Cars offer next wave of investment for tech majors

US Silicon Valley majors such as Google and Apple have long considered the car market as a lucrative and under-developed platform for consumer technologies. Now the companies are entering the market with gusto. The attractiveness of the segment is likely to unleash major investment in this space going forward, especially in segments such as smart car apps, in-car entertainment and Internet of Things tech. With the driverless car also hitting the UK roads, London corporate finance is likely to play a key role in the development of the local connected car market.

State regulation is gradually paving the way for progress in the connected-car market. Following in the tracks of Japan, Germany, Netherlands, Spain and four US states, driverless cars were given the green light to be tested on public roads in the UK in February 2015. The emerging reality of the driverless car is beneficial for tech firms in two ways: the fact that this product will be more reliant on digital solutions than auto manufacturers, and that it will transform the car into an entertainment space for all in-car passengers (crucially, including the previously human driver).

Google essentially became a car company with the development of its driverless car, which has instantly become a major threat to the auto industry. The potential future scenario is that digital companies will become car vendors, able to offer expertly digitally integrated vehicles with which traditional manufacturers struggle to compete with.

Tesla, the highly successful electric car brand, has been closely linked with a takeover by the digital giant Apple throughout 2015. The developer of the iPhone and iPad sees the potential to exclusively integrate its in-demand range of consumer electronics with a vehicle, thereby transferring its high-quality brand recognition into an entirely new market.

The Internet-enabled car is the holy grail of on-the-road digital consumption for tech companies, who remain limited in their penetration of this market at present to network-dependent mobile devices. Once cars with in-built Wi-Fi routers become mainstream, stable music streaming, online gaming and other entertainment segments will become viable in-car.

The mobile app economy has exploded since the rapid penetration of the smartphone, with innovations linked to smart homes, security and banking. A web-enabled vehicle will become a similar app platform, inviting developers to create specialised content in navigation, climate control and various communications mediums. Trade sources forecast that the global app economy will reach $143 billion in value by 2016.

The digitalisation of the car does however present significant challenges. One is the greater vulnerability of the vehicle to cyberattacks and viruses, which can damage software and risk passenger safety. Another major issue is the long-term cycle of car development, meaning digital upgrades and new tech is much slower to reach consumers than in products such as smartphones, making the segment less responsive to innovations and digital trends.




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