Apple, Google Go Home

For some marketers the operative mantra is go big or go home. It looks like Apple and Google are both taking a harder look at the automotive industry and have decided to go home.

The media is rife with reports of Apple hemorrhaging automotive engineers while senior executives on Google’s automated driving team have been skipping off to more intriguing or lucrative or less problematic ventures. The problem: The inability to locate the high volume, high revenue pony in the pile of high cost development, regulatory redtape and loathsome liability that constitutes the automotive industry.

The first hint of trouble was Google’s decision to jump out of the car insurance business nearly as soon as it jumped in. Google Compare Auto Insurance entered the market in 2012 in the United Kingdom, an attractive market for insurers because of the existence of a single regulator for a large homogeneous marketplace.

Google followed the UK launch with a U.S. launch late last year in California, but the morass of state-by-state regulatory hurdles and slow-footed insurance partners sent Google to the exits in both the U.S. and U.K. It was clear to those involved that the slow path to a profitable and eventually dominant enterprise in the car insurance market was intolerable in the context of internal expectations of high growth and a rapid ramp.

Shift gears to self-driving cars and both Google and Apple are confronting extreme technical challenges, prying eyes, Federal and state regulatory oversight and increasing competition from incumbents. Swizzle into this cocktail of conflict an ill-defined marketplace where mobility as a service is already being adequately served by cheap ride-hailing services and increasingly driverless public transportation – and the market prospects dim rapidly.

Ford is in the midst of convincing its own investors of the volume market prospects for driverless cars as its stock swoons in the midst of its own aggressive self-driving car announcements and investments. So if you are big and taking on the self-driving car opportunity, you have everything to lose and it’s pure risk. If you are a tiny start-up – like Otto (to which Anthony Lewandowski decamped from the Google self-driving car team) or Cruise Automation, it’s all opportunity and upside.

Google and Apple are not prepared to suffer the blowback in the manner of Tesla Motors Chairman and CEO Elon Musk should anyone lose their life or be severely injured in a Google or Apple self-driving car. Those crusty old car companies are actually better equipped to establish the standards and safety protocols and withstand the liability exposure of self-driving technology.

But the more fundamental challenge is the reality that a self-driving car is not likely to be owned, which means getting into the transportation business – the public transportation business. That’s a very different market from mobile devices and downloading content and selling cloud services. Apple and Google likely both perceive opportunities from enabling the systems, services and software that bring these applications to life – but would rather not take responsibility for creating and selling the hardware.
So, if you can’t go big, you go home. Or, if you currently work for Apple’s or Google’s self-driving car programs, you polish up that resume. It’s time to turn all that hard work into a real opportunity outside of those organizations. Your path to a profitable exit will be far shorter on the outside than by remaining inside these two large, newly-timid organizations. Investors are waiting and whatever you create will be your own.

Roger C. Lanctot is Associate Director in the Global Automotive Practice at Strategy Analytics. More details about Strategy Analytics can be found here: https://www.strategyanalytics.com/access-services/automotive#.VuGdXfkrKUk