Hey, so we are joined today by my colleague Thomas Weber.
He's a partner colleague and we're jointly looking into
software.
Hey Thomas, great to meet you today here.
Hey Alex, good seeing you too.
So software is obviously redefining how the cars are
being designed.
It's defining more than 90% of new functionalities.
At the same time, we do see battery electric players putting
a ton of pressure now on the traditional OEMs as well as
suppliers to really drive this forward.
Now we have been trying to investigate in a lot of detail
what this means for the traditional suppliers who
obviously delivering hardware, but what is their right to play
in software?
I mean software and electronics is a big business.
It's been 350 billion U.S.
dollar business in 2023.
It's going to double until 2030.
It's going to be over a trillion U.S.
dollar business in 2035.
So there is big business, 60% of this should be addressable for
suppliers, 40% is direct monetization with end customers.
If you think about suppliers, there's sensors, there's sport
rim electronics, there's ADAS, there's compute platforms.
So a lot to do.
However, also I see that many of the players are struggling to
really make money out of software.
Why is this?
It's it's quite surprising because actually there are quite
a few players who do make ton of money already in the new space.
Think about semiconductor players, think about
hyperscalers, also technology players that come in with
software bundled offers.
But then also if you think about the OEMs, because at the end of
the day they commercialize the software based functionality
already to end customers.
So there are players out there who do make money.
However, we do see that there are rules of the game and there
are two main rules that definitely define if you can
make money out of software.
One is you need to own IP and the technology stack, you need
to have your own intellectual property and the other one is
about scale.
So you need to be really defining it.
Now there's another item that is very interesting.
We also asked industry executives what is the impact of
software on the value of hardware.
And surprisingly, actually 75% of people were saying that they
believe that software will increase or at least keep steady
the value of hardware.
Only 25% were expecting some detrimental effects from it.
So we should actually be very optimistic.
And going forward, I expect that there will be a couple of new
business models emerging.
So one will be around platform place, it's a very horizontal
play more like semiconductor players.
Then the second one is going to be more vertically integrated
solution place like think about ADAS type of business models.
And then the third one is going to be more product place, very
particular elements out of the overall technology stack.
So I do think that if you bring together the IP and the scale
that it will turn out into a good monetization, but there is
a lot of business model transformation going on.
Then if you need to reposition in the tech stack.
And I think this repositioning and this transformation of
business models is the big challenge that everyone has
ahead of themselves.
We recently asked suppliers how they feel about their software
competencies and actually they don't feel too bad about it,
producing software, embedding software, but most of them still
do it in a very traditional customer project development
basis.
So what's really needed then is investing, building into
platforms, building into capabilities to do continuous
upgrades and of course scaling up.
And this is exactly also what I would say in terms of the
scaling effect.
It's all about scale and there are multiple lenses to this.
The first one is very simply volume.
So when we look at pureplay software companies, they
actually took in many cases a decade to become profitable.
And it's all about building that volume that allows you to then
spread your fixed costs.
Then the second one is around scaling the capabilities because
you need a huge depth and breadth at the same time of
capabilities and skills to actually deliver this.
And then there's the third dimension to this, which is
partnerships.
So you really want to make sure that you don't try to go it all
alone because the stack is way too large for that.
So you need to establish your network.
So as long as you manage to learn those three lenses, you
will actually get to the skill that you need for the business.
Great.
So lots of opportunities for suppliers, but also lots of
transformation work ahead of us.
Yes, it is.
Thank you so much.
Thanks, Alex.