Cooperate, Circumvent or Contest - three responses to strategic bottlenecks in the automotive industry’s software ecosystem.

Since the 1980s, software has played an increasingly integral role in the way a car is built and in the way it runs. A typical car contains between 20 and 90 Electronic Control Units (ECUs) and its systems run on millions of lines of code. The use of on-board software itself has grown significantly in recent years, and new car-to-cloud services, such as telematics car insurance policies, are likely one day to become ubiquitous.

With vehicles effectively evolving into ‘mobile computing platforms’, there is now an opportunity for independent automotive software developers to play a greater role in the automotive software ecosystem.

However, the major car manufacturers have historically controlled both hardware and software architecture in their industry, and they have limited not only who can access but how new actors are remunerated. In particular Autosar (Automotive Open System Architecture), established in 2003 by a partnership between manufacturers and suppliers, has enabled the independent development, integration, and validation of applications but the final deployment of software into the car has remained in the hands of the car manufacturer. Thus the automotive software ecosystem has traditionally been a closed one, and we can expect resistance from major auto-firms to any opening up of car software platforms. The auto firms are keen that the current “strategic bottlenecks” will remain profitable.

The article Strategies for Competing in the Automotive Industry’s Software Ecosystem: Standards and Bottlenecks considers the strategies software innovators might adopt in order to participate in the industry transition from hardware to software defined vehicles. It looks at three most important strategies: cooperating, circumventing and contesting – each of which responds differently to the tight control the major manufacturers maintain over the software ecosystem.

Cooperating - The cooperating strategy is exemplified in the case of Bosch’s cooperation with a car manufacturer to obtain valuable usage data from millions of cars. We see that Bosch obtains new shared knowledge for little risk but it is limited in the kind of data it can access and in the ways it can exploit it. Companies considering this strategy may be similarly constrained by the close manufacturer-supplier relationship, but more open ecosystems could evolve where other players will provide new services based on similar data collection technology. However, this route requires specific expertise as well as access to millions of cars for a considerable period of time in order to create value.

Circumventing – The circumventing strategy is exemplified in the second case that shows how Bosch has been able to circumvent the car manufacturers’ control by the exploitation of open standards and technology to create a Wrong Way Driver Warning system. This project has also been assisted by the openness that mobile phone technology has brought to the ecosystem. Public domain resources can make this strategy a relatively inexpensive one, although it’s still not certain how the resultant products and services can be commercialised.  

Contesting - This is risky strategy and requires investment that is likely to be expensive but it also offers the potential for the greatest value. The article considers Tesla as its third exemplar, which has contested the industry bottleneck by famously becoming a car manufacturer itself. One risk of this strategy is that the disruptor itself becomes monopolistic by keeping its own software ecosystem closed.

In summary, new independent software firms, some large and some small, will be challenging the historic stranglehold that car producers hold over the processes of design, production, delivery and customer experience. Which side will win remains an open question, but we suggest it is crucially dependent on the strategies chosen by the contesting entrants and the responses of the incumbents. The winners will not necessarily be the biggest, or the most technologically advanced, but rather who is most agile strategically.

Our analysis of the auto industry holds strong lessons for other industries being contested by software entrants; it is not technological supremacy that matters most, rather understanding the strategic landscape and the options facing the two sides gives a clear guide to who will win.

The full article is available for download at the link below. It was published in IEEE in July 2018.