Can Tier 1 Suppliers Keep Pace with Consumers - my thoughts from January 2008

Quick note:  Um . . . Sorry for my lack of posts.  The last 6 months were a blur.  My New Year resolution is to post more.  

Ok, just to give everyone a preview of what I am working on in terms of posts.  You can expect a post comparing VNC - "Terminal Mode", Video - iPod Out and HTML / HTML 5 - Blackberry Bridge in my next post.  Stay tuned.

Blast from the past. . . My thoughts about automotive and the changing role of the Tier 1 -- from January 2008

In one of my last posts I detailed what I thought we might see in automotive electronics in 2015.  That post got me thinking about my past predictions so I thought I would take a look at some old articles and blog starts that didn't make it to my blog.  I found an article I had composed exactly 3 years ago (January 2008).  I thought it would be interesting to share.

Let me set your expectations.  This article was created shortly after Toyota had announced that they were going to build an Automotive OS.  This never came to fruition, and in fact QNX just announced with Toyota that QNX would be one of the technology providers for Entune.  So let me just post this for your entertainment . . . Please Don't Judge.

Can Automakers and Tier 1 Automotive Suppliers Keep Pace with Consumer Demand?

January 2008 marked an automotive industry first. Not the release of a new hybrid engine, crash-avoidance system, or other product innovation, but rather the first time an automotive manufacturer, General Motors, delivered a keynote address at CES, the world’s premier consumer electronics trade show. Rick Wagner, the CEO of GM, told the CES crowd that “...if automobiles were invented today, I am pretty sure they would debut right here at CES... because more and more, that’s exactly what today’s cars and trucks are — highly sophisticated consumer electronics.”

Given this statement, it’s no surprise that developers of car infotainment and telematics systems face the same challenges as developers of other consumer devices. These challenges include shrinking development times, growing design complexity, and the need to accommodate modifications close to, or in some cases, after production. Case in point: When consumers buy a car today, they expect its infotainment system to work with the latest iPods, Bluetooth phones, or Internet services — even if the system was built before those devices or services appeared on the market. To satisfy these user expectations, many car stereos and infotainment systems must now support in-field upgrades.

To address these challenges, automakers and Tier 1 suppliers rely increasingly on software. In 2006, VDC senior analyst Matt Volckmann projected that “software alone will soon account for over 12% of the value of a car.” GM has long realized this fact. Back in 2004, Dr. Anthony Scott, the company’s chief information technology officer, stated that many GM products “...have become reliant on software to the point that they could not be sold, used, or serviced without it.” GM, of course, isn’t alone in its dependence on software; other automakers are in the same boat.

The growing use of software in the vehicle interior can, in fact, be traced to several market requirements, including personalization, brand differentiation, legislation, and connectivity to off-board devices and services. Each factor presents a challenge, as well as an opportunity, to automakers and their Tier 1 suppliers.

Personalization and differentiation

If the 1990s belonged to the “me” generation, the current decade belongs to the “my” generation. At every turn, consumers have the freedom to personalize their digital lifestyles, from customized face plates for their XBoxes to personal web pages on MySpace (2011 note: LOL Myspace). In Europe, for example, sales of personalized ringtones are expected to hit $1.1 billion in 2008. Capitalizing on this trend, some car-infotainment systems already allow drivers to generate playlists of their favorite music and to customize the in-dash display with personal photos.

In effect, automakers are using software to create the “MyCar.” The goal is to help consumers develop a more personal bond with their car and, not incidentally, the car’s brand. In an industry where the volume of new cars sold per year is relatively flat, the ability to maintain the loyalty of existing customers and to attract consumers from other brands is key.

Legislation

Citing safety concerns, many governments have passed laws that forbid the use of certain consumer electronic devices or services while driving. Case in point: In January 2008, Washington became the first U.S. state to criminalize text messaging while driving. To automakers, this trend presents an opportunity. If they can somehow enable consumer electronics, content, and services (often with location-aware features such as local traffic reports) to interact in a safe, reliable, and legal way, then they can differentiate their brand and build greater customer loyalty. (2011 Note: Interesting what we have found about the law banning texting and it's effects)

This is where software comes into play. Automakers are driving investments in software to enable safe, engaging, and often multi-modal interactions with mobile phones, portable navigation devices (PNDs), portable media players, and so on. And, as connectivity to the vehicle becomes ubiquitous, off-board services and content are being specifically tailored for the challenging automotive environment (noise, distraction, etc.) and even enhanced to form new automotive experiences for the consumer.

Two ends of the spectrum

Both these approaches have major implications for the automaker’s business, as well for the entire supply chain, including traditional Tier 1 suppliers. With the first approach, the automaker can focus on its core competencies, while leveraging a vendor that has more experience in creating consumer-oriented software. The automaker may also benefit from the brand recognition and marketing know-how of the software vendor. But at the same time, the automaker must exercise firm control to ensure that the solution is of sufficient quality — a challenge if the vendor has little experience in addressing the reliability requirements of the automotive sector. Also, if the software vendor extends its offering to other car companies, the automaker loses its market differentiator. (2011 Note:  Ford Sync had a rich experience, but a simplicity on the OS and middleware that kept Microsoft in it's sweet spot.  We are seeing how this approach with Microsoft is falling apart as complexity increases like with MyTouch)

This approach can also impact the Tier 1 supplier, who is now supplanted to some degree by the consumer software vendor. To counter this effect, Tier 1 suppliers must develop high levels of expertise in both software design and integration. In some infotainment systems, the software now comprises thousands of modules, creating an opportunity for any organization capable of advanced software integration. The need to keep pace with consumer electronics and services will also grow unabated. The more that Tier 1 suppliers develop expertise in these roles, the more they can maintain their importance in the automotive supply chain.

Automakers who adopt the “roll your own” approach can also present challenges to the traditional Tier 1 supplier. In this approach, the automaker has chosen, with the possible help of third parties, to become a software company. The question is, can the automaker ship enough vehicles to sustain a thriving ecosystem around their infotainment operating system? Will there be enough cars using the automaker’s proprietary platform to encourage third parties who specialize in speech technologies, multimedia, and consumer-electronics integration to support the platform and to keep it at the forefront of innovation? Also, will the burden of constantly enhancing or growing this automotive software stack remain with the automaker or eventually fall to the automaker’s Tier 1 supply chain? These answers may take a decade to determine, but at the heart of this approach is the automaker’s resistance to outsource a fundamental differentiator such as software.

Middle ground (2011 Note: Feel free to skip this part. . . its my pitch)

Some automakers are taking a third, “middle ground” approach. They continue to use industry-standard, automotive-grade hardware and software components from their traditional Tier 1 supply channel. However, they also work with these suppliers to integrate consumer electronics, services, and even automaker-specific technologies to create unique brand value and intellectual property. This approach still impacts the supply chain. In particular, the Tier 1 supplier is expected to serve as a system integrator, building a base platform of hardware and software components and then working closely with the automaker to integrate the automaker’s value-added intellectual property on top of these base platforms.

To address this challenge, some Tier 1 suppliers are building “open” software platforms that can accommodate a variety of requirements, without significant re-engineering. In most cases, these platforms combine a general-purpose 32-bit CPU with a standards-based real-time operating system (RTOS). The OS chosen typically provides a virtual-mode architecture with support for memory protection, which enables greater fault resilience and software upgradeability. In some cases, the OS also offers time and space partitioning, which simplifies integration by providing a guaranteed budget of CPU time and memory for each software subsystem. For instance, the system designer can specify that the HMI always gets 10% of CPU time, MP3 playback gets 20%, navigation gets 30%, etc. This approach prevents task starvation problems, which often cause serious delays at the integration phrase.

Increasingly, car radios, infotainment systems, and navigation units must interact with MP3 players, USB storage keys, DVD players, and digital media cards, not to mention future devices based on WiFi and Bluetooth data networking. To support this requirement, the OS must implement a modular and dynamic software architecture. For instance, a microkernel OS can mount and unmount file systems “on the fly” as consumer devices are plugged in or plugged out. The OS can also dynamically start and stop any hardware drivers that the devices may require. With this approach, an in-car system can support new media devices by simply downloading a small software “patch.”

Choosing the right approach

Coming full circle back to General Motors, it is no accident that Rick Wagner spoke at CES. You can see that companies like GM are looking at the car interior much like consumer electronics manufacturers look at their products. And, like consumer device manufacturers, automakers are relying more and more on software to differentiate their products. The battle for the consumer is playing out in the interior of the vehicle and, increasingly, software is becoming the weapon of choice."

So what do you think?  What did I get right?  What did I get wrong?  What has yet to play out?