What Ford can learn from Apple
The following is a guest post by Mike Vorhaus, president of consultancy Magid Advisors. The opinions expressed are his own.
The annual Consumer Electronics Show is usually associated with the latest gadgets – those devices that you might have seen years ago on the Jetson’s or Get Smart. But as this year’s CES wraps up on Sunday it clear that this show is no longer just about electronic devices. It’s about consumer entertainment and consumer entertainment services.
This is a big change for the consumer electronics manufacturers, whose profits largely have come from selling the devices they make. This new reality, which has been a long time developing, is forcing makers to move toward connected devices, online storefronts, online wallets and content for sale.
We are now in a world of entertainment services that are closely tied to the devices they work with and sometimes managed by the hardware manufacturer, too. Think Apple’s iPod or Microsoft’s Xbox.
In this new world, companies and executives who have focused on levers such as efficient manufacturing, labor relations and costs of components must think more about digital commerce, portability of content across connected devices, digital services, and content that can be “rented” or “sold” to the consumer across devices.
This will have a profound effect on how a company is organized and operated. The people and the skill sets at the consumer electronics companies will have to change. These new business models require new partnerships and new capabilities.
No longer can engineers and product designers be the reigning forces at consumer electronics companies. These companies will need teams that truly understand how the consumer is entertained, how they spend their entertainment money and timing and the impacts of multi-tasking. They will have to decide which content is most important to consumers and could drive subscriptions, versus which content is better for a la carte sales.
The consumer electronics companies will need to build up expertise in billing, customer service, licensing arrangements for content and business relationship with independent application and content developers. The alternative is akin to what happened to telecoms companies, which have become easily interchanged “dumb pipes”. Dumb pipes make a lot less money than smart pipes that deliver services and content; witness the strategy that Verizon is pursuing with its FiOS cable service.
If Ford is driving toward connected-cars, and the drivers (or rather, one would hope, the passengers) want to download content, play games on the Internet, update their Facebook status, or balance their checkbook while in the car, then where is the money for Ford? Only in selling the car with the new hardware? Or will Ford build a team and business partners that allow them to mine the ongoing value of content and services? That would allow Ford to generate revenue beyond just selling a piece of steel with more electronics.
If the device/gadget manufacturers want to compete successfully and find new revenue for their shareholders, they will have to build up their expertise with hybrid business models where they can make money not just on the device, but on the “value stack” as Steve Ballmer likes to say, that exists in the TV, mobile, and other consumer electronics industries.
You can contact the author at MVorhaus@magid.com and follow him at twitter.com/mikevorhaus.