Apple has been in news for the last couple of weeks. They wrapped up their WWDC and everyone is talking about Apple’s BNPL service. It’s for sure a great move that would worry BNPL companies like PayPal and Affirm. But it is not surprising that Apple is doing it. It was coming, with the advent of apple pay, and the already validated market of BNPL it made complete sense for Apple to launch this feature in conjunction with Goldman. Apple already has a ton of user spending data which will help them do a better job at approving BNPL applications. Technology-wise, it’s doable for apple. BNPL was not the only update, IOS 16, M2 chip, Family sharing, Map updates, and CARPLAY.
For me, the main outcome of the conference was CarPlay. It has intrigued me since I have heard about it and thought about writing it in this week’s edition. In this blog, I will explain what Apple wants to do with the software, why the SaaS market for cars makes sense, and also talk about challenges in achieving Apple’s vision. And finally, close with an argument about why the car market is not a good use case for apple and why they should stick with CarPlay considering their network effect. Let’s get started.
New CarPlay and Apple’s Vision
Apple is going to take vehicles’ infotainment systems and expand its services to additional screens. CarPlay will show vehicles data like speed, fuel level, engine temperature, AC settings, etc. According to Apple, the user will be able to customize their dashboard with different themes, styles, and layouts.
Let’s see this video first from WWDC and see what all Apple wants to achieve. (For CarPlay –> 37:52 to 41:15)
The first thing to note is how carefully Apple’s presentation starts with the stats. 98% of the cars in the US use Apple CarPlay. The reason it’s 98% is because of Tesla. Out of 600 cars that do have CarPlay, Tesla is the only car that does not support CarPlay. Tesla constitutes 2.3% of all vehicles in the US. Another stat that Apple puts straight away is that 79% of car buyers in the US want CarPlay as a feature. While this may not be 100% accurate as only 50% of users in the US use Apple’s iPhone.
How about 14 suppliers that Apple talks about that are on board. Well, Verge reached out to 12 of these suppliers and they are not sure yet. As the verge put it out, “Will your car be ready for this more expansive version of CarPlay? Because the car companies certainly aren’t.” Verge reached out to 12 major car companies (Land Rover, Audi, Lincoln, Porsche, Nissan, Ford, Jaguar, Acura, Volvo, Honda, Polestar, Infiniti) and the response was “sounds cool, we are working on it”. Apple itself does not know which car companies are on board with this idea.
Apple’s vision with CarPlay
Right now, Apple’s system for connecting your iPhone to your auto, CarPlay, merely takes over a car’s entertainment functions — but soon Apple intends to provide a pervasive interface controlling everything from the dashboard and the temperature controls to mapping and music.
Apple’s vehicle efforts go well beyond CarPlay. Project Titan, which is Apple’s EV Smart car project is the end goal. Apple even has permission to test autonomous vehicles in California. The software interface from CarPlay could well be used in conjunction with the autonomous technology if Apple does in fact ever produce its own car.
This is a huge dilemma for car companies. They sure do not want to hand over too much control to Apple or Google. There is a growing concern among car makers that handing too much control will put more value on the software rather than the hardware (which is the car). This will leave car makers to just build a chassis, engine, and safety features thus drying up the margins for them, while building huge margins for software companies. (More on the SaaS model of the car in the next section)
They sure do not want to hand over too much control to Apple or Google. There is a growing concern among car makers that handing too much control will put more value on the software rather than the hardware
On the contrary, there is a reason why car companies would allow this
1. The car manufacturer’s operating system sucks!!
But the bigger question is why would car companies allow something like this. Bear with me as I try to explain this. In the US we drive 29 miles/day on average. People have phones, and they want to use these phones. For decades car companies have built infotainment systems that would keep us distraction-free while driving. This has led to complex infotainment systems with mammoth touch screens and buttons. The honest answer is, car companies have struggled to build functional software and tech giants like Apple and Google have offered their own in-car interactions. Carplay and Android Auto. People want to use Carplay and Android Auto. They love them over car manufacture’s own software.
Car companies have struggled to build functional software and tech giants like Apple and Google have offered their own in-car interactions. Carplay and Android Auto. People want to use Carplay and Android Auto.
Comparing image of Hyundai Palisade with and without Apple CarPlay
2. Apple’s network effect
Another reason lies with what Apple did with the phone carriers back in the early 2000s. Remember that. Carriers learned that people love iPhones and they love them so much that they are happy to switch carriers to get iPhones. Starting with AT&T every carrier, started offering free iPhones. Even though car brands know they are going to lose control over cars if they integrate with the CarPlay service as described by Apple. But they also know they’re not able to deliver on the promises customers will expect in that area as well as Apple can. There is a FOMO, while no car brand really wants to risk entering into an agreement where they’re a junior partner, they also know that if competing partners sign up, everyone else would lose out by not being associated with one of the world’s most recognizably cool brand.
Carriers learned that people love iPhones and they love them so much that they are happy to switch carriers to get iPhones. Even though car brands know they are going to lose control over cars if they integrate with the CarPlay service as described by Apple. But they also know they’re not able to deliver on the promises customers will expect in that area as well as Apple can.
CarPlay and the SaaS car market.
The car market as Sony’s CEO recently put out will be all about services in the future. No one knows the timeline for this future, but let’s assume the next 5–10 years. CarPlay with these added features will become a bargaining power for car manufacturers. They will want to lure their customers with added SMART technology benefits. What is this technology in Cars, you may ask?
Modern cars have dual software systems: the user interfaces in center consoles analogous to phones and tablets and PCs, and the core firmware that governs driving mechanisms like traction and steering control, braking and acceleration systems, etc. The introduction of self-driving cars is blurring the lines between the two systems.
What is a subscription model and why do they work? Subscriptions increase the value of a product for the user. Users keep paying for the service because they feel they are getting value out of the software. For companies, it increases the lifetime value of a user. It creates an ongoing stream of revenue. To keep users satisfied and happy, continuous updates to the product are needed, something that software is well equipped to handle. Hardware, in this case, cars, cannot mimic this lifestyle. However, software, Carplay or Android Auto, can be made better and satisfies the customers.
With car software markets, the customer’s experience of a car will be shaped more by software rather than hardware. New functions will be able to be included independently based on the driver’s demands in the future. Temporary services, features, and apps are examples. As a result, software upgrades enable contract and pricing structures to deliver new features as a service, and individually or as part of a subscription.
Many of the services will be centered on safety. For example, consider highway autopilot, purchased as a one-time or monthly subscription. Alternatively, drivers could improve an existing safety feature, such as adding lidar (light detection and range) redundancy to a lane-centering application, which may qualify for an insurance discount. The variety of novel services that can be supplied expands as software-defined hardware absorbs new technical developments.
For apple this data is important and the vision of CarPlay will help Apple collect this data which will prove advantageous for project Titan. However, this road is not easy and Apple is not the only big tech trying to climb this mountain. Google with Waymo and Amazon are already building partnerships.
Long road ahead
Well, Apple is not alone in this market, Google’s Android Auto and Amazon are working with car manufacturers to put their proprietary software in the cars. While BMW is working on its own proprietary system iDrive and has said that will evaluate its priority for CarPlay in 2023.
Several automakers have already made software deals with other tech companies. Ford is working with Google to design UX software for “millions” of future vehicles, while Stellantis is doing the same with Amazon. Volvo and Polestar have simply turned over the UX to Google’s Android Automotive, which runs natively in certain cars. Apple has yet to make any similar deals with car manufacturers.
Apple needs to be very careful with the integration. CarPlay integration has to be perfect. The average weight of a vehicle is 4156lb, according to a 2020 report from EPA. That is a lot more dangerous than rolling out IOS with a bug that creates storage problems. All of these CarPlay features may create a garden of distractions for the users. There are best practices per National Highway Traffic Safety Administration (NHTSA), according which no in-car visual or manual task should take longer than two seconds, because a glance away from the roadway longer than that six seconds substantially increases the likelihood of an unsafe event, like a crash. Apple would need to ensure that CarPlay is a “safe product”.
The connection between iPhone and Car is a point to consider. A Bluetooth connection will not be enough to process all of a vehicle’s real-time data, so physical wires will remain in place. I won’t be surprised if Apple comes in with a phone slide in the device which allows the user to slide the phone in a holder to establish a connection. Or, or, or… The phone would not even be needed as the IOS will be built into the car, you are already logged in with your Apple Id, with all apps allowed based on safety features. The screen is sufficient to take you where you want to go. There is a lot of room for innovation here.
Project Titan, Why stick to software and get away with building cars?
It is highly unlikely that Apple develops software without hardware. All of Apple’s software is designed to support its hardware. It’s not surprising that Apple is working on “iCar”. According to a Reuters report, “Apple Inc is moving forward with self-driving car technology and is targeting 2024 to produce a passenger vehicle that could include its own breakthrough battery technology.” A possible build partner will be Magna. The company has signed an agreement for a joint venture (tentatively called LG Magna e-Powertrain) with electric vehicle parts supplier LG Electronics and has had discussions with Apple. The joint venture is tentatively called LG Magna e-Powertrain. Magna’s EV platform will be used for the upcoming Fisker Ocean SUV, and Magna will also produce the car — initially in Europe.
Let us be honest here, building cars is not easy and Apple does not have the know-how. It’s a crowded market. The Apple Car is likely to be marketed as a “very high-end” model or “significantly higher” than a standard electric vehicle. The Premium car market represents around 15% of the market. This space is quite crowded. If Apple enters this market, it is going to rub the luxury car manufacturers the wrong way and may lead to Apple losing its CarPlay business as well. CarPlay offers user control, easy integration, and less risk in execution. Having said that I will not be surprised if iCar is an offering by 2025 or later.
Apple continues to build on its brand value. Apple knows people love apple products and services. For a billion people on earth, iOS is the operating system of their life. When presented with a “smart” television, home, car, or retail store, they don’t want to learn a second language. Apple has built a beachhead in multiple businesses outside of the iPhone, including payments, games, media, maps, cloud, and automotive services. They have also won the trust battle. Trust has allowed Apple to operate the bank business (Card + BNPL), it will be the trust that will allow Apple customers to use its proprietary software for cars.
Apple’s pitch is simple, let us control the customer interface, which it does best, allowing car companies to control the hardware, which they do best. But for how long, is a question. Everyone knows Apple is coming and with the trust and technology they have, the car world needs to be prepared.
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