What can the auto industry learn from the smartphone industry?
Very different products but a very similar story of disruption with some of the same players looking to disrupt again.
I love smartphones. Ever since Steve Jobs announced the iPhone 4, I was obsessed with phones. Smartphones were the reason I became an engineer. I thought if I became an engineer, I would get to work on the next great phone that would change the world. This passion lead me to my first job as a smartphone salesman. I knew everything about every product. The processor, how many megapixels the camera had... if you could ask it, I knew it.
Then once I went to college, phones started changing. The companies that I fell in love with started going out of business. The designs of the phones became similar, and there was not a way to differentiate. This made me change my focus to cars. No, I did not start learning about horsepower or engines. I started wondering how cars were going to become smarter. How was the car going to become an extension of the digital world?
The possibilities seemed endless. Now, as I watch what is happening in the auto industry, the parallels to what happened in the smartphone industry are uncomfortably similar. The same mistakes that the phone makers made in the early 2010s are being made by the automakers today. This article is going to show you the profound similarities in these two seemingly unrelated industries. To show you how similar these two industries are, I am going to have to take you back in time. It is not as simple as Apple came out with the iPhone. Each company made choices. They are the reason why some are dominant players today, and the reason others have gone the way of the dodo bird. I am also going to give my take on what auto companies can do today to avoid the fate of the smartphone makers of yesterday.
Early days of smartphone
It will probably be tough for people to remember, but before the iPhone announcement in 2007, the dominant players in the smartphone space were Nokia and Blackberry. Blackberry was the phone of businessman with its fantastic physical keyboard, BlackBerry Messenger, and leading class security features. Nokia had the largest market share in the cell phone segment. They are given credit with making smartphones a fashion accessory.
However, their brands and legacy were not enough to allow them to survive the first battle of the smartphone wars. By 2008 these phone makers were old news, and the new kids on the block had arrived. On one side of the tracks was Apple and the iPhone. On the other side was Android (Google made software) and HTC, Motorola, and Samsung. Microsoft came along a little later and was in the middle of the tracks adopting some of the same strategies of Apple and Google.
Apple was all about vertical integration. They made the software and exclusively made the hardware for the iPhone. Google took the opposite approach and made the software but let any original engineering manufacturer (OEM) use its software to power their equipment for free with no strings attached. Microsoft was somewhere in the middle. They made software and allowed OEMs to use Windows Phone for a price, and they had strict control over the specifications of these phones. Android did not have such requirements for its OEMs.
The last detail you need to know about the smartphone market at this time was the relationship with the carriers. Each phone had a specific carrier that it was tied to, except for Samsung. Remember this detail. It will come up later. iPhone had allied itself with AT&T, Motorola with Verizon, and HTC with Sprint.
So during the late 2000s, the industry was dominated by feature battles. Each OEM was competing for who had the flashiest feature. It made it a great time to watch the industry because it seemed like every day a new game-changing feature was coming out. It was exciting! However, a significant drawback of this time was that every phone had an Achilles' heel. No phone was the best at everything, and each phone had a glaring weakness that the owner would have to struggle with throughout the lifetime of their ownership. This feature warfare would last for four years. But in February of 2011, it would all change.
2011: The year of Apple
On February 10, 2011, the iPhone was able to be used on Verizon’s network. This breakup of exclusivity between AT&T and Apple would send shockwaves across the industry. For four years, Motorola had the best smartphone Verizon customers could buy. Now, Motorola had a worthy competitor. Apple was selling the same product to AT&T and Verizon customers. However, Motorola was not selling the same product to customers on other networks. Other networks would get second-tier Motorola phones, not the company’s premier devices. Those belonged exclusively to Verizon.
Later in 2011, Apple announced iMessage. This feature allowed iPhone users to send messages to other iPhone users without counting against texting limits. Yes, texting limits used to be a thing. It also created a bridge to Apple’s other products, namely the iPad and Mac computers. Apple users were no longer tied to the phone if they wanted to text. iMessage was the first step in Apple, creating its famous walled-garden ecosystem.
After 2011, the smartphone market was never the same. The feature wars were over, and now it was all about ecosystems and brands. Now I will take you through the mistakes that OEMs made in the following years, which has rendered them an afterthought for most smartphone buyers.
The Straws that Broke the Camels back
These mistakes pain me to write about as a fan of the smartphone industry. Having so many viable competitors made it great as a consumer. Every product announcement was so exciting because each company was trying to one-up the next. Unfortunately, they could only one up for so long, and once you get to a certain point, these improvements became marginal for the customer and costly for the OEMs.
This desire to differentiate and innovate ended up being the downfall of many of the OEMs. They wanted to create a phone for every customer. They wanted a phone for customers who wanted a big screen. They wanted to make a budget-friendly phone for young people. Because of all these different products, consumers got overwhelmed. The average customer was not able to keep pace with all the products.
Hard to remember names is one thing, but the bigger problem that plagued these phone makers was the inability to push out software updates. With so many different phones with different capabilities, OEMs were unable to update their software on all their models. Most companies could not adequately decide how to divide their software development resources. Do they make sure their most expensive phone with few users gets the update, or do they make sure their least expensive most popular model gets the update? There wasn’t a perfect decision to be made in either instance. At least one customer usually ended up feeling forgotten. This feeling of being forgotten caused many customers to leave these brands and never look back.
Windows had a different problem that plagued them. No developer wanted to make apps for them. Windows phone arguably had the best hardware to compete with Apple and an OS that was unique and had much promise. They were missing the apps customers wanted. The glaring one was Instagram. The most popular app in the world was not available on Windows Phone. You can make the most exceptional product, but if you can’t get the apps customers expect, you will have no chance, and this unfortunately doomed Windows Phone before it was ever able to get started.
We have talked enough about the mistakes. Now it is time to take a good look at what the winners did to survive the smartphone wars.
Leaders of the Pack
Each of the survivors made strategic decisions for their business, and it was not a set of flashy features that won them the war. Apple chose the route of the ecosystem. I hear too often that apps are an ecosystem. That claim is false. App developers will make applications where their customers are. They do not care what brand. The ecosystem Apple created was one of great products. Apple had arguably the best tablet, laptop, and smartwatch on the market that all worked seamlessly with each other. No other manufacturer has been able to replicate Apple’s excellence in this many different product categories. Apple also did not allow their devices to play as nicely with others, which drew consumers to their brand wholesale.
Google went a different route to survive the smartphone wars. They created a plethora of fantastic software and services that kept their customers loyal to Android instead of jumping ship to Windows or iPhone. Between Search, Maps, and Google Drive, nobody could compete with them. They also allowed developers and OEMs to access Android for free. Apple charges developers to publish apps to their App Store, and Windows charged OEMs to use Windows Phone on their devices. Google made a stark contrast to Apple in that they did not put any walls around Android; they created a great product and let everyone come and try it out.
Samsung: the last remaining OEM. What did they do that enabled them to survive? It was simple. They never tied themselves into an exclusivity deal with a phone carrier, and they slapped the name “Galaxy” on every product they made. They used the word galaxy so much that people would say they had a Galaxy when, in fact, they would have a Motorola or HTC phone. I can speak to this first hand during my time as a smartphone salesman. Samsung made a lot of the same mistakes as other OEMs in trying to compete on features. But, they learned from their competitors and decided not to have a dozen different phones with radically different names.
Now that we have seen what made the winners and losers of the smartphone era let us find out what automakers should do to replicate the winners.
How to win as an Auto OEM in a world of software
Automakers are in a tight spot right now. Every auto company is overturning its product portfolio to make sure all the vehicles are electric and equipped with semi-autonomous features. I think these are all great, but advancement in these areas will not be the reason a company exists in the future. There are some specific choices leadership of these companies need to make if they hope to make it out of the smart car war alive.
Auto companies need to make sure they limit the hardware differentiation between products in their portfolios.
The reason being is that they need to be able to offer all of their customers quick and reliable software updates. Every car from their cheapest entry-level sedan up to their luxury SUV should be able to support software updates for at least ten years. That is right. I said for ten years. That means automakers will have to pay up for computing hardware. Think of the iPhone: when Apple announces new software, phones from 4 years ago get updates (maybe not fully featured, but they get some updates). This capability allows iPhones to live on for more than just one owner, which has become a massive advantage for Apple. Apple makes money on every iPhone sale and receives service revenue from every owner of that iPhone. Cars last longer than phones, so they should have the hardware to support updates for longer as well. These updates will help drive brand loyalty as well as give automakers a chance to profit on second and third owners of their vehicles.
Next, they will have to answer, “Do we build an OS, or do we use one that a software company has developed?” I do not think there is a right or wrong choice here. I think either one can lead your company to success; however, if an automaker decides to make its OS, it needs to make sure it has developer support. Make sure the most popular apps are on your car from day one. If that means paying developers to make them, do it! I know if Microsoft could go back in time, they would tell their egos to sit on the sideline and just pay Instagram to make an app for Windows Phone. You can have the greatest car in the world, but if you do not have that one killer app that everyone wants, it will not matter.
Finally, automakers will have to create other products or software features that are exclusive to their products. Because of their expertise in hardware manufacturing, I would advise them to develop ancillary hardware products that drive customer loyalty to their main product. I guarantee Apple would not be nearly as successful if it had not been for the popularity of the iPad and Apple Watch to complement the iPhone.
After reading up on the history of the smartphone wars, hopefully, you can see the parallels between that and what the auto industry faces today. Many will play, a few will win. I do think if automakers learn from their smartphone counterparts, they will have a better chance to survive.
About the Author
I am a 25-year-old writer writing about topics that I am interested in and passionate about. Those topics right now are personal finance, business, and some self-help. I try to bring to my unique perspective to any article I write and hope that my perspective can provide value to my readers. If you have any comments or questions around any of my articles or if you have suggestions for future articles, feel free to email me at firstname.lastname@example.org
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