About Connected Services Masters and their Challenges

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Your product of today will be a commodity in the future – start to develop your Connected Services vision and strategy now.

Recently, we published our Benchmark of Connected Services in the Manufacturing Industry.1 Connected Services are value-adding digital services for physical products, enabled by the collection and processing of large amounts of data. In our last blogposts, we have described industries at different stages of maturity and how these industries can learn from each other.

In this article, I will give an overview of the automotive industry that – as a result of our research – is today considered a Connected Services Master. I will furthermore outline how companies in the manufacturing industry should approach the introduction of Connected Services.

Business Models: Connected Services Goals

The automotive industry is one of the most dynamic industries when it comes to Connected Services today. The big car manufacturers sense the need to transform due to the aggressive market entry of new competitors such as Waymo, Tesla, Uber and others. Therefore, almost all major car manufacturers have set ambitious goals to increase their Connected Service revenues. Audi for instance wants to achieve a contribution of 1 billion Euros to the operating profit from digital services and business models.2

Also, other players have realized that consumer behavior is about to change and are already engaging in the transformation from hardware sellers to mobility service providers. One example is the merge of the mobility service business units of Daimler and BMW in a new joint venture to scale their services globally and provide them to a larger audience.3 In other cases, market players partner up with technology companies to work on the future of mobility.

Connected Services in the automotive industry are offered around features such as driving, navigation, infotainment and maintenance. A variety of business models is in place from subscription models for Connected Services in car to pay-per-use for car-sharing services. Every day new Connected Services for mobility solutions are launched from renown market players and startups worldwide that widen the offering. Many examples which companies in other industries could follow to create new business models around their products.

Why are Connected Services important for the automotive industry?

Even though the automotive industry may be considered a Connected Services Master today, it stands in front of a big challenge: After some years of experimentation, it seems to be clear that Connected Services will not provide a large new revenue base for automotive companies as of now. Why do customers hesitate to adopt new services? One reason might be that Connected Services are not a differentiator today. Almost all manufacturers offer similar services – with limited value-add and at a relatively high price. At the same time new entrants like Uber and Tesla have become global players. Yet, car manufacturers still earn record profits. Apparently, there is no hurry to change quickly. However, if you believe in the power of technology, you know that it will change the business fast – and if car manufacturers do not widen their engagement in Connected Services, cars will become a commodity in the near future.

When autonomous mobility comes to life, it will reduce the need to own a car – you can grab one at any time you need it. This will most likely reduce the number of cars sold, as today’s cars are unused 96% of the time.4 In this scenario, the car is just a commodity and those who control the market are aggregators of the entire offering on the market. If car manufacturers do not want to lose their current dominating market position on top of the value chain, they need to act now and define a clear vision and service strategy for their future offering. One possibility is to form a joint venture with other manufacturers as BMW and Daimler. This could be an opportunity to build a key global player for the offering of autonomous mobility.

The automotive industry is not the only one facing a challenge. Almost all traditional manufacturing industries which are digitized today, face the threat of commoditization of their offering, some more aggressively than others. What I miss today when I look at those companies, is a structured approach to this topic – many companies do not have a clear vision where they want to go and fail to derive a business strategy that makes an impact in the company itself and for its customers.

How to become a Connected Services Master?

Based on our experience, we propose not to jump to the development of Connected Services right away, but first to define a strong vision and a Connected Service strategy and second to follow five steps in the development of Connected Services (answering key questions):

  1. Kickstart – Where do we want to go? Consider market, ecosystem, customers and core competencies
  2. Design – How would it work? Design mock-ups, validate them with customers and develop a business case
  3. Start building – Does it work? Build a PoC and validate it with customers
  4. Activate – How will we develop and operate the service? Design the operating model and the IT architecture
  5. Build to Last – How do we scale the service? Develop an MVP, launch it on the market and scale it

On the journey to Connected Service Mastery, you can learn a lot from the success and failure of others. Keep that in mind when you start this endeavour.

Get in touch with me to support you on your journey to a Connected Services Master and beyond.

1. A Benchmark of Connected Services in the Manufacturing Industry

2. Audi – Corporate strategy

3. Fusion von Car2Go und DriveNow ist perfekt

4. The Third Transportation Revolution

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