Transportation is about getting different places within the physical world, while cloud is fundamentally about moving around in the virtual world. Regardless of this different focus, the car can learn much from the cloud.
Transportation is a vast field of industry. The top five car companies bring in more than $822 billion in just one year. Although automotive is enormous, it’s vulnerable to the same technological disruption that is occurring elsewhere. Zipcar, Lyft, and the ultra-popular but much-loathed Uber are changing the way that we get ourselves from place to place.
IT has been in rapid transition just as transportation has.
Looking at the computing transition from physical, legacy systems to cloud architectures shows us the path forward for automotive companies – as indicated by these five lessons.
1. Renting is the budget-friendly choice.
In the pre-cloud era (that of the second platform, the common client-server setup), those who rented IT basically expected to pay more and get less. However, as the volume of IT consumers expanded and technology was adjusted to optimize efficiency, renting became the way to go.
“Today’s cloud IT vendors have both the buying power and the operational discipline to minimize the cost to the customer of a unit of data storage or computing power,” says Sapphire Ventures venture capitalist Maxwell Wessel. “[T]he cloud IT vendors are also able to provide incredible variety to their customers without dramatically increasing their costs.”
The same transformation is also starting to happen with automobiles. Just like cloud computing vendors, those who offer “pieces” of cars in taxi services and ride-shares want the cost of use to be low so that profit and driver income is maximized. While dealerships don’t cry when cars break down and customers come back to their lots, cloud transportation companies prefer that cars have high fuel-efficiency and receive regular maintenance so that they retain their functionality and value.
Cloud car vendors don’t yet offer nearly the same level of choice as we get on a car lot, but renting is increasingly the savvy financial choice. (Interestingly enough, the same logic – that renting is preferable to buying – holds true for homes, as argued compellingly by attorney and tax specialist Kelly Phillips Erb.)
2. Network externality improves the service.
The scale of the cloud, having many machines available rather than one, increases reliability and speed. The only reason all those machines are available is because other users are joining in – called network externality or network effect (the impact another user has on the value you receive).
In cloud IT, network externality attracts additional users, makes it easier to manage virtual environments, and simplifies recruitment.
This factor drives value for transportation as well – both in terms of convenience and price. “The more Zipcars in your city, the more compelling it is for people to sign up for Zipcar,” says Wessel. In terms of cost, he adds, “[o]nce a ride-sharing company has built meaningful network density, a driver might leave you on one corner and pick up his next rider only a block down the road.”
In both fields, building that network represents a huge competitive advantage.
3. Established players will have difficulty changing.
It won’t be easy for many suppliers to modify themselves for the new cloud world.
That’s in large part because the nature of the most important customer is changing. Automakers are used to focusing on individual consumers who want to buy high-end cars loaded with features. In the emergent car cloud, the biggest areas of focus will more likely be businesses that are purchasing huge fleets of vehicles. Auto companies will have to adapt to meet completely different needs.
The B2B buyers will “care about extremely minute efficiency gains that even the pickiest individual buyers wouldn’t even notice,” Wessel explains. That will change further as self-driving is legalized. At that point, says Wessel, “they may want cars with very different service models, layouts, and architectures.”
4. Transition will be gradual, with continuing edge cases.
Although cloud computing has been incredibly disruptive in general, it hasn’t been an overnight transition, and edge cases remain.
That’s going to be true with automotive as well. I’ve used ride-sharing myself in Austin, Texas, and Los Angeles, California. When visiting Roswell, New Mexico, though, my girlfriend and I were reliant on taxi services that either didn’t answer the phone or said they’d be there in half an hour. These technologies will take time to radiate out to less populated areas.
Car lovers and the wealthy will surely stick to their guns rather than take a ride with a stranger in a Prius or fuel-efficient minivan. Plus, Wessel adds, “there is nothing in place today to help address the edge needs of those doing things like hauling junk, transporting construction tools, or moving people long distances on a regular basis.”
5. Speed and convenience aren’t just physical.
The most general lesson that cloud computing has to teach any industry is that speed and convenience may end with a physical purchase, but those elements always starts online.
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By Kent Roberts