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Software Driving Changes In Automotive Industry

Cars are rapidly becoming software-defined, and that is starting to change the automotive industry’s technology, business models, and even its very structure. Similar changes have taken place in other industries. It is now time for the auto industry to face changes and disruptions.

The definition of “software-defined” means that a large majority of car functionality is now implemented by software applications that run on the required processors, memory and sensors. Additionally, most of the functionality is defined by how well the human-machine interface is implemented in software.Pelple also expecting expanded software capabilities for more advanced ADAS and autonomous vehicle functionality. All of the software will require advancing connected car systems for remote updates, cybersecurity, data collection and infotainment for the occupants.

Two distinct software categories are used — embedded software clients in cars plus software-as-a-service (SaaS) platforms that are delivered via cloud software platforms. The software client platforms are dominant now in the auto industry, but SaaS platforms are on the rise and will play a much more important role in the future.

The next table is a summary of my perspectives on how automotive software will change in the next decade. In the table five category of players are listed—software developers, cloud computing providers, Tier 1 suppliers, auto OEMs and auto dealers. To show recent evolution and future projections, the columns have summaries for three time periods — 2010s, now and 2030s. The content in the table are explained below for each player category.

Software developers
The software developers include the many companies that provide system software, middleware, and automotive application programs to the auto OEMs — usually via Tier 1 suppliers. These companies have developed software platforms for the auto industry. Each software platform is initially a “cost-center” due to high initial investment and long development time. The most common business model for software platform clients are royalty per unit shipped. The unit royalty varies by software category. The Tier 1 or OEM will also pay for tailoring the software platform to a vehicle’s hardware and system configuration, which is usually a profitable business to software developers.

After the software platform sales revenue exceeds development cost the software platform becomes a “profit-center” and usually with high profitability — especially when the platform is used in many vehicles with similar hardware systems.

Software maintenance or fixing bugs during the cars’ long life is usually a profitable business because the OEM or Tier 1 customers pay for software maintenance for multiple years. The OEM and Tier 1 customers will also pay for updating many software platforms — usually when a car model is updated.

The business dynamics described above have been used for over a decade but is now changing quickly. The rapidly growing connected car has opened the door to remote over-the-air (OTA) software updates, which is creating new opportunities.

The connected car is also creating SaaS opportunities for several software segments including cybersecurity and smartphone apps that migrate to infotainment systems via CarPlay and Android Auto.

Another new opportunity is the increasing role of cloud computing providers such as Amazon AWS and Microsoft Azure. The cloud computer providers are participating in the software development phase with advanced software development tools and are especially strong in AI development. There will be more on this in the next section.

By 2030, the software developers will see large changes — both in technologies and business models. Platforms for software clients will remain important. SaaS platforms for delivery via cloud platforms will be more important and may be the largest revenue segment. OTA with built-in cybersecurity will be required for all software clients.

The software developers will need to work with all or most of the leading cloud computing providers as they will be involved with the Tier 1 and OEM’s software development effort and software product selection procedure. The software developers will also work with cloud computing providers to get a portion of SaaS opportunities.