Re/code has a pretty good article this morning on why Apple might get into the car business, but I thought I'd expand on a few points (and toss in my two cents, because why not?)
So has Apple completely lost its mind?
It needs to be remembered that Apple doesn't create new markets per say, but identifies markets that are at the point where a significant disruption is possible through Apple’s design division engineering and there’s a strong likelihood of mass acceptance by the public.
Case in point, the iPad was not the first tablet brought to market by far. Microsoft, Sony and other major tech companies had been selling tablet computers for several years prior to the introduction of the iPad. But when Apple moved to bring the iPad to market they had calculated that they could build a tablet computer that was better than any available (by a country mile), and the public was ready (if not eager) to buy their tablet computers because, in part, of the success of the iPhone. (i.e. An iPad and its interface would be familiar to the public and not an intimidating device. As such, Apple could focus on all the positives of an iPad and not have to spend time explaining the product in its initial marketing, allowing it to sell much more to a far less apprehensive public.)
Apple is looking at electric and/or self-driven cars now, in part, because the rest of the car industry has been so slow to move to embrace the technology. Reading the public’s interest in the technology and Tesla’s success as a start up taking a significant bite out of the luxury car market (especially in areas where emissions controls are more significant — e.g. up to 20% of new luxury cars sold in California are Teslas now), Apple sees a void that it believes it can fill and fill well.
But what does Apple know about the car industry? They make computers and mobile phones.
Sure, cars can be a very different industry than computers, but that’s if you view it only through the traditional automotive model. What’s less realized is that the combination of self-driving cars, rise of meaningful electric cars (led by Tesla), and the quiet acknowledgement that emissions controls are going to have to get much more stringent around the world as we must respond to global warming have resulted in an automotive industry that’s in flux and prime for disruption.
Customers want more and they want better, and they are at the point where they don’t want it incrementally — a slight increase in fuel efficiency here, a slight bit of technological improvement there. Tesla’s main limitation is its ability to scale up right now and the financial floor required to actually purchase one of its cars at the moment (approx. $85K - $120K required to purchase a car.) Customers looking for something similar in their price bracket really don’t have anywhere else to go, which means there’s a big backlog of customers who are likely buying cars that are compromises at best for them who would likely jump quickly if a good alternative that met what they were looking for became available.
Still, people are often loyal to their car brands. Why would someone who's bought Fords suddenly buy an Apple?
Sure, people have traditionally built up loyalties to traditional car brands, especially in some regions of America. There's absolutely no guarantee that people are willing to suddenly jump from their Fords, Chevys or Hondas to an Apple. But there's another part of this equation that needs to be remembered that may end up trumping (or at least degrading) those brand loyalties.
What the car industry has been loathed to talk about in recent years is that there's a seismic shift going on in the relationship of the millennial generation to personal cars when compared to previous generations, and it's showing no sign of abating. For previous generations, the car was at the epicentre of youth culture and society. Going back to the post-WWII Baby Boomer generation, independent access to a car equalled the transition to adulthood. It meant freedom, responsibility and, in many cases, was the first major purchase any person would make. Cars and youth culture became so intertwined that it's one of biggest themes of early rock music and many films of the time, right up there with first loves and fighting over them.
The car industry did everything in its power to tie itself to youth and promote the idea of the car as a gateway, perhaps the most important gateway, to adulthood. Being tied to youth, it also was able to sell itself to older generations as a way to recapture their youth, and made a mint on selling more expensive cars to aging Baby Boomers that "made them feel young again." The overwhelming message for generations was as a teenager a car was the most important thing in your life, and as an adult it was a way to get back to a simpler time and escape the responsibilities of life. This worked for years, and for the car industry there was no reason to believe it would stop.
Then came along the Millennial generation.
In this new generation -- the first never to know a world where the internet was not a constant presence -- freedom and independence could be found with the touch of a keyboard, rather than the turn of a key. You no longer needed to physically go somewhere to meet people, and youth quickly formed relationships and communities across the planet. Teenagers with new ideas could become millionaires seemingly overnight as they created companies and innovations the world had never seen before. The internet, and especially social media, became both and outlet and an avenue for this generation's dreams and ideas. Most importantly for the car industry, the internet became the means to independence. Access to the internet became the priority for this generation, and as such, computers and especially the latest smartphones became the most important objects in this generation's lives. Studies started to show that as Millennials were coming of age, the youth were re-prioritizing their spending to focus their major spending on housing, food and the latest phones and communications technology. (This Goldman Sachs study found only 15% of Millennial respondents rated car ownership 'Extremely Important', while 30% responded 'I do not intend to purchase one in the near future.' Many indications show that Millennials are as likely to turn to car sharing services in the future for their automotive needs as they are to actually purchase a car themselves.) Cars are quickly becoming a convenience at best.
With a new generation no longer prioritizing car purchasing, and arguably reallocating the funds they would have previously spent on a car to pay for their latest smartphone and data plan, the traditional car industry is working on borrowed time. But all evidence shows that like the traditional tech industry powerhouses IBM, HP and (to a lesser degree) Microsoft in the 1980s and 1990s, the traditional automotive industry has shown so far that it is more focused on serving its previous generations of customers (particularly the Baby Boomers) at the expense of truly adapting to the priorities of its next great customer base.
Whether those of us who aren't Millennials want to accept it, the Millennials will be the next great consumer generation. Products of the Baby Boomers, they have the numbers and they are changing all facets of society with a similar impact. For businesses, it will be adapt the demands and expectations of the Millennial generation or die. (Sure, Baby Boomers will continue to hang on, but as they enter old age and increasingly die off there will be a smaller and smaller business niche focusing on their interests.) That includes the auto industry.
Okay, so Millennials are changing everything and the traditional car industry is tone deaf to it. Why does this create an opening for Apple in the auto sector?
Apple is well positioned to enter the car industry to meet the interests of Millennial buyers and it knows it for a couple of reasons:
- Strong brand recognition.
Apple's now the biggest company in the world by market capitalization. That's something that has happened within the last 15 years, with the major jump happening in the last eight years (basically since the introduction of the iPhone.) That's arguably happened for a number of reasons, but a big part of it has been Apple's remarkable ability to leverage it's passionate core of fans to create a gigantic mostly positive brand identification, that started with youth and then filtered down to older generations. (There are some indications that its popularity among older generations have led to some backlash among youth who have embraced Google's Android system, but it doesn't appear to be a universal generational shift. More like a tech insider elitist issue. I've written a bit about it here.) Apple now has a brand presence in popular culture akin (if not greater to) the major car companies of previous generations.
- People are used to seeing Apple play the role of industry disruptor, and generally trust Apple when it does so.
After seeing Apple change the personal computing, mobile phone, personal tablet, cloud computing, music and entertainment sectors, rumours of Apple move into another industry are a regular occurrence and are almost always greeted with excitement. Apple's design studio under Sir Jonathan Ive has achieved nearly cult-like popularity, with the rumours and secrecy of its design unit's work comparable to Willy Wonka's factory. People want to see Apple in any sector, if only to see what Apple's design approach would be on the products of the sector.
- Apple's already in the car industry.
Apple has previously announced that it is getting involved in cars through its Apple Car Play in-car entertainment system partnerships with major auto makers. After years of car buyers complaining that they wanted their in-car entertainment systems to be more like their iPhones and customers increasingly using their iPhones are the focus of their in-car entertainment (through auxiliary input USB cables and/or bluetooth streaming connections), Apple realized that it was better for its brand to convince car companies to directly contract with Apple to build in-car entertainment controls that reflected their iPhone interfaces (adapted for cars) than continue to leave customers frustrated. (Again, a case of traditional manufacturers not responding to their customers and Apple having an opportunity to disrupt with a customer base eager for change.)
Apple already built a number of car industry relationships, built an understanding of and in-house capacity at least one (if not more) of the major systems that goes into a working car, and fundamentally, has figured out ways of doing things better than it's currently being done. While moving from improving a single element of a car to building a whole car is a big jump, it's not a jump that's out of the question.
- The car industry itself is in the midst of a major change.
The consumer public is increasingly seeking products that they will have confidence have a positive impact on the environment but still meet their needs as it is evident that we must respond to global warming. While the automotive industry has responded to this desire (plus rising gas prices) with improvements in mileage, there is increasing consumer consensus (especially among Millennials) that such changes aren't nearly enough. To date, electric cars such as Teslas have been viewed as the leading green automotive technology, and are increasingly desirable as the technology gets closer to breaking the so-called '200 mile/400 kilometre barrier' that has been identified as the psychological point at which people will have confidence they can reasonably travel without running out of electricity. (This is a bit of a false notion, as it's been shown that most people's daily drives are relatively short drives, but suffer from spending time in significant congestion. Here's some data analysis from 2009, done by the US Census Bureau.)
As various orders of government move to implement stronger emissions standards world-wide, there is an opportunity for Apple to leverage its resources to aggressively enter a new part of the automotive sector that traditional car companies are reluctant to embrace. Tesla has opened the door for consumers to think about buying electric cars, and even more important has brought a sexy desirability element to them that previous cars didn't (e.g. Nissan's Leaf, Toyota's Prius EV). If Apple can do it right, and continue to press lawmakers to ensure regulations and local laws are changed to reflect the shift in the auto sector (e.g. some US states make it illegal to sell cars in any other way than through a traditional dealership network, which was designed to protect traditional dealer networks), Apple has the potential to bring a huge disruption to the auto sector.
In addition, as self-driving car technology gets closer to becoming a daily reality on public roads, lawmakers are now in the process of revising laws to permit such vehicles to be purchased and operated by individuals and commercial operators. This technology shows all the promise of being a game-changer for society and how we interact with (and think about) our cars. It's the kind of technology that Apple loves and will want to be a major part of (with huge profit potential if they can get it right). While just getting involved with an electric car offers a fair amount of promise for Apple, incorporating self-driving technology and working with lawmakers to ensure regulations are favourable to Apple's future car products (and the self-driving electric vehicle sector as a whole.)
Despite all its talk of being a creation-focused company, Apple is very much in the business of making money. They seek out areas of great financial return where they have the potential to dominate the sector and add to their overall quality brand identity. The auto sector is primed for just such a disruptive entry by Apple, or frankly by anyone else who can arrive with a similarly impressive product. Consumers are primed for it, and that will only grow by leaps and bounds by 2018/2019 (when Apple is rumoured to launch its car product, and incidentally, when a) many consumers will be coming out of car leases that they may have signed in the last few years; and/or b) many Millennials will probably be having children and will be looking for a vehicle that suits their needs while also reflecting their priorities and interests.)
Apple's moves in this sector will be of interest to many, and scare the hell out of the traditional automotive companies. It will almost certainly prompt a response from them (and others). As consumers, we can only hope that it's a positive one that pushes the traditional companies to embrace innovation in the product design, rather than try to lobby law-makers, regulations, and possibly the courts to try and prevent Apple and others from entering the sector. (We've seen this happen with Tesla, but taking on Apple would be an entirely different proposition to taking on a start-up -- even if it's the most well-funded start-up in history with a brilliant and charismatic CEO.)
The next few years will be a very interesting one for the auto sector. I'm really looking forward to see what they bring. .