Why cars can become the next iPhone
The once in a lifetime opportunity for the automotive industry to become the most potent customer touchpoint - and what role entertainment might play
32,000 trade show visitors roamed the floors and various hotel lobbies at the world’s largest gaming conference Gamescom just three weeks ago. Among the to be expected attendees from the gaming industry itself where numerous companies and brands whose core business has pretty much nothing to do with video games. The likes of Adidas, Swisscom, Formula E, or VUE International to name a few. We highlighted some of the reasons why these non-gaming companies made their way to Cologne in our Gamescom recap. But why on earth were so many automotive companies there?
The answer to that question is the focus of this deep dive - and why and how video games, entertainment, and software are the ways for the Volkswagens of the world to save themselves from having “Das Auto” become “Die Vergangenheit.”
For the last few years, the automotive establishment has been under what feels like a constant siege: Tesla, electric vehicles, regulation of the combustion engine, autonomous driving, cheap Chinese competitors, tariffs - the list goes on. Few industries and companies are as important to the economy as the automotive sector. In the US, it typically contributes 3-3.5% to the GDP. In Germany, it accounts for 5% of the entire GDP. For the EU, the figure sits at 7%. China? 11%. The 10 largest car manufacturers globally employ more than 2.5 million people combined. This is why news such as those that came out of Wolfsburg just a few days ago tend to send shock waves through entire economies. Volkswagen, the world’s largest automotive company, is looking to navigate the treacherous waters of slowed down growth and profitability by cutting costs in the region of 4 billion Euros. The plans include shutting down entire factories - in Germany. Something the company has never done. Ever.
At this point you may be asking the same question from the beginning of this post: why on earth was Volkswagen, along with its brands VW, Porsche, and Audi, at Gamescom?
For the same reason Mercedes and BMW were there, and why Tesla has been looking into games since 2019. It’s a must-be space to engage their future customers. But it’s more than that. It holds the key to turning the car into something akin to the iPhone: a platform to own the end-to-end relationship with a consumer in one of the most confined and personalizable physical spaces. In other words: automotive companies are sitting on a gold mine. Games are one of the primary shovels. Let’s break down the opportunity into three parts:
1) Table stakes - reaching the next generation of consumers
For car manufacturers, video games are the gateway to engage with a new and younger generation of consumers (it’s important to point out that video games are a cross-generational consumer touch point that isn’t reserved for the young folks. However, certain games and platforms do skew younger). The primary objective for being present in the existing video gaming ecosystem is to reach gamers before they have ever purchased their first car and build brand equity and loyalty with the next generation of customer pre-purchase. That way, at least that’s the idea, the car brand is top of mind by the time this customer comes of age to buy their first car. Building this type of brand loyalty this early in the customer journey makes sense from two perspectives. One, purchasing a car is a big expense that the average consumer cannot make lightly and once made comes with a certain lock-in effect (you can’t just go buy another one or trade your car in if you don’t like what you bought). Two, more than 51% of all new car buyers remain loyal to the brand they previously purchased. That’s the play: create brand loyalty before the first purchase and get a customer for life.
2) The evolution - in-car entertainment as a means of differentiation
Tesla and BMW have been leading the charge of bringing video games and more immersive entertainment content into the car itself and making them an integral part of the overall mobility experience. The basic principle is that consumers will have more and more free time on their hands because they won’t be occupied with a steering wheel. Autonomous driving will give folks a solid couple of hours back each day. Even though that’s still a distant future (remember when Elon promised fully autonomous vehicles, one million Robotaxis on the road to be precise, by 2020? About that.), already today the drivers and passengers of electric vehicles have downtime during trips when they’re charging their cars. What companies like BMW are trying to establish through in-car gaming is a meaningful differentiation of their entire product, because simply differentiating through horsepower isn’t cutting it with consumers any longer.
This is a space to watch and it paves the way for the big revolution (see below), which is why I have dedicated an entire deep dive into BMW’s gaming strategy in my upcoming book.
3) The revolution - the car becomes the next iPhone
Now we’re swinging for the fences: the car becomes the next platform akin to the iPhone and the dominant consumer touch point. Here’s why I believe this could happen:
Time - as mentioned in the previous section, consumers will have more and more time available when inside their car than can be filled with nearly everything other than driving
Undivided attention - when people are inside of a car that is taking them from point A to B, and they don’t have to do any of the driving, you have full access to what is arguable the most precious currency of todays economy - the attention of the consumer. On top of that, it’s mostly distraction free and in a confined physical space that while in transit the consumer can’t escape.
Control - the automaker has complete control over the consumer touch point. What kind of experience the interior of the car should provide, which outcomes it should cater to - it’s completely at the discretion of the GMs and Toyota’s of the world to design that experience and own, end to end, everything that takes place between their touch point and the consumer.
A prerequisite for this to be possible for automakers as well as realize the potential this holds is owning and operating a critical piece to this puzzle that lies outside of the confirm zone for many of these companies: the software that facilitates the customer experience inside the physical space. It is paramount so that the likes of Volkswagen can truly own, end to end, the customer interaction, generate valuable first party consumer data in the process, and unlock entirely new revenue streams.
Just take a pretty straightforward example directly from the iPhone and Apple. The revenues that Apple generates with its App Store will come out to roughly USD 100bn in 2024 based on the 30% fees it charges for in-app purchases, subscriptions, and premium apps made on their store. Let’s assume Volkswagen had their App Store equivalent of their cars and was able to receive a 10% fee for transactions and a 20% cut of the overall volume - you’re looking at more than USD 6 billion in new revenue. While that doesn’t seem like a step change (yet) compared to VW’s 2024 global revenue of EUR 350 billion, it would pretty much double its net profit immediately.
But this is just one avenue. Meta’s advertising revenue per user in 2023 was USD 40.60. VW will sell close to 9 million cars this year. Conservatively estimating one user per car gives us another USD 365 million straight to the bottom line. The list goes on - so much so that for the consumer, it could ultimately mean that the price of cars comes down even further because the value for the automaker isn’t in selling the physical car anymore, but in the data it generates and monetizes based on the interactions inside the car. Facilitating the access third parties get to consumers in their touch point is highly lucrative. Et voilà - the car becomes the iPhone.
This all sounds terrific and like a no brainer. But here’s the big BUT. It’s easier said than done (I drive a new Volkswagen, so believe me when I say there’s a long road ahead of these companies). What do they need to do to get this right? Here are four thoughts:
Be smart and intentional about where your specific automaker brand should play in gaming. Integrating your brand in the largest, most well known games and platforms is easy - and often too simple. You need to invest in deeply understand the needs if your target audience and what games offer the best opportunity to meet your future customers and engage them.
The same is true about deciding what games and immersive entertainment experiences to bring into the car itself. There’s no one size fits all approach and identifying what will optimally engage, and therefore differentiate your experience, the customer you want is vital.
Don’t just hand the software inside the car, the platform and consumer interface , to the established players like Google. It’s the easy solution but negates all of the potential upside and ultimately reinforces the trajectory the car as a product is already on today - a commodity product with low margins.
The current software development arguably is still a sideshow to the car itself (see above, I drive a Volkswagen). That has to change. If these companies want to grab that opportunity, investing heavily in the right talent (that includes higher wages and incentive structures than folks around Wolfsburg or Stuttgart may like) and enabling more flexible ways of working. The talent they need can work anywhere they want. Entering the war of talent is a must if they care to win the war over the customer (if you think that sounds too harsh, think again).
The next few months and years will be quite telling in how seriously the established automakers pursue this opportunity. If they want to usher in a new era for their industry and themselves, and avoid being pushed to the brink, they have no other choice.
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