News In Context

Ford Teams With Google On Connected Cars

Ford Teams With Google On Connected Cars

Ford announced this week that it plans to “co-create its future with Google.” Like most car companies, up until now it has focused mainly on products rather than services. “Teaming up with Google allows us to accelerate our ability to challenge our current ownership model and deploy new business models to capture recurring revenue and profit from software, data and connected ecosystems,’ David McClelland, Ford’s Vice-President Strategy and Partnerships, wrote in a Medium post.

Ford’s six-year partnership with Google, which includes cloud services and introducing the Android operating system into millions of its vehicles, could create an annual revenue stream of $9 billion and generate $5 billion in profit for the automaker, according to an estimate by Morgan Stanley.

A new revenue source of that magnitude might double Ford’s $43 billion market capitalization and send its stock soaring to $25, up from less than $11 now, Adam Jonas, Morgan Stanley’s automotive analyst, wrote in a February 2 note to investors.

Ford has 75 million vehicles on the road worldwide, and if each generated $10 a month in data subscriptions for say, entertainment or retail services, that would create $9 billion in revenue, according to Jonas’ calculations. He applied a 55% pretax margin to come up with a potential for the $5 billion in yearly profit.

 “The deal with Google is a step in the right direction,” wrote Jonas, who recently downgraded Ford to underweight. “The industry is in the early innings of a profound shift to recurring revenue measured in data, derived from its hardware ‘real estate’ and monetized through a range of recurring business models.”

Analysts are not so sure such partnerships are a win-win. While automakers have struggled to build their own connectivity products, investing huge sums in immature and expensive technology, all Big Tech plans to do is scale up existing platform-based empires to encompass the car. In this way,Jan Burgard , a Founding Partner at Berylls Strategy Advisors, wrote in a  January 21 editorial in Automotive World. “Big Tech is carefully positioning its Trojan Horses to take control of the digital future of the automotive industry.” Autonomous driving could see Big Tech seeking to dominate not only the provision of cloud-based services, and even the car’s operating system, but right through to the hardware layer—the electrical and electronic components that are the automakers’ home turf, Burgard says.

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About the author

Jennifer L. Schenker

Jennifer L. Schenker, an award-winning journalist, has been covering the global tech industry from Europe since 1985, working full-time, at various points in her career for the Wall Street Journal Europe, Time Magazine, International Herald Tribune, Red Herring and BusinessWeek. She is currently the editor-in-chief of The Innovator, an English-language global publication about the digital transformation of business. Jennifer was voted one of the 50 most inspiring women in technology in Europe in 2015 and 2016 and was named by Forbes Magazine in 2018 as one of the 30 women leaders disrupting tech in France. She has been a World Economic Forum Tech Pioneers judge for 20 years. She lives in Paris and has dual U.S. and French citizenship.