Automotive industry disruption - Q/A with investor Evangelos Simoudis

Profile picture for user jreed By Jon Reed September 28, 2015
Summary:
Blogger and investor Evangelos Simoudis is in the midst of a deep dive article series on automotive industries. In this Q/A review, we learn about what drives the series - and his take on the Volkswagen scandal.

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Evangelos Simoudis is one of those rare enterprise software investors who actually blogs about the enterprise . A self-described SaaS, mobile and big data venture capitalist, Simoudis recently penned a multi-part series on automotive industry innovation - or for some, turmoil.

By authoring a long-form series, Simoudis became the unwitting target of my semi-occasional "long form spotlight." The goal? To provide a glimpse of the motivations and feedback behind a major blog undertaking. For reference, Simoudis' series can be found here: The Innovation-Driven Disruption of the Automotive Value Chain: Part 1, Part 2, Part 3.

What follows is highlights from our email exchange. It's not easy to rile Simoudis up, but as you'll see, I gave it a shot. In turn, he explained why automakers are worried about the upstarts and startups, and why the automotive/Silicon Valley collaboration is falling short. After I sent the questions to Simoudis, the Volkswagen emissions software scandal erupted. I asked Simoudis to comment on that, which you can read at the end of this piece.

Jon Reed: It's rare for a blogger to do such a deep dive on an industry. What inspired you to write this?

Evangelos Simoudis: For the past three years, I have been studying how corporations are starting to re-think their innovation models, and how they are starting to interact with startup ecosystems, like Silicon Valley. I have been developing a model on how startup-driven innovation can be utilized by corporations in a variety of industries. To understand whether this model can be applicable and beneficial to such corporations, I have been spending time with many corporate executives.

In an effort to help such executives take advantage of my model and of startup ecosystems, more generally, I thought it would be important to write these longer pieces where I can describe in more detail the drivers for this disruption, the technologies and companies that are causing the disruption, the response of that automotive companies to date, and some ideas of what these companies should be doing differently based on my model.

Reed: Why did you pick the automotive industry? When it comes to innovation/disruption, are there particular dynamics in automotive that are worth noting?

Simoudis: Every industry is affected by the accelerating use information technologies. I feel that previous technology and business model innovations have not impacted the automotive industry as much. However, today's technology and business model innovations (software, data and analytics, additive manufacturing, etc), can have a transformational impact on the automotive industry. Finally, the automotive industry, because of its size and impact on society - regardless of geography - is one whose disruption can have long-term effects. Healthcare is another such industry.

Reed: What is the most interesting thing you have learned in your automotive industry research? Were there any big surprises?

Simoudis: The industry is taking self-driving cars very seriously. They are genuinely concerned about Google, Tesla, Apple and the Silicon Valley startups. For this reason, they have established Innovation Outposts in the Valley, and they are all working on autonomous cars.

Top five points from the automotive innovation series

Reed: For those readers who haven't found the time to read all three posts to date, what are a few takeaways from the series to date?

Simoudis:

  1. While everybody thinks of the automotive industry in terms of a manufacturing and sales value chain, the car use value chain is even more complex and important, with significant startup innovation.
  2. To address important problems such as climate change and transportation patterns, companies have been innovating using technology as well as new car use and car ownership models.
  3. Software, data analytics, sensors, and additive manufacturing are transformational technologies. Autonomous, connected vehicles combined with mobility services will become the wave of the future. Electric, autonomous connected vehicles will continue to be extremely important, though gas-powered vehicles will remain dominant.
  4. While automakers have high R&D spending, the majority of their investments are aimed at sustaining innovations. Automakers realize that they need to re-think their innovation model but, while they have established innovation outposts in areas such as Silicon Valley, they are still not collaborating adequately with startups. Moreover, their groups in the innovation ecosystems are not collaborating enough with the existing business units so that they can be more impactful in the way they operate. Culture is a big impediment.
  5. Startups must realize that they cannot disrupt the entire automotive value chain; it is too expensive. For this reason, they will need to learn to set up collaborative relations with the companies in the automotive value chain. Automakers, their suppliers, their dealers and other large companies participating in the automotive value chain will need to learn how to effectively collaborate with startups by establishing the right value exchange relations and processes.

The old automotive guard versus startups

Reed: You've written about the disruptive innovations sparked by Tesla and Uber. But it's not easy for startups to become dominant automotive players. How concerned should old guard automotive players be about the current wave of startups? How should they respond?

Simoudis: Automakers, their suppliers, their dealers (and the distribution system in general), as well as insurance companies, financial services institutions, and repair companies should all be worried about the innovations created by the startups. They should embrace startup-driven innovation and start establishing processes that allow them to collaborate with the startups and the innovations they produce. Establishing innovation outposts is a step in the right direction but these efforts are not always well-coordinated. The groups that are part of these outposts are not always working with startups.

Reed: You wrote about how automotive companies are collaborating more closely with Silicon Valley. Tell us about that.

Simoudis: I said that automotive companies have established innovation outposts in the Valley. But my conclusion is that they are not collaborating closely with the startups, and the other members of the Valley's innovation ecosystem.

What CIOs and CTOs can learn

Reed: What do you think a typical enterprise CTO/CIO can learn/use from looking at automotive industry dilemmas?

Simoudis: You cannot afford to continue thinking that all corporate innovation will be produced internally. The majority of R&D investments are spent on advanced development to sustain existing products and business models. Even corporations with strong R&D organizations must look outside the company's four walls for innovations, particularly disruptive innovations. Startup-driven innovations should be a very important component of every corporation's innovation initiatives.

Reed: Are smart cars really better cars? Between security/hacking fears and the complexities of modern car repair, are we losing track of the value of a simple, analog experience? Can't the smart device in our car be our smart phones?

Simoudis: Cars have been getting smarter year by year. As the cost and capabilities of sensors are increasing, the sophistication of software is improving, connectivity is getting faster with better bandwidth, our ability to collect and analyze data is getting better. Vehicles are getting smarter. As in every other area where intelligence and automation have been introduced, problems like security arise and will need to get solved. The simple analog car will become an artifact of the past. Smartphones will continue to play an important role in the car of the future, as they will be able to seamlessly integrate with the car and enable their owner to have a continuous mobile experience within the car.

Why spend time on automotive instead of mass transit?

Reed: Isn't it a buzzkill to write about the automotive industry when we should be writing about mass transit innovation like Elon Musk's hyperloop, high-speed rails, and moving away from American freeway/commuter gridlock? Can cars truly be part of a sustainable economic/energy solution?

Simoudis: The reason I framed the articles around a couple of important societal problems, such as climate change, and also spoke about electric, autonomous, connected cars and mobility services is because I feel that we need to start thinking about transportation as a continuum. There is room for private cars, public transportation, ride sharing, car sharing, bike sharing, etc.

Reed: You've now published three parts in your disruption of the automotive value chain series. How many more can we expect? Anything else you plan to cover in this series?

Simoudis: There are a couple of additional areas I would like to cover, particularly around how automakers should be utilizing better their innovation outposts. This means that I may be able to write one final post. I would then like to identify 1-2 additional industries to focus on, with the same approach I followed for the automotive industry.

Final thoughts - reactions to Volkswagen

Reed: Since we started this exchange, an industry brouhaha occurred courtesy Volkswagen. What are your reactions?

Simoudis: For me, the VW problem is a corporate culture issue. I have written a piece on the characteristics of corporate innovation culture. Automakers have a rigid, hierarchical organizational structure that promotes silos and kills up and down and sideways communication. While not unique among automakers, VW also has this culture, which contributed to the problem it is now dealing with.

Their size, because of the number of employees they need to have, is also giving them a latitude that other industries don't have. See how the U.S. chose to support the domestic auto industry during the 2009 recession. In a sense, it is a similar to what we had seen with financial services institutions many of which were deemed too big to fail, during that same period. This is why I think the industry is ripe for disruption by the likes of Google, which not only have the technology chops, but they have the appropriate corporate culture for the times.

Disclosure: Diginomica has no financial ties to Simoudis. Simoudis and I are fellow members of the Enterprise Irregulars, which I describe as a loose consortium of enterprise bloggers and practitioners. We met through the Enterprise Irregulars group, which is how this piece ultimately came about.