right now, the car companies should be far more focused on stopping Amazon, Google and Uber than they are on stopping each other.
Let’s mention Tesla on close; it basically sells a car as a service now and has designed the car to function as a service. Google did try to buy it, and if it had, we might already be talking about the end game for traditional car companies. That should have been a huge warning sign. The industry missed a bullet, but I don’t even think most realize they were being shot at.
Right now, unless something massive changes, most of the car companies will fail in the next five to 10 years, and we’ll be getting our cars from a service like Uber, though it could be Amazon or Google.
Something to noodle on this weekend.
Rob Enderle is President and Principal Analyst of the Enderle Group, a forward-looking emerging technology advisory firm. With over 30 years’ experience in emerging technologies, he has provided regional and global companies with guidance in how to better target customer needs; create new business opportunities; anticipate technology changes; select vendors and products; and present their products in the best possible light. Rob covers the technology industry broadly. Before founding the Enderle Group, Rob was the Senior Research Fellow for Forrester Research and the Giga Information Group, and held senior positions at IBM and ROLM. Follow Rob on Twitter @enderle, on Facebook and on Google+