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Connected Cars: Every Company Will Be a Software Company

05/16/2015 10:51 am ET | Updated May 15, 2016

In 2011, Marc Andreessen declared that software is eating the world. Andreessen (Twitter: @pmarca) noted that the new generation of technology companies will expand their capabilities, establish a sustainable competitive advantage, and grow market share value by placing more emphasis on software innovation. Fast forward to 2015 and Andreessen's thesis is validated across all industries, including the automotive industry.

Digital transformation is affecting every industry including one of the largest, longest and most well-established industries on the planet - the automotive industry. Automotive technology touches all of us every day. For the automobile industry, digital transformation means using the vehicle as a platform to deliver software-based services based on data, sensors and analytics. In this rapid-approaching future, cars represent a shift towards a truly mobile Internet of Things (IoT) world and autonomous vehicles.

As Executive Director of Connected Vehicle and Services at Ford Motor Company, Don Butler works across product development, information technology and marketing to lead the thrust in terms of connected vehicle services and experiences and thinking differently about the products, services and experiences that Ford delivers to their customers in the context of connectivity.

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Don Butler, Executive Director of Connected Cars and Services - Ford

Previously, Butler was head of marketing for Cadillac at General Motors. As a leading authority on how the auto industry will transform using technology and data, he shares his perspective on how Ford and the entire automotive industry are transforming.

5 Ways the Automobile Industry is Driving Disruption

1. A trifecta of connectivity: When it comes to connected vehicles and services, Ford divides connectivity into three facets: beamed in, brought in and built in. The most basic form is content information that is beamed into the vehicle which has been around since the days of the AM radio and today is much more sophisticated with things like satellite radio, traffic and weather forecast data and services.

Brought in connectivity is leveraging the content, the communications capability, the media and the contacts on a smart phone that you bring into the vehicle. This is something Ford has been doing since 2007 when they had the foresight to understand that consumers want to stay connected even when they're in a vehicle environment. Ford allows them to do this in a way that is safe and seamless, by leveraging voice for instance, to allow consumers to keep their hands on the wheel and eyes on the road.

The third aspect of connectivity, built in, is the vehicle as its own independent node on the network, joining the Internet of Things and having its own independent capability of transmitting and receiving information to allow customers to remotely interact with that vehicle to do things like lock, unlock and remotely start the engine.

2. Moving from one-time transactions to building long-term customer intimacy - Butler says that historically in the auto industry it's been "we provide customers with a vehicle and they give us money in exchange and it's essentially a one-time transaction." There is no real ongoing relationship through that ownership period or user period. Butler says that Ford is now trying to understand the services and experiences they need to stay connected and to develop that longer term relationship, both with the vehicle and the customer.

"It's really about us as an industry adapting more and more to what customers are already doing and how our customers are living their lives today. Consumers are increasingly connected and living digital lifestyles so in order for us to remain relevant we need to be part of that and take advantage of the devices that they're using and enabling experiences that wouldn't otherwise be possible because we've got that connection," says Butler

The Ford Focus Energi is a great example of that. One of the areas around electric vehicles is obviously charging so there's increased sensitivity around the state of charge, how long it's going to take to get to a particular destination and if the battery charge capacity enough to get to that destination. With their mobile app, Ford empowers customers to understand these things and then translate that into a meaningful way for them to understand it. For example, if they've got a particular route or destination, they can use the smart phone app to understand the likelihood of the battery charge being able to take them to that destination and also let them know what charging points are along the route or conveniently located.

"It's about integrating ourselves into how our consumers are already experiencing and living life and moving that automotive context into a consumer experience, digital experience and connected lifestyle context," says Butler.

3. The vehicle becomes a software platform - According to Butler, in the recent past roughly 90 percent of a vehicle's value has been in hardware components - the power trains, the suspension, the body, the interior -- and roughly 10 percent of it was in software and control modules. As we go forward, we will see that ratio shifting quite dramatically such that roughly 50 percent of the vehicle's value will be in hardware and the other 50 percent will be divided between software and experiences and out of vehicle content.

As a vehicle's value moves from hardware components to software and experiences, it enables automobile companies to have an ongoing relationship that extends far beyond just the functional drive time. This enables companies like Ford to maintain an ongoing connection and have the benefit of what software enables - capability that gets better over time.

"We will have upgradable software that empowers the consumer to have a vehicle that in two to three years from now is as good as the vehicle that someone buys new in that time frame. It also enables us to leverage the data that is a result of those interactions to enhance that experience and that relationship with the consumer to provide better and more contextual experiences," says Butler.

4. Putting privacy and security first - Along with building innovation to bolster customer intimacy and using software technology to create stronger connections between the driver, passenger and Ford comes an awesome amount of responsibility in terms of security. Butler shares that at Ford they literally have a graphic that illustrates everything they are doing on a foundation of trust. The two components to that trust are privacy and security.

On the privacy side, Ford believes that it's the customer's data and they are stewards on their behalf. "We believe that giving customers control over how that data is used is absolutely the right thing to do and we believe that to the extent that we are providing value commensurate with that permission that we've got a balance there, and we need to always think about what is going to be valuable for the customer, not what can we do with this data," says Butler.

On the security side, it's understanding that as we become more connected in terms of the vehicle, the cellular networks, in-vehicle networks and mobile apps, the threat surface grows exponentially. For Ford it's not just about best practice, but leading practice in terms of things like encryption, air-gap, signature identification and authentication. In order to learn and grow quite rapidly in terms of capability and expertise in this area Ford believes they can benefit from what's happening around them. "Whether it's partnering with other automotive OEM's as a consortium to fight hackers or doing our own intrusion testing and leveraging outside parties to help us with that, it's a never ending journey of not only prevention, but of proactive, quick response in case something does happen," says Butler.

5. The mobility solution becomes multi-variant - "The software-based vehicle is very different, you develop it and you constantly enhance it and we've got to change our internal processes to move from this periodic program model to more of an on-going basis, on-going team development model that gets better over time," says Butler.

Butler says that enabling these robust customer experiences, such as autonomous cars, that go beyond simply buying a vehicle that takes care of day-to-day needs to delivering a customer experience that evolves into an enduring relationship, is going to take working with partners and working with customers to develop and find answers to solve that multi-variant equation.

"As automobile companies move from being in control of a single-point solution to a phase of co-creation with partners and customers, they need to recognize that they don't play the sole role in delivering the connected vehicle solution. That mobility solution becomes multi-variant, and will involve working with partners to understand how the solution is changing and in what ways they can plug into that and continue to be part of the solution to deliver that ultimate customer experience," says Butler.

You can watch the full interview with Don Butler here. Please join me and Michael Krigsman every Friday at 3PM EST as we host CXOTalk - connecting with thought leaders and innovative executives who are pushing the boundaries within their companies and their fields.