Automotive History is Repeating

This week, Google announced its self-driving car initiative would be moving out and becoming its own company, Waymo, under the Alphabet umbrella. It’s also become clearer Waymo’s focus will be on creating the “driver” rather than the car – that is, on the self-driving technology rather than the vehicle itself, as exemplified by its partnership with Fiat Chrysler. But self-driving capabilities are only one of three big shifts underway in the industry, each in some way driven by the technology, which raises questions that mirror those asked in the early history of cars.

Propulsion

The question that defined the early history of the automotive industry was propulsion – the first automobiles were steam-powered, followed by gas (as in vapor) powered cars, then experimentations with electric vehicles and even hybrids, and eventually the internal combustion engine which came to dominate around the 1910s. Today, of course, propulsion technology is again an important question in the industry, with various electrical technologies making another appearance. Tesla – arguably the most Silicon Valley-like car company – is entirely focused on electric vehicles, while the major manufacturers have dabbled first with hybrids and more recently with all-electric vehicles.

Having resolved the question of which propulsion technology is best 100 years ago, we’re now revisiting that question and reaching different conclusions, at least over the long term. A number of major manufacturers have now outlined a vision of an electrical future, such that it seems almost a foregone conclusion at this point that the internal combustion engine will eventually be replaced with electric motors. It’s mostly a question of timing.

Where to focus

Early players within the automobile market tended to focus on a specific part of the value chain. For example, though Henry Ford and his team designed every aspect of the legendary Model T, much of the manufacturing was done by others, notably the Dodge company. Ford’s original skill set wasn’t manufacturing per se, but design. In our day, we have Google/Alphabet determining that the best place for it to focus its know-how is on the self-driving technology and not the car which, in the first of its partnerships, will be supplied by FCA in the form of Pacifica minivans.

Eventually, Ford decided to take over manufacturing and built his own plant and the Dodge brothers, in turn, started making their own cars. One of the big questions for Alphabet and others like Apple is whether they will be able to be successful by focusing just on the technology aspects or whether they will eventually have to spread into other areas including manufacturing as traditional carmakers decide to absorb self-driving technology. For now, we have the official word from Alphabet and reporting regarding Apple that suggests a narrowing of focus. But it will be interesting to see whether this strategy will work over the longer term. Again, though, self-driving technology itself seems to be mostly a matter of timing at this point.

Business models

The third big question looming over both the early car industry and today’s industry is one of business models. Back in the early 1900s, the debate was between those who felt cars were inherently a luxury good and those who had a more democratic vision for the automobile. For a time, high-priced cars for wealthy customers did constitute a big chunk of the market but that quickly changed as manufacturers, like Ford, pursued a lower-cost car for the everyman and those cheaper cars came to dominate. Today’s business model conversation is a different one, though it’s interesting to see Tesla acting as a microcosm in our day of that transition from the luxury focus to the (relatively) affordable car.

The main business model conversation today is one about ownership versus transportation as a service. And, although electrification and self-driving both seem inevitable over the long term, this feels like a more complex transition and one with a more mixed outcome. Uber, Lyft, Didi, and others have demonstrated there’s interest in transportation as a service at a basic level but there’s much more to come here, with big manufacturers trialing their own solutions or investing in the existing brands. The question remains of how much of the market will really be willing to adopt sharing over ownership.

The secondary business model question relates closely to the question of where to focus. Even as Alphabet creates Waymo, it raises questions about how this new entity will make money. That’s not a new question for Alphabet in cars but the new focus creates as many questions as it answers. The answer doesn’t appear to be selling cars per se, but it might lie in licensing, the creation of a transportation service with partners, or in other areas. The same question might be posed to Apple – if it’s not going to manufacture cars, how will it make money? Will we see the first attempt to license an Apple operating system since Mac OS licensing was shut down in the late 1990s?

This isn’t 1900

Despite the similarities between today and the early years of the automotive industry, there are important differences. The three major shifts – self-driving, electrification, and transportation as a service – are drawing in new players from the technology industry but they also make this a particularly tough time for new players to enter the market. Not only do these players need to master their chosen fields but they need to navigate these transitions at the same time. The problem is we’re too early in these transitions for any player to commit entirely to all three today, leaving would-be participants having to straddle both worlds for a time or stay out of some domains entirely for the time being. Uber has solved this by pursuing transportation as a service, experimenting with self-driving, and staying entirely out of the propulsion conversation by using third-party vehicles. Tesla focuses on electrification and increasingly on autonomy, but sells (or leases) cars entirely for private ownership. Google may be somewhat interested in transportation services but is leaving propulsion questions to others as it focuses on autonomy.

I recently read a biography of Henry Ford and I’ve been struck by the fact he was able to master essentially all the components of what then constituted a motor car and direct others to build the parts necessary to create one from scratch. That was the reality in 1900, but this isn’t 1900 – cars are enormously complex machines, created through almost equally complex value chains and manufacturing processes. New entrants have to choose where to focus and, in doing so, may face advantages but also disadvantages in competing against established carmakers. I’m really curious to see how this all plays out over the coming years.

Published by

Jan Dawson

Jan Dawson is Founder and Chief Analyst at Jackdaw Research, a technology research and consulting firm focused on consumer technology. During his sixteen years as a technology analyst, Jan has covered everything from DSL to LTE, and from policy and regulation to smartphones and tablets. As such, he brings a unique perspective to the consumer technology space, pulling together insights on communications and content services, device hardware and software, and online services to provide big-picture market analysis and strategic advice to his clients. Jan has worked with many of the world’s largest operators, device and infrastructure vendors, online service providers and others to shape their strategies and help them understand the market. Prior to founding Jackdaw, Jan worked at Ovum for a number of years, most recently as Chief Telecoms Analyst, responsible for Ovum’s telecoms research agenda globally.

2 thoughts on “Automotive History is Repeating”

  1. “This isn’t 1900”

    Yes it is! Anything less is denial.
    Thermodynamics (energy generation and use) will ALWAYS be central to anything involving work (defined as actually moving something against a force).

    1900 also had their robber barons (as today), but not being primarily interested in money, I get to ignore them.

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