Google has done a good job of associating itself with driverless cars and stirring the public's imagination for what many say is the inevitable day when we can work, eat, and even sleep in our cars as they drive themselves. As it readies a prototype fleet of self-driven cars without steering wheels, gas pedals, or brakes, the search engine giant has demonstrated how its autonomous Toyota and Lexus cars using Google's technology have successfully logged thousands of miles on California roads.
Indeed, Google has already become a recognized brand in a car segment that has yet to see commercialization. However, its role in the market will probably be relegated to the less visible function as that of a software player as self-driven cars begin to see commercial launch by 2020.
By funding the publicity campaign showing how driverless cars are viable and safe, Google is helping to create demand for software it will almost certainly look to license in the future. The company will likely seek to define driverless cars as it did the smartphone market with Android, by creating and licensing the OS on which autonomous car software and components are designed.
The supply chain implications are such that automatic systems suppliers, including Continental, Delphi, Siemens, Valeo, and others, will seek lucrative margins by developing and selling their own driverless car software with the components they offer. This would mean that Google will initially compete with its customers.
Google's self-driving software for cars "would provide competition for the Tier 1 ADAS [advanced driver assistance system] suppliers that are likely to also offer such software," says Egil Juliussen, an analyst for IHS. "The top OEMs are expected to develop their own self-driving car software, but smaller OEMs will need help from Tier 1 suppliers and Google."
Google's driverless car.
The public's interest in driverless cars stemming from Google's publicity campaign has served to motivate suppliers to ready their technology as well.
"Google's investment is also advancing the technology much faster than if the OEM/Tier 1s were not challenged by Google," Juliussen tells us. "Hence, Google's tech investment has sped up and forced OEMs to invest more money in autonomous driving and is likely resulting in earlier deployment of self-driving cars."
Google's push in the driverless car space follows the inroads it has made in the "infotainment" sector. Already, the Android OS will serve as the main competing alternative to CarPlay. Google is also backing the Open Automotive Alliance (OAA)'s development of an Android-based infotainment platform with input from Audi, General Motors, Honda, Hyundai, and Nvidia.
As in the infotainment sector, driverless applications represent a gap that players from outside of the car industry can fill. Google and other vendors should further "impact the automotive supply chain," as they have already done in the infotainment space, according to Juliussen.
The auto industry has managed to successfully develop a viable core auto electronic unit (ECU) on its own with its collective development of the AUTOSAR standard, Juliussen says. However, the complexity and scope of ECU software "is small compared to infotainment software and to what the software for self-driving cars will be in the future.
"The operating system, middleware, and apps for infotainment are primarily from outside the auto industry. The reason is that the auto industry needs much more software skills than has been available -- especially for large software projects -- and this need will continue and probably expand."
Besides relying on software players to get the robustness and complexity of driverless code right, automotive OEMs will also likely place their trust in established vendors to bundle security features in their products, given the hacking threat that carmakers now face.
"This software opportunity is what Google and other software companies will tap into, and the auto industry will need all the help it can get to make reliable software and software that can withstand cyber security threats in the car."
But while Google will more likely than not seek the higher profit margin in software, compared to the relatively low-margin business of the carmaker OEMs, it could certainly become a carmaker if it wanted to. Google's $12.22 billion in net income and $18.66 billion in operating cashflow in 2013 indicate that Google has ample financial reserves to fund an OEM acquisition. Electric carmaker Tesla has been cited as a potential Google acquisition target.
But the possibility of Google becoming a carmaker in its own right remains remote, Juliussen feels. "Google probably has the cash to become an OEM, but why would they enter a business with low profit margin, when Google can earn much higher margins on the software?"
So if and when driverless cars become fixtures on the road during the coming years, they will likely not bear a Google badge. But Google does have good shot at helping to define the OS on which the technology runs and the standard system developers will adopt.