The next-generation Automotive suppliers

The amount of software and electronic systems in a vehicle are at an all-time high. Software is like a Lego toolbox where you can create your own pieces. A key aspect of good software is composability. If you have an idea for an application(app), you could very well piece together a working prototype over a weekend by mostly using open source software that is already available.

With the rise of software-defined vehicles, it is a valid question for OEMs to ask. How much of it is already out there? Soon they will realize that there are lot of options for most features. But the optimism will be short-lived as soon as they begin to consider safety-criticality, regulations, custom options etc.

This is where companies like RedHat have thrived for years. They take something that is open-source, modify it with the bells and whistles needed for this specific application and sell that software and support to OEMs. Like most software based business models, this ensures both a fixed price and a recurring revenue.

If you would compare the top 50 automobiles in any recent year, I would bet there is a large enough "common denominator" of features among them. Despite all OEMs trying to differentiate themselves, the truth is that a majority of what every OEM does in terms of features are the same. Of course, there are outliers and exceptions to this.

As every OEM is racing to build in-house capability to develop automotive software, this model would enable specialist/expert SW suppliers to provide high-end features to OEMs. OEMs would then be able to chose which parts are actually strategic for them to build themselves. All this, without having the OEM to take the complete cost of building that in-house. Win-win for both parties.

This business model of enterprise-grade open source software is tried and tested in the SaaS world and has huge potential within the automotive space. 

CHART: MARK MONTGOMERY; SOURCE: DELOITTE TOUCHE TOHMATSU LIMITED

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