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Oil wells on wheels: how carmakers can extract the real value of big data

Raid Naim • Head of Digital Transformation

The Automotive industry has been very strictly tied to oil and gas from the beginning, because, well, cars run on oil. In the 21st century, with energy becoming more and more commoditised and our world growing increasingly digitised, another form of ‘oil’ is emerging – DATA.

With projects like BMW’s CarData platform, automotive OEMs (original equipment manufacturers) are positioning themselves as data producers, opening up lucrative new value streams. But the fusion of personal and vehicle data is even larger than we currently know. In the next decade, automotive OEMs will essentially be producing millions of “oil wells on wheels” per year, the value of which will be huge for carmakers.

As with any raw material, working with data as an enterprise will define a company’s role in the value creation chain. The oil industry runs from crude oil extraction to petrochemical production and all the way up to the development of high-value, petroleum-based consumer products. The process of extracting, optimising and then packaging data runs along similar lines. Automotive companies will need to climb up the data value creation chain to achieve higher margins and find their own positioning within this market.

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Petrochemical Value Chain (source: petreoleumonline.com)

Cost leadership or specialised focus?

In the oil industry, the sweet spot in the production chain where the greatest profits are found has emerged at the intersection between integrated operations and specialty products. It’s here that products that are independent of the underlying commodity inputs are created.

Chemicals giant BASF sits directly within this zone; its business thrives from detaching the value of its products from the price of the raw material. For example, when selling medical goods or processed chemicals based on oil, the value of BASF’s products (and with it the viability of its business) relies little on the price of the raw material, but rather on the demand in the market. This privileged position is similar to Apple’s ability to sell its smartphones for over 1000€ regardless of the price of the components.

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Conceptual Petrochemical Value Chain (source: seekingalpha.com)

For the auto data value chain, the equivalent sweet spot can be found at the intersection of integrated operations and data-based services, where services that elevate the customer value beyond the commodity input of data can emerge.

To reach this point, auto OEMs must move away from the cost leadership approach of merely producing and selling raw data and shift into a more specific (niche) business. This could involve using the data to create specialist insights on a certain domain or even use it to launch entirely new services or businesses in complementary industries.

To date, no traditional carmakers have taken this step. Apple and Google have been trying to cover the entire value chain, although they still have not mastered the source – vehicle (data) production. This is something that could give auto OEMs a distinct advantage as they progress along the data value chain.

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Conceptual Example of Car Data Value Chain (source: author)

Profits fueled by data

Before carmakers can successfully make this transition, they will need to redefine the role of data in their business and develop a new service vision depending on the product or service specialisation they are aiming for. A powerful data platform and ecosystem supporting the strategy will also be needed.

If auto companies fail to do this, their margins will likely be squeezed as they are forced to sell themselves on scale and efficiency while other carmakers thrive further up the chain. As data, like oil, becomes more commoditised, these carmakers will become even more vulnerable, especially premium OEMs like BMW and Audi who’s products and brands feed from differentiation and quality.

Connectivity is turning every car into an oil field of data. If carmakers are to tap into this, they must stake their claim within the emerging data value chain or miss out on the real profit drivers of the 21st century.

Want to gain more insights? Then head to futurice.com/automotive to learn more about our approach to the changing world of the Automobile industry.