How can OEMs thrive in a software-driven future?

The shift to software is influencing business priorities and setting the stage for new business models, writes Adrian Pearce

The automotive industry is overflowing with opportunities for modern vehicle manufacturers to continuously innovate their offerings with software-based features. While many might assume software to be a new element of driving, it has been a game-changer for decades—and it’s finally become a core element to the way OEMs must design, sell and manage their products.

While OEMs are leading the charge to set the standard of software-enhanced features, they must recognise how this shift to software influences business priorities and sets the stage for new business models. Initiatives have typically been steered with a hardware-services mentality. But as a software-focused business, OEMs must now adapt to address key security concerns, identify opportunities for diversifying revenue streams, and above all, focus on how the software revolution can help them achieve customer satisfaction.

All roads must lead to value

Transitioning to subscription-based models is a tempting idea for companies looking to build recurring revenue streams. But it’s not enough to simply take away existing services and make customers pay-to-play.

To achieve customer satisfaction, OEMs should expand beyond perpetual offerings and work on providing real value add-ons to make subscription models compelling for customers. Autonomous driving, voice-activated features, streaming services and cruise controls are software-based features that can revolutionise the driving experience and demonstrate customer-centred product evolution. When considering deploying recurring revenue streams, OEMs should aim to create seamless and integrated experiences, offering these advanced software functionalities as optional add-ons.

Many automakers are focussing on customised in-vehicle experiences

Data fuels feature insights and customer experiences

Another benefit of software implementation is the host of useful data that can be used to unlock insights and continue to improve customer experiences through data analytics. OEMs can create personalised customer encounters by studying feature usage patterns. Knowing how a customer is benefiting from the product allows OEMs to then understand which offerings are providing the most value to customers and deem them suitable for subscription models.

These observations can then be used to provide uber-customised recommendations and enhancements or develop bundled offerings that match customer needs and expand revenue streams. They can also implement integrations with third-party collaborators, for example insurance or entertainment companies, which can also benefit from this data collection and provide more value to customers.

Don’t treat protection like an old jalopy

In this new frontier, software protection is critical for the automotive industry. This includes protecting customer data and company intellectual property with measures like robust encryption. As the automotive industry becomes increasingly connected, the same is true regarding attack vectors, exposing vulnerabilities that threat actors can use to exploit vehicle software data integrity and user data privacy. OEMs should equip themselves with the best tools and strictly follow compliance regulations on customer safety and data privacy to steer clear of hackers who may potentially strike at any time.

Those who succeed are those who masterfully control software distribution, deployment and protection while optimising user experience to meet customer needs along the road

OEMs must work to protect their customers, but equally important is the protection of their company IP. Properly managing licensing models and intellectual property rights are key to ensuring that software creates opportunity to generate further revenue—and not a headache. Deciding who has access to which software, for how long and in what quantity should be a carefully conducted process.

Thriving in the software-driven future

As the industry evolves, Tesla stands out as a trailblazer due to its integration of entertainment and connectivity. Other manufacturers are left trying to catch up to this example of successfully implemented software applications. Though the model still isn’t perfect—as researchers have tested hacking the system to exploit upgrades—it is an exemplary indication of the benefits of software enhancements in cars.

While the shift to software is an inevitable evolution, OEMs should be intentional about their transition to becoming software providers. Those ahead of the game will focus on providing value through subscription models, enhancing their product offerings with data insights, and protecting their software through responsible compliance and security practices. Embracing the future of automotive technology is the path forward for OEMs. The industry will only continue to become increasingly innovative through software. Those who succeed are those who masterfully control software distribution, deployment and protection while optimising user experience to meet customer needs along the road.

The opinions expressed here are those of the author and do not necessarily reflect the positions of Automotive World Ltd.

Adrian Pearce is Principal Business Value Consultant, Software Monetization, at Thales

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