Remember when CES used to be about nifty gadgets? Curved televisions, robot dogs, tiny drones that fit in your pocket. These days, however, the hottest new gadgets at CES weigh roughly two tons. Just ask Ford. Or Daimler. Or Toyota. Or pretty much every major car company on the planet. They’ll all be in Las Vegas this week.
CES has become the biggest auto event of the year (even the Detroit Auto Show agrees, which is why they finally decided to move from January to June this year). But why? What are a bunch of car companies doing at a “consumer electronics” trade show?
Because the auto manufacturers understand that today they are consumer technology companies, first and foremost. They have every right to be at CES, because they make connected devices (just very large ones). And as they look around at other consumer tech companies they are noticing a significant parallel: as unit sales plateau, the new focus is on user monetization.
The big problem that the auto industry faces today is the number of cars sold continues to go down year over year, and they’re not getting better any time soon. According to Fitch Ratings, absolute unit sales have declined two years in a row, the first time that’s happened since 2008, and “there seems little reason to anticipate a rebound in 2020, even if China sees a marginal recovery of around 1%.”
But guess what? Maybe it doesn’t matter.
Huh? How can an industry that sells cars not worry about a decline in car sales? Well, let’s look at another consumer technology company: Apple. Apple has had some well-publicized problems selling phones recently, but these days I’m pretty sure that Apple’s management team cares less and less about how many iPhones it ships, and more and more about how much revenue it’s growing per customer. That’s why services now represent almost 20% of its business, and its stock is at an all-time high.
As every car starts to come off the assembly line with a 3G, 4G or 5G connection, a whole new future opens up for the car companies. McKinsey estimates that automotive data could be worth $450 billion to $750 billion worldwide by 2030. UBS estimates that global revenues from self-driving technology by 2030 will be up to $2.8 trillion, with $472 billion of that coming solely from in-car monetization.
That’s why the car companies are at CES. That’s why Fitbit is coming to CES. It’s also why Panasonic and Samsung are coming to CES. The entire consumer technology sector is facing the same sorts of challenges: hardware unit sales are declining, users are hanging onto their devices longer and extending replacement cycles, China is a tough market. These companies are turning to services for growth.
Of course, just being at CES is not enough. To succeed in this new world, and truly capitalize on a massive new wave of consumption-based services, auto manufacturers will need to focus on four things:
Establish direct customer relationships. Why? Because the behavioral data that comes with direct customer relationships is the ultimate competitive advantage. In the early days of SaaS, it was mind-blowing for software developers to see how their people were using their products in real-time. Imagine your engineers having access to the same kind of customer insights: Radio or Podcast? Daily Commuter or Kid Courier? Costco Shopper or Weekend Warrior?
Leverage the dealers. After they research online, your customers will still want to visit a dealership to hear about the vehicle, check out the bells and whistles, take it out for a test drive, etc. The insights you get from digital subscriptions will make your dealers vastly more informed and more helpful (and could also represent a value-added service play). Make them part of a seamless buying process that enables them to extend the online evaluation process into a compelling dealership experience.
Think beyond the sale. In the past, manufacturers and dealerships essentially forfeited the customer relationship as soon as the car drove off the lot. That’s giving up 99% of the customer lifetime. The entire driving experience — driving, fueling, infotainment, maintenance — should be captured in a central application that sits in a dashboard, a phone, or (better yet) both.
Look for smart monetization opportunities. You are creating the ultimate mobile platform! As many others have noted, these days cars are essentially cell phones on wheels. The lesson from Apple? Build and own the ecosystem. What kinds of new connected services make sense for your drivers and passengers?
Of course, all of this advice isn’t limited to auto manufacturers. For anyone selling hardware or consumer technology, the new imperative is to think beyond strict unit sales. You are sitting on a gold mine. Start with your customers, then surround them with compelling new digital experiences. Accelerate into services.
Editor’s Note: Tien Tzuo is the CEO and founder of Zuora and author of best-selling book, SUBSCRIBED: Why the Subscription Model Will be Your Company’s Future – and What to Do About It. This “guest editorial” is part of our continuing coverage of the leading-edge developments that are changing personal transportation. The opinions expressed are those of the author.