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Why Detroit is moving to Silicon Valley

Lucas Mearian | Jan. 4, 2016
Software, not hardware, will define cars.

The GENIVI Alliance, a nonprofit automotive industry group, has also developed an IVI open-source development platform based on Linux.

"The software is really how all the functionality in a car is created. That's why it defines the car now. You used to do that with hardware," Juliussen said.

Software development, however, is becoming increasingly expensive as the number of electronic systems in a vehicle grow.

The creation of infotainment (and other electronic systems) software is a major part of total automotive development costs, making up 40% to 50% of the total expense. Development of an IVI system, for example, costs an auto maker $20 million to $50 million, depending on features, Juliussen said. As a result of the high cost, carmakers are seeking partnerships with Silicon Valley software developers to reduce their R&D expenses. Ford's expected joint venture with Google to build self-driving vehicles is one such example. 

Software saves carmakers money

Besides added features, software also creates value for automakers in other ways. For instance, over-the-air (OTA) or remote software updates, which are now emerging in the auto industry, will lead to savings for automakers by lowering the cost of recalls.

Chrysler had to recall 1.4 million vehicles in July because of a cybersecurity problem  at an estimated cost of $140 million. The company was unable to offer owners an OTA update and owners had to take their vehicles to a dealer for the upgrade.

A dealer-based recall costs carmakers about $100 per vehicle, according to Juliussen. "Remote software upgrades would probably have cut those costs in half and maybe more," he said.

In addition to autonomous driving technology, smartphone application programming interfaces (APIs) are becoming a big business opportunity for Apple, Google and other mobile tech companies.

New software interfaces, such as Apple CarPlay and Google's Android Auto, are allowing IVI's to mirror smartphone functionality and offer a new range of in-vehicle mobile apps.

Automobile software's value comes primarily from being intellectual property -- especially when it is embedded software that is part of a system within an even larger system, according to Juliussen.

"This is very different from PC software, where it is sold to an end user at a relatively high price and the revenue can be calculated," Juliussen said.

CarPlay and Android Auto are already drastically undermining the native IVI system makers, according to Jeremy Carlson, an IHS senior analyst.

"This is one of the biggest disruptions to the [IVI] space. Even if you look back on personal navigation devices, this is much more fundamental. Being able to bring content into the [IVI] with smartphones ... really does fundamentally change what consumers want in the center stack."

Juliussen agreed, saying: "Apple and Google will to a large extent take away most of the business from automakers through cloud-based services over time."


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