Have You Driven a Ford Lately?
Ford confronts the digital transformation of the automotive industry.
Have You Driven A Ford Lately?
Unless your car is driving you, then chances are good that your car’s technology may be impressive, but perhaps not truly revolutionary. However, recent digital trends such as autonomous vehicles, ride-hailing services, and the Internet of Things (IoT) have begun to create seismic shifts within the automotive industry. Ford Motor Company, the company that introduced the world to the Model T, must now compete against Tesla’s Model S if it hopes to thrive in this new digital era. Thus, Ford’s business and operational models must also change accordingly, but has this company done enough to position itself for future success? I am convinced that the answer is yes, at least for now.
Change 1 – Driving Automation. Artificial intelligence has given rise to the self-driving car, and though we’re not truly at the point of a fully autonomous (Class 4) vehicle yet, we are close. Tesla already mass produces a semi-autonomous (Class 3) vehicle, and tech giant Google is hard at work to overcome the last technical hurdles. Ford entered the self-driving game late, but it has been quickly making up ground. In August, Ford announced that it had invested $75 million into Velodyne, an autonomous vehicle sensor maker, and acquired Saips, another firm that specializes in computer vision.[1] It has established research partnerships with the University of Michigan, and doubled the number of employees in its Silicon Valley offices. Ford’s major domestic competitor, General Motors, bought the autonomous vehicle firm Cruise Automation in March for an estimated $1 billion dollars[2], yet Ford will become the first major automaker to test self-driving cars in real-world environments.[3] However, Ford needs to continue to increase its R&D spend or this lead may be short-lived. According to Strategy&, Ford was outspent last year by four major automakers, including GM, and was ranked below Apple, Google, Tesla, and Toyota in terms of innovation ratings.[4] Product research must become the operational focus of Ford if it hopes to consolidate these gains over the next several years.
Change 2 – Ride-Hailing Services. The ubiquity of smart phones has given rise to ride hailing services like Uber, and here Ford has an opportunity to shift its business model in a way that may offer a competitive advantage. Ford expects to begin mass-producing fleets of self-driving vehicles by 2021,[5] yet unlike GM, the company has decided to forgo partnerships with ride sharing companies and adopt a wait-and-see approach. However, I believe that Ford should create its own ride-sharing services and pioneer fractional ownership models.[6] While this approach could be treacherous given the strong network effects enjoyed by current ride-hailing companies Uber and Lyft, the elimination of the middlemen would provide higher profit margins to Ford. Lucrative margins would in turn allow the company to engage in a successful price war with established competitors, if needed, turning GM’s $500 million partnership with Lyft into a potential liability.
Change 3 – The Internet of Things. Imagine being whisked away by a Ford self-driving car that you hailed from your smartphone. You ride along, an observer, but what do you do now that you aren’t driving? How can you be more productive or entertained? Ford may answer those questions with the IoT—the connection of sensors, data, and hardware all around you. For example, Ford is developing IoT technologies such as FordPass, an app for internet-connected services including marketplaces that allow you to shop while riding, and GoPark, a feature that communicates with parking meters to locate and pay for parking.[7] This approach to the customer experience is completely different from Ford’s business model of the past, and it offers an encouraging sign that Ford is beginning to understand the potential of an IoT-enabled, autonomous vehicle. Ford’s director of enterprise and emerging IT, Rich Strader, noted, “We sold a product, and when we sold it, that was the experience people had with Ford. They drove the vehicle and all the interactions were about consumption of that product. What we now believe is important to consumer experience is something that marries the product experience with a services experience and that end customer need.”[8] That said, if I had one complaint of Ford here, it’s that I believe Ford could be more aggressive in incorporating IoT technologies into its vehicles—much more aggressive—and thereby enhance brand differentiation as part of the business model. Shopping from your car is nice, but a Ford that can read my smartphone calendar, remind me of my wife’s birthday, and book a restaurant reservation by the time it drives me home would be even nicer.
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[1] The New York Times, “Ford Promises Fleets of Driverless Cars Within 5 Years,” http://www.nytimes.com/2016/08/17/business/ford-promises-fleets-of-driverless-cars-within-five-years.html?_r=0, accessed November 17th, 2016.
[2] Forbes, “GM and Ford Join Race for Autonomy while FCA Sits Back,” http://www.forbes.com/sites/neilwinton/2016/03/15/gm-ford-join-race-for-autonomy-while-fca-sits-back/#77a9de5c3cd5, accessed November 17th, 2016.
[3] USA Today, “Ford Revs Up Self-Driving Car in Fake Michigan City,” http://www.usatoday.com/story/tech/2015/11/13/ford-revs-up-self-driving-car-program-fake-michigan-city/75673552/, accessed November 17th, 2016.
[4] Auto News, “VW Led Auto R&D Spending in 2015,” http://www.autonews.com/article/20160221/OEM06/302229977/vw-led-auto-r%26d-spending-in-15, accessed November 17th, 2016.
[5] Ford.com, “Ford Targets Fully Autonomous Vehicle for Ride Sharing in 2021,” https://media.ford.com/content/fordmedia/fna/us/en/news/2016/08/16/ford-targets-fully-autonomous-vehicle-for-ride-sharing-in-2021.html, accessed November 17th, 2016.
[6] Reuters, “Ford Plans Self Driving Car for Ride-Share Fleets in 2021,” http://www.reuters.com/article/us-ford-autonomous-idUSKCN10R1G1, accessed November 16th, 2016.
[7] Internet of Business, “Ford Harnesses IoT and Big Data in Technology Quest,” https://internetofbusiness.com/ford-harnesses-iot-and-big-data-in-technology-quest/, accessed November 16th, 2016.
[8] CMO, “Why Ford Is Counting on the Internet of Things to Drive Customer Engagement,” http://www.cmo.com.au/article/596864/why-ford-counting-internet-things-drive-customer-engagement/, accessed November 16th, 2016.
While I agree that removing the middlemen like Uber from the equation would greatly improve Ford’s margins once they successfully launch a self-driving fleet, my concern (ignoring the network effect concerns) is around how they would manage the economics of replacing new cars. Today, individual drivers decide when they want to purchase a new car (despite Ford’s marketing efforts to convince drivers to purchase more frequently). When Ford is in control of that decision, will there be a conflict of interest to keep cars on the road as long as possible?
Your last paragraph around what the experience should be like once self-driving cars become reality poses a really interesting challenge. Personally, I’m skeptical than an existing auto-manufacturers like Ford can shift their business models away from selling cars to selling experiences. From an operational perspective, I would love to learn more about how they have internally changed their organizational structures to prioritize these new initiatives around IoT services. How can they balance these long-term initiatives while still being sustainable in the short term? It requires fundamentally different core competencies, and if Ford wants to do both (manage their own fleet and the experience), perhaps the easiest answer is to enter the space via acquisition.
I think Ford has a special challenge in trying to adopt new technology like self-driving cars. As the emblematic American car brand, Ford’s brand is pretty deeply rooted in tradition. Ford is still having to work on the schisms between its existing consumer base – the crowd that wants electronic vehicles and the consumer that wants to commute to and from work in a heavy duty 8 cylinder pick up truck…just for image’s sake. A company like Tesla is built with the type of consumer in mind that would appreciate the self-driving car, but I would hazard to guess that a large portion of Ford’s customers are the people that genuinely love to drive and feel a special attachment to their truck. The question then is without being able to focus the majority of their resources on developing out the self-driving technology, will Ford be able to get a piece of the pie quickly enough?