De-Clawed Digital Disruptors: Why Samsung’s Acquisition of Harman is a Relief to Carmakers

This article comes on the heels of Samsung’s disclosure of its acquisition of Harman International Industries, referenced here.

The automotive OEMs’ business model, at its core, revolves around simply selling physical cars to people every 7-10 years, and hasn’t changed (or needed to change) since the car was originally invented. Enter the smartphone in the late 2000s, and within a few years the most important features on every car shopper’s must-have list involved some type of smartphone connectivity, which was about the time when carmakers started getting nervous. If what people care most about in a car (besides the basic standard that it moves when told to) is no longer what the carmaker controls or owns the development of, then theoretically it should be fairly simple for an Apple or Google to produce their own smartphone-centered cars, or at least reduce Ford and GM to simple low-margin hardware suppliers.

So why hasn’t the sky fallen on the OEMs yet?  If the latest move by Samsung, another one of the big smartphone players, offers any indication, there’s hope for them yet. Even within the last year, there were rumors swirling of Apple developing a secretive Titan connected car project that was to spell doom for the mainstays, while Google’s autonomous teletubby cars garnered tons of media buzz as they spun around the streets of Palo Alto. Today, however, Google has decided to pursue a more modest partnership strategy with its autonomous driving software, project Titan has been shuttered indefinitely, and now Samsung is entering the fray with a more-muted strategy in line with that of its digital brothers.

If you’re a Mary Barra or a Carlos Ghosn, this is at least a temporary sigh of relief. It’s another example of a so-called ‘digital disruptor’ finding it harder than anticipated to adapt its software/service business model to a hardware-heavy industry, opting instead for a less-risky, less-predatory entrance. It also confirms at least in the short-run that the creation of the automobile itself remains securely in automakers’ hands, while the connectivity and software aspects of the car will remain a hodgepodge effort of Detroit-Silicon Valley partnerships, internal development, and a plethora of tier 1 suppliers and startups.

At this point in the connected car race, both carmakers and external players find themselves sitting across from the same hairy dilemma: how do we leverage these new connectivity capabilities between the car and its surrounding devices to bring value to drivers? So far, they’ve come up with mainly three unsatisfying answers: car-sharing services, telematics/informatics services, and V2X (vehicle-to-something) communication. As all parties involved have found, not even a combination of these business models yields the fruit they had expected yet.

Perhaps the real meaty value of the connected car lies in its unique role as the central device that physically connects us to our world, much in the same way that our smartphones are the focal points of our digital lives.

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