As media pundits (including myself) never tire of telling us, Tesla and Apple have a number of things in common—both grew very quickly on the strength of a revolutionary invention, and each has created an ecosystem of products and services, some of which consumers never knew they needed, until they did.
Ironically, the companies’ respective markets would seem to have very little in common. Cell phones (and computers, for that matter) are commodity-style pieces of hardware—one looks much like another, and it’s the software and associated services that differentiates them. Cars, on the other hand, come in every form factor imaginable, from the smart car to the Hummer, and drivers today give little thought to the underlying software, as long as it works.
There are good reasons to believe that this is going to change. Software is rapidly becoming central to the driving experience, and some believe that, in the self-driving future, the cars themselves will eventually start to look the same. We’re not so sure about that, but it’s plain that automakers fear a future in which they become assemblers of commodity, low-margin products, and they’re keen to establish new revenue opportunities in software and services.
When you look at the auto industry in this way, it seems more accurate to say that it’s the Tesla of the future that resembles Apple. Andrew Dickson, writing in Marketwatch, suggests that Tesla’s situation today resembles Apple’s situation in the early 2000s. In those days, the value chain for phones (and PDAs—remember those?) was dominated by a handful of companies that included Nokia, Blackberry, Ericsson and Motorola. In 2007, industry leader Nokia boasted a 40% market share and a $230 billion valuation.
When Steve Jobs unveiled the iPhone (which, as fate would have it, was just a few months after Tesla first demonstrated the Roadster), he set in motion a wave of disruption that swept these companies away, and totally transformed the mobile phone industry. Among other changes, the variety of phone form factors dwindled—today, pretty much every phone you can buy looks like an iPhone, and the “ecosystem” of software and services is where the action is.
Could something like this happen with cars? A decade from now, will we all be riding in identical robotaxis made by Foxconn, as a handful of “mobility providers” vie to catch up with Tesla’s superior software? Mr. Dickson looks at this hypothetical future from a financial standpoint, and does some ludicrous-level number-crunching. The mathematically inclined will want to read his entire article, but to sum up his findings, he believes that the numbers may just work out for Tesla to pull off an Applesque coup over the next few years, but that there are a number of things that could go wrong.
Leaving the financials aside, there are indeed several reasons to be skeptical of the scenario in which cars morph into phones. For one thing, the only connection a phone has to the physical world is its user interface—the fingers, ears, eyes and voices of humans. Beyond that, pretty much everything we ask our phones to do occurs in the virtual realm. Different people use their phones for very different things, but the same phone serves for all. Vehicles need to perform physical work, and their different physical forms reflect the different needs of their users. Some folks just need to get downtown, some need to drive across the country. Some need to haul a large family, some need to haul bulky guitar amps and drum kits. One size and shape is never going to fit all.
Another big difference between phones and cars is that the latter are fashion products, like clothing. A phone is a little box that sits in your pocket most of the time—your neighbors seldom see it, so its value as a fashion accessory is limited. A car is something you drive or ride in, and your peers see you in it often. We use cars to signal our wealth, our tastes and our membership in societal groups. Some believe that, once we cease to be drivers and become passive riders in robotaxis, this behavior will fade away (no one cares what a bus or a subway car looks like). We’re not so sure about that.
Another thing we’re not sure about is the idea that car ownership will go out of style. There are both practical and psychological reasons that people want to have their own personal rides. Many of us need an array of physical objects to get our daily tasks done, and we leave those objects in our cars. That’s why urban dwellers, who get around using public transport, tend to carry backpacks or large purses with them. Not everyone wants to do that. Furthermore, the need to own things is the central concept of our consumer society—it’s an unhealthy need that’s likely to end up destroying our civilization, but it’s a fact of modern life.
So, will Tesla match Apple’s success, becoming the dominant player in its industry? Quite possibly. Will Ford, GM et al go the way of Blackberry and Ericsson? Stranger things have happened. Will the auto market come to resemble the smartphone market? Maybe a little. Will cars turn into phones, or phones into cars? No.