Thank you Fabian, great post. I personally find this a really interesting, albeit complex topic. Certainly, in the near- to medium-term digitization has mostly positive effects for auto manufacturers, as they – as you described – improve their operating model (by enhancing the design and the development process) as well as their business model (providing the safest, best performing and most convenient cars to their customers at any given price point).
Having said that, however, I think car experts are not entirely sure yet what digitization will mean for OEMs in the longer-term (5-10 years). One obvious question mark is around how autonomous driving will impact the buying behavior or premium car brands such as Daimler. Some voices argue that when the task of driving gets “taken away” from the driver, the emotional bond between the car and the driver/owner gets diminished. This becomes most apparent when thinking about performance cars: who would shell out $200,000 for a self-driving Ferrari that coasts along the highway and within the city at the tightly regulated speed limits that the autonomous cars of the future will likely have to follow? On the other hand though Daimler with its strong focus on not only performance, but also on safety and interior feel might fare better in this shift than Ferrari. But then again it raises the question what consumer will be really willing to pay for in the future. Nicely designed cabins with fancy leathers (which in theory many firms can produce) or world class machine algorithms and sensor integration which makes cars safer? The latter is much more likely to come from a Google for example than from Daimler.
But I think there is still hope for a bright future for large-scale premium OEMs:
First, even though the “Uber-ization” of transportation – further accelerated through autonomous vehicles as cost/mile will decrease significantly – will likely result in a strong decrease of economic car ownership in general, premium OEMs might benefit from the remaining buyers in the market as they trade up. These buyers will likely be families with 3 or more people in one household that will rely on only one self-driving to shoulder the majority of the family’s trips as the car can go back and forth between various locations during the day. Since only one car will need to be bought instead of 3 or more, buyers are likely going to trade up to the premium brands for more safety and a nicer passenger experience.
Second, European OEMs have – through the acquisition of mapping provider Nokia Here in 2015 – started to develop a shared platform around mapping data and software development required for autonomous driving. The autonomous driving capabilities coming out of this partnership will hopefully be able play on eye-level with similar solutions offered by the tech-giants, enabling Daimler, Audi and BMW (the acquirers) to continue to offer differentiated products to their customer and extracting appropriate margins for those in return.
(Sorry for the long reply)
Very interesting post and well written! I completely agree that Zillow should (and probably could) have done more to date to disrupt the inefficient structure inherent to the real estate market. While the back-end systems that you mention around scheduling visits and inspections would certainly be a huge benefit to landlords or property sellers, I would be a little bit concerned with Zillow’s ability to finance a roll-out of these capabilities (also considering that it has never been profitable). This problem might only be exacerbated when considering that their existing customers – i.e. mostly real estate agents – will likely stop using Zillow as soon as they find out that the company is trying to disintermediate them. I still agree, however, that it is important to challenge the agents’ position in the market. As such maybe go for the easy, more immediately cash-generative wins first by selling in-person sales and marketing support (e.g. Zillow employee taking pictures and listing the property) to property owners. Sellers might then have to organize house viewings themselves or hire someone for that, however, they might just be ok with doing that for saving 6% on their purchase price (assuming US law allows this).
Very good post! While some of the privacy concerns as well as the bad feelings that come with toy and/or tech companies getting access to children’s brains at such young age (see Sebastian’s comment) are very valid, I still think the benefits, even absent any specific educational mission that Hello Barbie pursues, could outweigh the risks.
One very specific (maybe too specific) benefit came to mind when I was thinking back to a story that I read about how Apple’s intelligent, voice-controlled assistant Siri can actually help children with autism to practice the syntax of human communication. By having conversations with Siri about the weather or about how well they like a song that Siri played, autistic children can actually become more comfortable carrying on such dialogues with real people. (Here is the original article: http://www.nytimes.com/2014/10/19/fashion/how-apples-siri-became-one-autistic-boys-bff.html?_r=0). I think by being the relatable toy that Barbie is, it could – at some point in the future – be even more powerful for children with autism in that regard (at least for girls). And with the prevalence of autism in children having increased 119% between 2000 and 2010 (now at 1 in 68) the importance of this benefit is likely only going to increase.
Very cool post, Mike! I think you are absolutely right when saying that these AR and VR technologies are a natural extension of Wayfair’s business and operating model and thus helps the company to strengthen their core product offering. Having said that, it remains to be seen how much adoption this kind of technology will really experience among consumers and thus act as a significant driver to sales (which you also pointed out). I can imagine that it must be very expensive to develop these kinds of technological systems including creating and maintaining a 3D database of their entire catalog of ~7 million items. I wonder how management is thinking about weighing these large up-front investment costs against their expectations of actual sales impact and at what point in the future they will decide whether this actually is an economically viable opportunity for them or not. I guess only time can tell. In the meantime, maybe they can also promote more benefits to customers using this type of technology, such as a percentage discount off their purchase if the customer researched beforehand using AR or VR (this could be beneficial to both since I imagine average returns on orders made after using AR/VR are lower than on the average order).
Thank you for this well-written and interesting post. It seems like Nike is doing a great job of trying to mitigate its impact on climate change. Having said that from my personal consumer experience I think they could be going one step further by communicating some of these achievements more prominently to their customers. For their Earthkeeper series of products, Timberland has not only used recycled materials in its products, used 100% of renewable energy in its factories and planted hundreds of trees to off-set carbon emissions from its supply chain, it has also very prominently included information on the climate impact the specific products had overall. This Green Index was featured on boxes or small flyers attached to the products and detailed the climate impact, the chemicals used, and their resource consumption for the various products. Now you can actually look up the Green Index for all Timberland products and inform your buying decision on this basis. I think this type of transparency and consumer education is necessary to not only tackle climate change from the supply side, but also improve it from the demand side.
Here is an article about the index:
Jodie, thank you, very interesting article. I was wondering if they are also trying to develop products for the commercial refrigeration market? With increasing average temperatures the need for air conditioning in the food retail supply chain (food transportation to POS and at retailer) for example, will continue to grow, both in emerging and developed markets. Maybe they could even partner with large retailers (such as Walmart) or retail associations on trying to find new, more efficient cooling technologies and less dangerous cooling chemicals.
Another point that I was thinking about was whether there would be a way to reduce the demand for air conditioning through one of its roots causes: insufficiently insulated properties. European property developers nowadays put a huge focus on insulating properties so that heat doesn’t escape in the winter, and hot air doesn’t get in during the summer. Additionally, I have seen a variety of non-chemical cooling technologies, some relying on channeling water of a nearby rivers through the buildings walls and ceilings. While some of this might be too expensive for emerging markets, for me the question remains whether one would not be better of fighting the problem through its roots than its symptoms.
Thank you, Jordan. Building on Ilan’s point, I agree that the dilemma OEMs are facing today is around building more environmentally friendly cars through the use of more efficient technologies while at the same time dealing with the increased costs which cannot be passed onto the consumers due to their low (and increasingly lower) willingness to pay EXTRA for green products. While I think it is important to research and develop products for the next generation of propulsion technology (e.g. EVs), I don’t understand why the American OEMs (including GM) are not doing a much better job of deploying existing fuel-saving/carbon reduction technologies to their vehicle offering. There are a variety of technologies available, which have a very attractive $ cost/g of CO2 saved. These include for example start/stop technology which have a 80%+ penetration among European OEMs, but still have very little penetration among the US OEMs. Another one is the 48V mild-hybrid technology, which many European premium OEMs plan on rolling out in 2017. Here the entire board systems gets upgraded from a 12V to a 48V system, to enable better recuperation of break energy. A light battery and electric motor then provide extra boost to aide vehicle dynamics and also enable sailing and coasting (engine constantly shuts of in no torque required). This is effectively the inverse idea of the Volt with a main (chargeable) electric propulsion system and a back-up combustion engine. I think these described technologies could be the better path to achieving a quick and significant emission reduction while balancing profitability.
I also remember reading about a variety of other innovative technologies which people hope could be used to one day to reduce carbon emissions. One of the most interesting ones I thought was the usage of solar energy for propulsion combined with lighter-than-air gasses used to neutralize some of the planes weight. Of course there are many issues to tackle with this such as ensuring that enough energy will be available during take-off and landing (in case of overcast skies).