IBM & the Auto Industry

As the number of mobile phone subscriptions in circulation is expected to soon exceed the total world population, people across the world have been Dennis Cuneo Connected Carswondering: what is the next great connected device going to look like?  If the IT research and advisory firm Gartner is to be believed, the next big connected device could be your very own car.  They predict that by 2020, there will be 250 million connected cars on the road, meaning that one in every three cars on the road will be connected.  By then, digital diagnostics, infotainment channels and enhanced navigation systems are expected to constitute a $270 billion industry, up from what today is just $47 billion.  I recently came across an article that pointed out something about this rising connected automobile industry: in its current form, the automobile industry looks a lot like IBM did 30 years ago.

Back in 1985, IBM employed over 400,000 people, five times more than Apples does today.  As a comparison, its nearest rival, Digital Equipment, had just a quarter of its employee base.  Apple itself was hardly a fraction of the tech powerhouse that it is today, going into a tailspin after firing Steve Jobs.  Personal computers remained a low-volume market at this time, but IBM dominated it.  Thanks to its undisputed market superiority, compatibility with IBM PCs was an industry mandate.  While IBM had the hardwire, it just needed good graphical user interface.  That same year, however, IBM’s fortunes began to turn after Microsoft, a relatively small company with just 2,000 employees, introduced Windows, as well as the term “software” to the general public.  By the early 1990s, IBM-manufactured PCs were seen as technological dinosaurs as Windows dominated the PC game, and the main question on everybody’s mind was whether or not a computer ran Windows.  By 1996, Microsoft had a market cap of $72 billion, compared to IBM’s $60 billion.

Without control over the platform itself, PC hardware is nothing more than a commodity, with negligible margins, intense competition and a failure to control one’s destiny.  As the article points out, this is the exact issue that the automobile industry faces today.  Back in the 1980s, IBM lost the battle for tech superiority after they gave the operating system to Microsoft.  And car companies currently face the same risk, as tech companies such as Apple and Google are pushing more participation in automobile dashboards.  With apps such as CarPlay and Android Auto, the tech companies are making inroads into what used to be the domain of automakers’ in-house proprietary systems.  How will this affect the auto industry?  Will cars become like the PCs of the late 80s and early 90s, where consumers are more interested in what software the car runs, as opposed to what kind of car that they’re driving?  Only time will tell.