Apple Titan: Are Cars The Ultimate Mobile Cloud Devices?

Recent reporting by the Wall Street Journal has confirmed Apple’s plans to develop an electric car and the vast resources being poured into the company’s Titan auto project.

While many speculate about whether or not this is a dead end for Apple, we are more interested in the issue of whether the auto is the ultimate mobile cloud device.

The premise of is that the convergence of two factors – cloud computing and mobile – will completely transform, or at least vitally impact, business models in virtually every significant vertical of modern economies.

What is the role that the connected car will play?

We have always divided our analysis of the mobile cloud in automotive into four segments:

(1) Monitoring: About a $100 billion per year market in the U.S. alone, automotive repair and maintenance can be intrinsically benefited by the ability to track vehicles’ performance on a continuous basis.

(2) Insurance: Personal auto insurance in the U.S. is a $170+ billion annual business. Insurance companies rate drivers and are interested in their driving behavior. Also owners and insurers are interested in detecting tampering or theft of vehicles.

(3) Infotainment: In-car infotainment is almost as old as the auto industry, having started with car radios. However, the issue now is how big a part of the “digital lifestyle” will in-vehicle infotainment actually become?

(4) Self-Driving Cars: No longer just a concept, there is every prospect that some form of self-driving cars will materialize on roads in the next several years.

Without getting into the details of these areas, each which involve an extensive list of opportunities and issues, the fact is that they are all going to progress strongly in the next five-to-ten years. The primary reason is that there are huge dollars available and a long list of highly motivated players who don’t want to be left out of the fight to bring intelligence to the vehicle.

Electronics already account for a reported 30% or more of the cost of autos and that number is expected to continue to rise.

We have questions that revolve around how big the in-car market for mobile cloud capability actually is. And this leads to examining certain significant economic aspects of automotive.

One issue that is beginning to arise is the question of asset utilization. Data from the U.S. Department of Transportation Federal Highway Administration (FHWA) indicates that the average car is driven about 15,000 miles per year. That’s slightly over 40 miles per day. This suggests that on average a car is used for about one hour or more a day, and supports findings that the average utilization rate is about 4%.

This leads into another issue, which is whether there is a change coming about in millennials’ attitudes towards cars and driving. While there are some disputes about it, the preponderance of studies show millennials driving less than previous generations and having less interest in owning cars.

Where this is leading is probably illustrated by one of the most successful mobile cloud companies, Uber. A March 2015 story in CNN Money citing a leading investor in Uber, stated: “He said parents are relying on Uber to shuttle their kids around — and are encouraging their teenagers to use the app instead of driving when they don’t know the route.” (“Uber investor: Millennials just don’t care about cars” CNN Money 3/15/15.)

The economics of autos are clearly pointing to a sharing model. While this may constrain total growth of the market in terms of units, the other trend that is clearly developing is that software, which drives the mobile cloud capabilities of vehicles, is taking over the command structure of cars.

This means that an increasing percentage of the value added of the vehicle will derive from software and the associated electronics. This will include software that serves all of the four functions listed above.

In sum, we expect the following trends, based at least on the U.S. market (note that growth rates of automotive shipments will obviously be greater in many developing economies of the world):

(A) A long term move towards a new business model that de-emphasizes auto ownership and rise of logistical solutions that enable more of a sharing model;

(B) Advent of driverless vehicles, although it is difficult to see them operating at first on other than dedicated, restricted roads or lanes;

(C) Continued incursion into various aspects of the auto industry by the IT monsters, led by Google and Apple;

(D) Rise in the value of mobile cloud elements of the automobile, so that the car is likely to be the ultimate mobile cloud device;

(E) As communications demands of cars increase, it is likely that some auto companies and IT companies will seek entry into the communications area, such as by starting MVNOs (mobile virtual network operators.)