The end of the automotive supply chain

Over the next 10 years, the differentiating source of supply and value in the automotive industry will not be car parts or engines. Instead, it will be a network of software developers.

The autonomous car will be here before we know it. Tesla autonomous technology has already amassed 100 million-plus miles. Legacy car manufacturer General Motors joined the action by acquiring self-driving startup Cruise. Apple has plans to release its own car by 2019, while Uber is planning to launch autonomous rides in Pittsburgh.

When autonomous vehicles become available at scale, the car will transform from just a mode of transportation into a new-age entertainment hub, with captive consumers surrounded by its technology for an average of at least five hours a week.

The automotive industry has been building cars for more than 100 years. The next 100 years will look radically different. Consumers will care less about the physical performance of the car and more about the software and experience of the car. Ring a bell?

Enter the development platform for autonomous cars. This will be the smartphone wars 2.0. The market opportunity is at least as big, if not far bigger.

As we saw with the introduction of the iPhone and Google’s Android, existing dominant players BlackBerry and Nokia were laid to waste. Steven Elop, the CEO of Nokia at the time, had a famous quote, which I referenced in my book Modern Monopolies: “The battle of devices has now become a war of ecosystems.” So too with cars.

Who will own the next 50 years of the automotive industry?

Around the time the iPhone was first introduced, Nokia owned 50 percent of the smartphone market, RIM 8.3 percent and Motorola 6.6 percent. Why did none of them build a development platform to draw in millions of software developers to build apps on top of their phones and operating system? That’s the billion-dollar question.

Let’s hope automobile manufacturers realize the tremendous threat and opportunity in front of them. Which one will step up and be the automobile version of the iPhone? In platforms, there’s typically room for only one or two dominant players. Who will own the next 50 years of the automotive industry?

The next five years will determine the next 50 years of the automobile industry

While bringing autonomous cars to consumers is an important task today, ultimately it will be table stakes, as any smart exec should expect that every new car will have autonomous capabilities to drive itself within the next five to 10 years. We’re already seeing this on a small scale with features like automatic accident-prevention breaking. Once consumers become familiar with the benefits (and relative safety) of autonomous cars, there will be no going back.

Automobile manufacturers must embrace business model innovation.

The more exciting challenge is not in manufacturing an autonomous car, but rather in building a platform that connects software developers with consumers and passengers in these vehicles of the future. Automobile manufacturers must embrace business model innovation and diversify to become a platform companies, lest they face the same fate as Nokia and BlackBerry before them.

Unfortunately, for the auto manufacturers, there will only be two winners. No one wants to be Windows Phone — but inevitably, more than a few of today’s major players will be. The auto companies that are first to successfully launch a development platform for autonomous cars will have a distinct advantage.

Difficulties for traditional enterprises to embrace platform innovation

Traditional enterprises usually innovate in increments. If they were to embrace true disruption, they would embrace business model innovation. Platform business models are fundamentally different than existing linear models that drive today’s auto manufacturers.

Platform businesses take many years to reach a point of critical mass, and have a great deal of risk and expense associated with making them successful. However, if they are successful, platforms enjoy winner-take-all dynamics and strong network effects that create a key defensive moat to keep competitors out.

A lot of C-suite executives have their hands tied by external shareholders expecting quarterly performance. Building a platform business is like starting a new company, and it takes a long time for it to reach a point of maturity that satisfies investor expectations.

Amazon is a great example of a platform company that has been able to manage investor expectations to tolerate many years of losses with the hope that Amazon’s strong network effects will eventually result in market dominance and shareholder earnings.

Automotive companies should take a page out of Amazon’s playbook and position themselves for the next 10 years of investment. Though they may not see it yet, this move is necessary for their survival. But it also offers enormous upside: the chance to win the platform wars that are bound to revolutionize and challenge traditional approaches in the industry.

Somewhat ironically, former BlackBerry co-CEO Jim Balsillie once said that this transition from linear to platform business is “where tech companies go to die.” Unfortunately for him, in the case of BlackBerry, he was right. Apple and Google have shown that this need not be the case. But time is of the essence. Executives and shareholders should be clamoring for today’s automotive companies to embark on their platform journey as early as possible, lest they miss chance to win the battle for the future of the automobile.

The future of cars is very clear. Now we’ll see who gets there first. Game on.