Incumbent automakers will have to expand revenue pie, focus on software, says McKinsey

Recurring revenue will become more important to the auto industry as a technology enables a bevy of companies to compete with the likes of Ford, GM and Toyota.

Incumbent automakers are likely to evolve to become software and mobility providers as they chase additional revenue streams based on services and customer data in the years ahead, according to a McKinsey report on the industry.

The report, timed for CES 2015 and all the auto wares and technology that will be pitched, said that shared mobility, connectivity, feature upgrades and new business models will expand the auto industry's revenue pit by about 30 percent, or $1.5 trillion. Today, most of the revenue pie is split between one-time vehicle sales and the aftermarket. In 2030, McKinsey predicts recurring revenue will matter more.

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Credit: McKinsey

In a McKinsey report, the consulting firm said:

Connectivity, and later autonomous technology, will increasingly allow the car to become a platform for drivers and passengers to use their time in transit to consume novel forms of media and services or dedicate the freed up time to other personal activities. The increasing speed of innovation, especially in software-based systems, will require cars to be upgradable. As shared mobility solutions with shorter life cycles will become more common, consumers will be constantly aware of technological advances, which will further increase demand for upgradability in privately used cars as well.

The prediction isn't that surprising--especially in the case of an autonomous vehicle. A self-driving car would turn the passenger into a captive customer who could be marketed to. For instance, Google could command high ad premiums. Apple could have you consume services. Incumbents like Ford, GM and Toyota are all forming in-cabin apps and connectivity services. It's worth noting that Ford on Monday outlined how it would allow Android or iOS to be a front end to SYNC. Also see: CNET Car tech

According to McKinsey automakers will be judged in part on their software competence. As cars are integrated with more technologies, infotainment, active safety and interface will win customers. In other words, traditional automakers will ultimately compete with Apple Google as well as companies like Uber for customers. Ford's partnership with Pivotal was largely based on the concept that the company has to develop applications faster and use the cloud.

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Credit: McKinsey