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How the Nokia Here acquisition will impact the future of the Automotive industry

Accenture’s Axel Schmidt reflects on the recent acquisition of Nokia Here and why it may be the first of its kind in the marketplace.

Axel Schmidt, managing director – Automotive EALA, comments on the recent acquisition of Nokia Here, the digital mapping business, by German car manufacturers Audi, BMW and Daimler to increase their digital footprint, and why this acquisition may be the first of its kind in the marketplace.

What are the key benefits for the three German automakers in this acquisition?

The Nokia map service is particularly relevant as a platform, as it offers the user a wide range of individual and location-based services. If these original equipment manufacturers (OEMs) are going to be successful in building an ecosystem around that, this will be a fundamental step for them to secure a large share of the data-driven services market, which is currently developing. An interesting point is that in order to achieve their goal, the three companies have not only agreed to a joint purchase of Nokia Here, but are keeping it open for participation by other car manufacturers and third-party providers.

Why do you see this as smart move?

It clearly shows that the automotive industry players share the belief that even the largest company offering an isolated platform will not achieve the economies of scale required to establish a commonly used platform. So, in combining their efforts to build an ecosystem based on the Nokia deal, they are in a better position to successfully compete against new players entering the automotive ecosystem, like the big IT-companies or some niche players. Scale, that is the number of users, is one of the most critical elements needed to achieve success. So, the additional benefit of the Nokia acquisition is the broad distribution of the service—primarily in Europe with almost four out of five cars using it.

So is this purely fighting back against new market entrants from other industries?

In my view, buying Nokia Here is more than just getting high-precision maps to enable autonomous driving, etc. It clearly shows that, beyond this activity, the car manufacturers are focusing on user-centric services across the entire range of connected mobility. This acquisition can enable them to really put their own competitive stake in the ground with their own platform against new players from the mobile business for example. They have already begun competing with user data in connected cars and this is part of their vision to transform the car into the “ultimate mobile device”. The Nokia deal clearly shows these OEMs recognize the changing market dynamics and are prepared to respond to them.

Where will future growth for OEMs be coming from?

The automotive industry is at the beginning of a major transformation. Ever since the invention of the automobile, for the first time developing new, innovative business models is essential to market success. With the connected mobility era in full swing, OEM profit pools will move away from only developing pure products to creating business models centered on user and car data. Pursuing this strategy is of pivotal importance to successful growth in this business segment, even if it means the transformation of car companies into mobility service providers could lead to cannibalization of their traditional business.

Will buying innovative IT-companies become a common practice for car manufacturers?

This is not an uncommon practice for companies in most industries impacted by the digital transformation. Acquiring technology providers or start-up firms is not primarily focused on getting access to patents and intellectual property. At the end of the day, this is all about creating compelling services at scale to gain market share. A key challenge for traditional automakers will be dealing with completely different innovation cycles. While it typically takes five to seven years for the development of a car model, mobile phone companies for example operate more in five to seven month development cycles. This may be comparing apples to oranges, but the example underscores how much different industries have converged with the connected mobility space. The traditional OEM product-development approach can really turn into a disadvantage when competing against digital companies that have much faster turnaround cycles driving user-centric versus product-centric innovation processes. In essence, the car will become a commodity and the refinement of mobility data will become the real cash-cow.

What would you see as a formula to success for OEMs in this digital transformation?

OEMs really need to identify and close gaps via acquisitions or cooperative models. Working with highly specialized experts, in areas like real-time data analysis or location-based services, will be a key driver to achieving future growth. And when it comes to establishing platforms, access to a critical mass of users, and their respective data-pools will be relatively more important compared to providing best-in-class technology solutions. That’s an additional challenge for clearly engineering centric cultures.