A Ray of Digital Sunshine During a Hurricane Portends Big Changes in One of the World’s Largest Industries

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A Ray of Digital Sunshine

Here’s something that will bring a smile: As hurricane Irma was about to slam into Florida, Elon Musk boosted the maximum range for evacuating Tesla owners for free and remotely. A very neat trick but that nice gesture spells big changes for all automakers.

As I write this in Atlanta we’ve just gone through 48 hours of Irma and some pretty tough wind and rain. Unfortunately, a number of people have been killed. We’ve been lucky. We have relatives and friends on both Florida coasts and everyone is OK. A surprising outcome is I am also babysitting a friend-of-a-friend’s Tesla down in my garage. They used it to evacuate from Miami.

They came to Atlanta and then caught a flight to their home out of state. A big destroyer in Georgia during this kind of storm is falling trees and flying debris. The car needed to park somewhere sheltered so we volunteered. Ironically, on the same day they got here this article caught my eye: “Elon Musk auto-magically extended the battery life of Teslas in Florida to help drivers evacuate”.

I thought: this is pretty neat and it’s a nice gesture during some pretty foul times. Most everyone knows about how Tesla sends regular updates to its Autopilot system and car software through over-the-air (OTA) distribution – for best results park close to your home’s Wi-Fi. But wait a minute. These are just software upgrades akin to all the ones we get for our smartphones, laptops, etc. Upping the range meant more battery capacity. This meant a physical change to the car’s battery pack. How do you do that remotely?

Here’s where it get’s interesting, and not only for Tesla. It turns out that in the spring of last year Tesla introduced an upgraded Model S – its popular flagship sedan. Besides styling and interior changes it comes in an S70 model and an S75 model. The difference being the size of the battery pack: 70 kWh (kilowatt hours) or 75 kWh. The bigger pack gets about an additional 19 miles more in range.

Now the twist: both models have the same battery packs. They both have the same potential capacity. But if you buy the S70 you don’t get the extra range unless you shell out another three grand to “unlock” the potential. From a logistics and manufacturing perspective it makes sense to standardize on parts as much as possible. But from a pricing and marketing point of view Tesla figures this cosmetic difference will expand the market just a little larger.

Think about what this means. You buy something that already has all the potential functions and features possible but they only get activated as you select and pay for them. Tesla has definitely pushed the boundary of how cars are sold (no dealers, etc.) and they have made software add-ons like their Autopilot available for a fee. But this is another step – the option you might want is already physically there; it just needs to be unlocked by software (for a fee).

This is a break from the traditional concept of purchase where we own the ‘thing’, as it is physically constituted. Here we are buying the ‘functionality’ we choose and the software enables it. The other car companies see this coming but are struggling since they have to contend with their dealer ecosystems. BMW indicates that it will introduce OTA upgrades in the near future but Mercedes has indicated that owners will still need to come to a dealer for any upgrades.

Poor Mercedes, they sound a bit like Barnes & Noble before Amazon or Blockbuster before Netflix. Yet, they are in a bind. When a major part of your business model is built around a dealer model because your product is so complex and prone to mechanical failure (traditional automobiles have 100x the moving parts of an electric vehicle) – what do you do?

Their traditional distribution channel makes very little money on actually selling cars. The most profitable part of a dealer is service and parts and you don’t negotiate on price there do you? But as a manufacturer you make your money on selling the original car therefore, you really need the dealer and the dealer really needs the car brought in for service.

This is what digital disruption looks like. Previous physical interactions get transformed into digital exchanges through software. Traditional business models get shredded. An electric car is not just an automobile with an electric motor; anymore than a self-driving car is just one without a human driver. No, they are whole new ways of consuming the functionality of transportation. The ripples reach out through the whole ecosystem – manufacturer, dealer, financier, insurer, consumer and more. Just look at the poor mechanic. Will we even need mechanics?

As the noted entrepreneur and investor Marc Andreessen said, “Software is eating the world”. Elon Musk’s kind gesture during a hurricane reveals that software is eating the automobile industry.

By John Pientka

John Pientka

John is currently the principal of Pientka and Associates which specializes in IT and Cloud Computing.

Over the years John has been vice president at CGI Federal, where he lead their cloud computing division. He founded and served as CEO of GigEpath, which provided communication solutions to major corporations. He has also served as president of British Telecom’s outsourcing arm Syncordia, vice president and general manager of a division at Motorola.

John has earned his M.B.A. from Harvard University as well as a bachelor’s degree from the State University in Buffalo, New York.

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