US smartphone shipments declined YoY for the fourth straight quarter in Q3 2023 amid weak consumer demand.
Google, Samsung and TCL were among the brands recording the steepest YoY declines, while Motorola and Nokia HMD managed growth amid a challenging market environment.
Apple’s iPhone shipments declined 11% YoY, in part due to the later launch date of the iPhone 15 series compared to the iPhone 14 series.
Weak upgrade rates at the carriers were the main source of weak smartphone shipments, signaling that consumers are opting to hold on to their devices for longer.
Denver, Boston, Toronto, London, New Delhi, Hong Kong, Beijing, Taipei, Seoul – November 1, 2023
US smartphone shipments declined 19% in Q3 2023, according to Counterpoint Research’s Market Monitor data. Samsung, Google, and TCL saw steep declines of 26%, 37% and 51%, respectively, in their smartphone shipments. However, Motorola and Nokia HMD managed to increase their shipments by 31% and 17%, respectively, compared to the same period last year. Apple’s shipments were down 11% compared to Q3 2022, part of which is attributable to the later launch date of the iPhone 15 series compared to the iPhone 14 series, which pushed some shipments into Q4 2023.
Commenting on the Q3 2023 performance, Research Analyst Matthew Orf said, “OEMs were cautious to increase their shipments during the quarter as consumer demand remained low. While upgrade rates were slightly up at the carriers when compared to last quarter, they remained much below their usual levels as consumers opted to hold on to their devices for longer instead of upgrading. Improved durability with stronger build quality, less impressive upgrades among new smartphone releases, and an uncertain macroeconomic environment have all contributed to the malaise we are seeing in the US smartphone market.”
Senior Research Analyst Maurice Klaehne said, “Despite the 19% decline in overall smartphone shipments, there were some brands that saw growth. Motorola and Nokia HMD were able to buck the market trend and achieve growth with refreshed portfolios and stronger presence in prepaid and national retail channels. Samsung and TCL struggled in the low end of the market with devices approaching their end of life (EOL).”
On foldables market trend, Klaehne said, “Foldables are one potential bright spot in the US smartphone market, with increasing number of Android foldables options. Samsung launched its Galaxy Z Flip and Fold 5 in August, while OnePlus launched its first foldable and Motorola launched the sub-$900 Motorola Raz 2023 in early Q4 2023.”
Commenting on the prepaid and postpaid market landscape, Associate Director Hanish Bhatia said, “Postpaid carriers continue to face strong competition from cable players Spectrum and Xfinity. This is driven by aggressive promotions and bundling of mobile with broadband. Verizon has been on the back foot but scaling its 5G mid-band coverage quickly in 2023-24. On the prepaid side, H1 2023 saw a lot of action with T-Mobile’s acquisition of Mint Mobile, Verizon losing TracFone subscribers while expanding Total Wireless’ retail footprint, Dish consolidating its prepaid brand portfolio, and new MVNOs entering the retail landscape.”
Commenting on the iPhone 15 launch and overall market outlook, Research Director Jeff Fieldhack said, “Despite the carriers continuing to offer strong promotions through the quarter, upgrade rates at the carriers remained near record lows. We expect a seasonal rebound in upgrade rates during the fourth quarter, but they are likely to remain lower than in the same period last year. There is a large installed base of iPhone 11 and iPhone 12 users in the US that is likely to upgrade to the iPhone 15 series this year. But while we saw the usual high wait times for the iPhone 15 series at launch, they came back down to earth quicker than for the iPhone 14 series, which could signal that the slump in consumer smartphone demand will extend to the iPhone 15 in Q4 2023.”
Background
Counterpoint Technology Market Research is a global research firm specializing in products in the TMT (technology, media and telecom) industry. It services major technology and financial firms with a mix of monthly reports, customized projects and detailed analyses of the mobile and technology markets. Its key analysts are seasoned experts in the high-tech industry.
Meta’s proposal to charge $10.5 per month for Instagram looks deliberately priced to fail, creating a strong incentive for users in the EU to explicitly allow targeted advertising which will also test just how valuable the service is to its users.
Meta Platforms is currently embroiled in negotiations with the EU with regard to its business model where the regulators’ view is that just because users clicked “Agree” to an agreement, this does not give Meta the right to target them with advertisements. This is an ongoing issue as Meta was fined €390 million by Ireland’s Data Privacy Commissioner for precisely this activity and was told it had to think of something else.
The monetization model for digital ecosystems can have three methods – hardware, advertising and subscription. Advertising and subscription are mutually exclusive and the option for users to choose one or the other is now commonplace across many types of digital services.
RFM Research conducted a study in 2018 that examined the viability of digital ecosystems switching from advertising to subscription as their source of revenue. The results of the study indicated that while X and Snap could probably make the switch without risking damage to their revenue base, the same was not true for the larger players such as Google and Meta Platforms. This is because although they generate an average revenue per user (ARPU) of around $3.00-$3.60 per month, the distribution of ARPU within the user base is very large.
For example, even though the US makes up a small portion of the user base, it often accounts for as much as 50% of revenues, indicating that US users generate far more advertising revenues per user than non-US users. This creates a pricing problem for subscription because in order to ensure that revenue is not lost, the price would have to be so high that no one would ever pay it.
The $3.00-$3.60 ARPU includes all of Meta’s properties and so it is easy to deduce that ARPUs for Instagram in the EU are likely to fall well short of $1 per user per month. Hence, a price of $10.5 per user per month represents a price increase of more than 950% and it’s pretty clear that no user in the EU will be willing to pay it.
It seems that this is precisely what Meta Platforms is aiming at. In order to keep the regulator happy, it provides an option that no one will want, and assuming that the users still want to use Instagram, they will sign up for targeted advertising in a way that satisfies the EU.
The risk of this strategy is that users decide that Instagram is actually not that important and stop using it entirely, although its engagement and user metrics indicate that this is a very small risk. Instead, what can be expected is that Meta makes this offer and almost all of its users sign up for targeted advertising and life returns to normal.
Hence, there doesn’t seem to be any meaningful implications from this issue, although there may be another fine in the works for infractions that Meta may have committed in the past.
(This guest post was written by Richard Windsor, our Research Director at Large. This first appeared on Radio Free Mobile. All views expressed are Richard’s own.)
Europe’s in-car navigation sales saw a modest growth of 5% YoY in 2022.
HERE continued to lead the European built-in car navigation map data licensing market in 2022.
Google’s automotive foray challenges the position of players like HERE and TomTom.
New players like Mapbox and What3word are bringing unique aspects to in-vehicle navigation.
Beijing, New Delhi,London, San Diego, Buenos Aires, Hong Kong, Seoul – September 1, 2023
European in-car navigation sales saw a modest growth of 5% YoY in 2022, according to the latest research from Counterpoint’s Global Embedded Navigation Sales Tracker. The increasing adoption of electric vehicles (EVs) and advanced driver assistance (ADAS) features is driving the growth of built-in navigation systems in cars. Navigation helps EV drivers plan the optimal route by considering battery range and charging station locations. Besides, navigation helps ensure safety by giving drivers information about the weather, speed limits and traffic conditions.
In terms of sales volume, Germany, the UK and France are the leading countries in built-in car navigation. But in terms of the share of such cars in total car sales, Norway leads, followed by the Netherlands and Germany. Volkswagen Group, Stellantis and Renault-Nissan are the top three automotive groups in terms of built-in car navigation sales. EV players like Tesla, NIO and Xpeng offer navigation on all models.
Commenting on the market dynamics, Research Analyst Mohit Sharma said, “Almost 50% of cars sold in 2022 had built-in navigation. HERE is leading the European market in terms of licensing its map data.”
HERE, with a strong presence in the automotive industry, has a 66% share in Europe’s built-in car navigation map data market. The company licenses its map data to other companies to build applications and services.
HERE offers its navigation services to OEMs like BMW and Mercedes. Chinese brands such as FAW Hongqi and SAIC, which are expanding their sales into Europe, have partnered with HERE for navigation data.
Commenting on HERE’s performance, Vice PresidentPeter Richardson said, “HERE is well-positioned within the automotive sector by working in partnership with automakers to address their technological challenges, like those related to EVs and adoption of autonomous driving. HERE is one of the enablers for automakers in launching new technologies like Level 3 autonomous driving.”
TomTom is in the second position in the European market with a 22.1% share. Last year marked the company’s second pivotal year after 2009, when it decided to sell its navigation services to automakers directly after the decline of its GPS standalone device business. In 2022, the company announced a new map platform besides rebranding itself.
TomTom has long-standing partnerships with Stellantis, Renault and other car manufacturers. The company has also signed a fresh deal with Hyundai Motor Group for licensing its map data and traffic services to all brands of the group, including Genesis for the European market. Another notable win for TomTom is a partnership with the Foxconn-led MIH Consortium to increase its presence in next-generation smart mobility vehicles.
Google’sshare in the in-car navigation map data licensing market continues to increase, reaching 7% in 2022.Sharma added, “Google’s entry into in-vehicle navigation services has enlivened the competition in the European market. For years, the market has seen the duopoly of legacy players HERE and TomTom. Google is trying to catch up with traditional navigation providers as it continues to expand its automotive offerings like EV routing and HD maps.”
Further, new players like Mapbox and What3words are bringing unique aspects to in-vehicle navigation.
Source: Global In-Car Navigation Tracker, Q1 2021- Q4 2022
Note: The above chart has been updated to represent the competitive landscape of the extent of maps data licensing across several cars in Europe. Going further will we do a comparative analysis of the navigation software and services landscape with tier 1&2 suppliers supplying or integrating the map data with navigation software and services as part of our Global Smart Automotive Maps, Navigation and Services Tracker across geographies.
Commenting on the market forecast, Vice President Neil Shah said, “The in-car navigation market is expected to see a growth of 10%-15% in 2023 as most automakers will look to comply with new ISA regulation while moving towards electrification and more intelligent driving.” He further added, “Maps will play a crucial role in achieving highly automated driving (Level 4-Level 5) and we will see new collaborations flourishing not only between OEMs and map players but also between self-driving chip manufacturers like Qualcomm and map players.”
We will do a separate insight release on navigation software to provide more clarity on the navigation software and services.
Feel free to reach us at press(at)counterpointresearch.com for questions regarding our latest research and insights.
Background
Counterpoint Technology Market Research is a global research firm specializing in products in the TMT (technology, media and telecom) industry. It services major technology and financial firms with a mix of monthly reports, customized projects and detailed analyses of the mobile and technology markets. Its key analysts are seasoned experts in the high-tech industry.
Generative AI has been a hot topic, especially after the launch of ChatGPT by OpenAI. It has even exceeded Metaverse in popularity. From top tech firms like Google, Microsoft and Adobe to chipmakers like Qualcomm, Intel, and NVIDIA, all are integrating generative AI models in their products and services. So, why is generative AI attracting interest from all these companies?
While generative AI and ChatGPT are both used for generating content, what are the key differences between them? The content generated can include solutions to problems, essays, email or resume templates, or a short summary of a big report to name a few. But it also poses certain challenges like training complexity, bias, deep fakes, intellectual property rights, and so on.
In the latest episode of ‘The Counterpoint Podcast’, host Maurice Klaehne is joined by Counterpoint Associate Director Mohit Agrawal and Senior Analyst Akshara Bassi to talk about generative AI. The discussion covers topics including the ecosystem, companies that are active in the generative AI space, challenges, infrastructure, and hardware. It also focuses on emerging opportunities and how the ecosystem could evolve going forward.
Shipments declined YoY for the third consecutive quarter amid weak consumer demand.
Android smartphone shipments declined 38% while Apple shipments fell 6% YoY.
Consumers hesitated to purchase smartphones amid economic uncertainty.
Google and Motorola launched new foldable models during the quarter.
Low smartphone upgrade rates are likely to persist in Q3 2023.
Denver, Boston, Toronto, London, New Delhi, Hong Kong, Beijing, Taipei, Seoul – July 28, 2023
US smartphone shipments declined 24% YoY in Q2 2023, according to Counterpoint Research’s Market Monitor data. This was the third consecutive quarter of YoY declines. Android brands like Samsung, Motorola and TCL-Alcatel saw the steepest declines in shipments, while Apple’s shipments were more resilient. As a result, Apple’s share of shipments increased YoY.
US Smartphone Shipment Share by OEM
Commenting on the decline in smartphone shipments, Research Analyst Matthew Orf said, “Consumer demand for smartphones was tepid in Q2 2023, with the summer slump in sales coming early. Despite inflation numbers falling through the quarter and ongoing strength in the job market, consumers hesitated to upgrade their devices amid market uncertainty. We expect this trend to continue through Q3 2023, but the expectations from the upcoming iPhone 15 remain bullish.”
Despite the overall drop in shipments, certain segments of the US smartphone market saw important signs of life in the quarter. Senior Research AnalystMaurice Klaehne said, “In spite of declining smartphone shipments, the foldable market reached important milestones in the quarter. Motorola launched the Razr+, its first foldable device in the US since 2021, and Google launched its first-ever foldable, the Pixel Fold, providing alternatives to the Samsung Galaxy foldables. With new Galaxy Z Flip and Z Fold devices coming from Samsung in Q3 2023, foldable shipments could reach their highest level ever in the US in Q3 2023.”
Associate Research Director Hanish Bhatia noted, “Despite fewer shipments from Apple compared to the same quarter last year, the brand’s share of shipments was still up 10% YoY. Apple’s resilience was driven by strong promotions across postpaid and prepaid. Verizon, AT&T and T-Mobile continued to offer $800+ promo credits for the iPhone 14 while old-generation iPhones were also steeply discounted across prepaid. We are seeing no weakness in the overall promotional activity. In fact, we observed new highs for trade-in credit with Verizon offering up to $1,100 for the Pixel Fold. Google’s Pixel also grew from a small base and launched its old-generation Pixel 6a in the prepaid channel for the first time to compete with the iPhone 11. Both devices were heavily subsidized in prepaid channels.”
Director of North America Research Jeff Fieldhack said, “AT&T and T-Mobile reported positive net adds, but Verizon reported negative net adds within its consumer segment for the second consecutive quarter. The net-add activity remains comparable to last year, but the upgrade rates have been lower, causing overall weakness in demand. Near-record low churn has also had a dampening effect on new device sales. Weakness is likely to continue through the start of Q3 2023, but stronger iPhone 15 demand could offset weakness across Android.”
Background
Counterpoint Technology Market Research is a global research firm specializing in products in the technology, media and telecom (TMT) industry. It services major technology and financial firms with a mix of monthly reports, customized projects and detailed analyses of the mobile and technology markets. Its key analysts are seasoned experts in the high-tech industry.
Cloud service providers’ capex is expected to grow by around 8% YoY in 2023 due to investments in AI and networking equipment.
Microsoft and Amazon are among the highest spenders as they invest in data center development. Microsoft will spend over 13% of its capex on AI infrastructure.
AI infrastructure can be 10x-30x more expensive than traditional general-purpose data center IT infrastructure.
Chinese hyperscalers’ capex is decreasing due to their inability to access NVIDIA’s GPU chips, and decreasing cloud revenues.
New Delhi, Beijing, Seoul, Hong Kong, London, Buenos Aires, San Diego –July 25, 2023
Global cloud service providers will grow capex by an estimated 7.8% YoY in 2023, according to the latest research from Counterpoint’s Cloud Service. Higher debt costs, enterprise spending cuts and muted cloud revenue growth are impacting infrastructure spend in data centers compared to 2022.
Commenting on the large cloud service providers’ 2023 plans, Senior Research Analyst Akshara Bassi said, “Hyperscalers are increasingly focusing on ramping up their AI infrastructure in data centers to cater to the demand for training proprietary AI models, launching native B2C generative AI user applications, and expanding AIaaS (Artificial Intelligence-as-a-Service) product offerings”.
According to Counterpoint’s estimates, around 35% of the total cloud capex for 2023 is earmarked for IT infrastructure including servers and networking equipment compared to 32% in 2022.
Source: Counterpoint ResearchSource: Counterpoint Research
In 2023, Microsoft and Amazon (AWS) will account for 45% of the total capex. US-based hyperscalers will contribute to 91.9% of the overall global capex in 2023.
Chinese hyperscalers are spending less due to slower growth in cloud revenues amid a weak economy and difficulties in acquiring the latest NVIDIA GPU chips for AI due to US bans. The scaled-down version – A800 of the flagship A100/H100 chips – that NVIDIA has been supplying to Chinese players may also come under the purview of the ban, further reducing access to AI silicon for Chinese hyperscalers.
Source: Counterpoint Research
Based on Counterpoint estimates, Microsoft will spend proportionally the most on AI-related infrastructure with 13.3% of its capex directed towards AI, followed by Google at around 6.8% of its capex. Microsoft has already announced its intention to integrate AI within its existing suite of products.
AI infrastructure can be 10x-30x more expensive than traditional general-purpose data center IT infrastructure.
Though Chinese players are investing a larger portion of their spends towards AI, the amount is significantly less than that of the US counterparts due to a lower overall capex.
The comprehensive and in-depth ‘Global Cloud Service Providers Capex’ report is available. Please contact Counterpoint Research to access the report.
Background
Counterpoint Technology Market Research is a global research firm specializing in products in the technology, media and telecom (TMT) industry. It services major technology and financial firms with a mix of monthly reports, customized projects, and detailed analyses of the mobile and technology markets. Its key analysts are seasoned experts in the high-tech industry.
Over the past few weeks, tech giants Meta and Google announced that they will no longer be publishing Canadian news on their platforms within Canada following the passage of Bill C-18, or the Online News Act, due to concerns over financial liability imposed on them by the Act. The new law requires large news aggregators operating in the country to pay for the news links they post on their platforms. Meta has already informed news outlets, including The Globe and Mail and The Canadian Press, that their contracts will end at the end of July and that Meta will no longer post the news outlets’ content.
What is Bill C-18 and what is the goal it intends to reach?
Section 4 of the Online News Act states the purpose of the bill is:
“…to regulate digital news intermediaries with a view to enhancing fairness in the Canadian digital news marketplace and contributing to its sustainability, including the sustainability of news businesses in Canada, in both the non-profit and for-profits sectors, including independent local ones.”
In layman’s terms, the government wants to increase the visibility of smaller local news outlets to expand the portfolio of news sources and to avoid the dominance of the few large news publishers who have contracts with large media aggregators like Meta and Alphabet (Facebook and Google). The way this legislation intends to reach its goal is by imposing a ‘link tax’ on these large media aggregators, which means they will have to pay for the news links that they post on their platforms. These media platforms will be expected to keep a roster of the ‘eligible journalists’ that are posted on the platform to ensure there is transparency on the news outlets and to ensure there is enough representation from underrepresented groups. These regulations aim to hold the media platforms accountable to ensure they are giving more news sources an equal opportunity to be promoted on these large platforms.
Tech giants’ concerns with Bill C-18
Despite the goal of equal news source opportunity, these tech giants are choosing to block Canadian headlines rather than comply. Google announced concerns that led it to pull from the Canadian media market:
Subsidizing and promoting ‘Bad Actors’ and strict media control from the government
Google explained in their statement that the definition provided for ‘eligible news businesses’ is very broad with low standards for journalistic integrity, which could risk the spread of propaganda and fake news. This gives rise to the issue of Google having to pay these outlets and provide them with profit and a platform to peddle poor information. This is currently prevented through qualifying criteria for journalism tax credits to be considered in Canada.
As Google pays proportionally for these headings, the act also stipulates that there is no ‘undue preference’ in the rank of relevant searches that Google currently uses. This means that there is a chance these bad actors could achieve a higher ranking in the searches and therefore reach Canadians a lot easier than with the current Google algorithm, which aims to return the most reliable and relevant sources.
On the flip side, the Canadian Radio-television and Telecommunications Commission (CRTC) will be responsible for qualifying who is considered an ‘eligible journalist’ and will be able to control the content that Canadians have access to. Although this could help control the foreign ‘eligible journalist’ who may peddle propaganda, it will also give more control to the government regarding what news Canadians will have access to that could eventually create a bubble. There is little information about the checks and balances that are in place by the CRTC to moderate these eligible news sources.
Lose-Lose business deal for Google and Meta
The new bill would require Google to pay news outlets for the links they provide, but ultimately the link is driving visitors to the publisher’s website. This means that instead of free marketing of the news article on Google (which is currently happening), the news outlet would get free marketing plus a pay cheque from Google. Aside from the journalistic morale that Google outlined before, from a business perspective, it makes very little sense for Google to participate as they would be paying the client and also providing them with a free service.
Status and the expected implications
This is past being a bluff from these large tech companies; the media industry has seen the power these giants have, as a similar legislation change happened in Spain which caused Google News to shut down for almost seven years, although ultimately it ended up returning after there were changes to the law. The CRTC announced this week that the ministry is drafting regulations that will address the concerns these media platforms have with the legislation. The ultimate fear of these tech giants is that there is an undefined financial liability that they will be responsible for, so the goal of these drafted regulations is to answer exactly how much these tech giants will be expected to pay if they do decide to keep their services in Canada.
Despite the turmoil this has caused in the Canadian Media market, other governments are also aiming to find ways to limit the media control these privatized media platforms have over the spread of news within a country. US states are exploring similar ways to enforce more competition in the news. Meta and Alphabet’s revenues would take a harder hit if the two companies follow the same course of action in the US as well.
Weekly Newsletter July 13, 2023 Why Are Foldables So Hot In China?
Our Senior Analyst, Anshika Jain, recently addressed the Indian wearables market during her appearance on Business Standard. In her discussion, she highlighted the positive impact of government policies, the competitive price points offered by Indian brands, and the strong demand for wearable devices.
Google announced the launch of the Pixel Fold device at the Google I/O developer conference on May 10. The device features a 5.8” display when closed and a 7.6” OLED display, powered by the Google Tensor G2 chip, when opened. Google is calling the device the ‘multi-tasking master’. As the I/O developer conference left viewers with an excited buzz about a second viable player in the foldable smartphone space, Canadians were once again left in the cold. The device will be launched in the US, UK, Germany and Japan, with no indication yet of further expansion, though there are rumors of the device reaching other markets later in the year. Sounds familiar? In 2019, Samsung launched its first foldable device, the Galaxy Fold, and yes, Canada was not on the list of lucky markets to receive the device.
Although it feels like Canada is once again put on the sidelines of the tech innovation fun, it is the OEMs’ strategic planning that is behind the decision to leave a mature smartphone market like Canada out of the new launch mix. The Canadian smartphone market can be summed up in two words – small and stable. Canada’s population is now 38 million, less than the population of California. This restricts the reach that companies can use to get substantial feedback for a new smartphone in the market. The country does have stable growth due to immigration, students, and work visas that cause a steady flow into the smartphone market, but this demographic is not looking to spend CA$2,000 as soon as they begin to settle in. The UK, whose population is double that of Canada, sold 50% more foldable devices than Canada in Q1 2023.
Source: Counterpoint Technology Market Research
Along with the issue of a small population, the Canadian market is not a good ground to test a device due to the retail channels and additional costs. Without a few iterations of a device to prove the durability, the trends of foldables in Canada are not as strong as in other regions. With a small population and macroeconomic headwinds weakening the Canadian dollar, the market retails devices at comparatively higher prices. This in turn has resulted in a longer holding period for devices to avoid upgrade costs for a new device. And when a device has a hardware change like a hinge that can evoke doubts over its durability, Canadians are left hesitant on shelling out the cost.
Samsung had already considered these problems in 2019. The Galaxy Z Fold was released in South Korea on September 2019, seven months after the February 2019 announcement. The limited release in Canada started in December 2019, after there was much chaos over the hinge’s durability that already had Canadians clutching their wallets with concern. After Samsung also overcame carrier certifications, marketing costs and other hoops to put a new device in the Canada market, the Galaxy Z 2 series had a smoother launch in September 2020. It was not only launched in Canada but also made available exclusively through Bell.
Along with dealing with the uncertainty over new hardware, Google also needs to partner with Canadian carriers to achieve the greatest reach in the population and make the device affordable through trade-in offers, bundle plan discounts or device-return leasing options that Canadian carriers often push.
Due to its small population, high data costs and closing of ranks between carriers, Canada is not a feasible market for OEMs to launch a ‘test’ device. One perk that Canadians can look forward to is that once these devices do reach the market, often the bugs are worked out and the user experience has already been enhanced due to initial feedback from other countries.
Google has been making news in the automotive industry this year. First, with the announcement of HD Maps to support assisted driving and then with a partnership with Mercedes Benz to develop Mercedes-branded navigation.
Google’s deal with Mercedes is interesting. Google will be licensing services including YouTube and map data to Mercedes but without the automotive OS, and it will not control the data.
Apple sees the growth potential in the auto industry and likely wants a piece of the pie. This is hinted by Apple’s move to introduce next-generation CarPlay, which will deeply integrate with the vehicle to take over interior screens and instrument cluster.
Since the beginning of 2023, Google has been making news in the automotive industry. First, with the announcement of HD Maps to support assisted driving and then with a partnership with Mercedes Benz to develop Mercedes-branded navigation. The nature of this partnership is unfamiliar to Google; the company usually wants to be in control of the data. So, the question is why Google chose to form this uncommon partnership. To answer this, we have to look at Google’s automotive journey.
Google’s entry into automotive industry
Google is ubiquitous in smartphones thanks to the strong Android user base. The company wanted to bring the same Google services experience to the car through in-vehicle infotainment (IVI). Android Auto bridged the gap between smartphones and cars and allowed its customers to use Google-based apps for navigation, entertainment and communication, as well as Google Assistant. Over time, Android Auto started gaining popularity as users liked being able to have a similar experience across their phones and vehicles, and additionally use free services like Google Maps. According to Counterpoint Research estimates, around 90% of car models sold in the US in 2022 support Android Auto.
Source: Counterpoint Analysis
This is a strong performance, but it was not an easy road for Google/Android Auto to get accepted by auto OEMs as data privacy concerns always loom around Google. Companies like Hyundai, Kia, Volkswagen, GM and Honda were early adopters of Android Auto, while others, including BMW, Toyota, Lexus, Jaguar Land Rover and Infiniti, didn’t introduce Android Auto compatibility until 2018-2020 after getting repeated requests from owners. In the US, the Android installed base is slightly close to 50%, whereas in Europe it is over 70% and close to 80% for the global market. Therefore, it is not surprising that most drivers from these brands own phones running on Android.
Source: Counterpoint Analysis
Google’s ambitious plan to capture automotive market
Google set its sights beyond IVI to take on the challenge of autonomous vehicles (AV) and software-defined vehicles (SDV) with the 2016 formation of Waymo, which started as a self-driving research project, and the announcement of Android Automotive OS, an expansion of its Android Auto initiative. Android Automotive OS (AAOS) is an open-source OS, somewhat replicating Google’s smartphone OS strategy. Running directly on in-vehicle hardware (i.e. head unit), it is a highly modular and full-stack open platform and supports apps built for Android as well as those built for Android Auto.
One standout feature is that AAOS has a suite of applications and services called Google Automotive Services (GAS), which is often marketed as Google Built-in by automakers. The GAS suite offers options to carmakers to integrate different services from Google, like Maps, Play Store and Assistant, directly into the vehicle without the need for an Android smartphone. Automakers can obtain GAS through a licensing fee on top of Android Automotive.
Currently, there are around 20 models available with Android Auto. The latest addition to the list is the 2023 Honda Accord. Several other automakers have announced plans to move to AAOS, but not every automaker is interested in GAS. We list below some major automakers and their plans to use Android Auto and Google services.
Volvo and Polestar: Volvo brand Polestar, with its Polestar 2, was the first automaker to adopt Android Automotive with GAS integration. Volvo’s first all-electric XC40 Recharge was also the first car to run on Android Automotive. In 2022, Volvo announced from 2023 onwards would be equipped with Google infotainment.
Renault-Nissan-Mitsubishi: In 2018, the alliance announced a partnership with Google to run its infotainment systems on Android Automotive. Renault’s Megane E-Tech was the first car to run on Android OS with GAS. In 2022, the Renault Austral was launched based on Android Automotive. Nissan and Mitsubishi have not announced any plans to launch models based on Google.
General Motors: In 2019, GM announced that its in-vehicle infotainment system would be powered by Android Automotive and feature Google apps and services for vehicles starting 2021. The GMC Hummer EV became the first GM car to be run on Android Automotive with GAS integration. Later, in 2022, mainstream models like the Chevrolet Tahoe, Chevrolet Suburban, Chevrolet Silverado, GMC Sierra and GMC Yukon were launched with Google Built-in.
Stellantis: Before the merger between PSA and FCA, PSA Group announced that Android Automotive would be powering its in-car infotainment system starting from 2023 models. In a different approach, FCA launched the Uconnect 5 based on Android Automotive but without GAS. But after the merger of both brands into Stellantis, the whole group is integrating AAOS for the IVI system.
Ford: Joining its US rival GM, Ford announced a partnership with Google in 2021 to run its SYNC infotainment system, which currently runs on Blackberry QNX OS. Ford plans to integrate GAS into its vehicles from late 2023 onwards.
Honda: The Japanese company was one of the early adopters of Android Automotive OS for the in-car infotainment system with its Honda Connect, based on NVIDIA’s Tegra processor. In 2021, Honda announced the integration of GAS into its vehicles from H2 2022. The 2023 Accord is the first Honda car with Google Built-in services.
BMW: The German brand took a different approach, announcing in 2022 that its new BMW OS 9 would be built on Android Automotive OS. But due to data privacy concerns, it is reluctant to integrate GAS. BMW is also an investor in navigation services provider HERE Technologies.
Lucid: The American company adopted Android Automotive OS for infotainment but did not integrate GAS.
Porsche: The Volkswagen brand was one of the few carmakers that only offered Apple CarPlay but not Android Auto for many years. Porsche released its first car with Android Auto only in 2022. The VW group is facing a lot of criticism due to software issues that are delaying the launch of electric models from its brands Porsche, Audi and Bentley. Hence, Porsche is looking at a strategy shift by taking into account Android Automotive OS and integrating GAS, which will include Google Maps, Google Assistant and Google Play Store, into its IVI.
Google’s road ahead
Google’s deal with Mercedes is interesting. Google will be licensing services including YouTube and map data to Mercedes but without the automotive OS, and it will not control the data. This shift in Google’s approach shows that it is willing to change its strategy to build trust with automakers, especially the Germans who are known to be apprehensive about data privacy.
With the major trends of electrification and ADAS/Autonomous Driving (AD), and some of the EV models already equipped with Google Maps, Google has been adding EV-related features such as EV routing and searching for charging stations in in-vehicle Google Maps. Besides, Google has announced HD Map support for Level-2 hands-free driving and Level-3 driving systems. HD Map will roll out first in the Volvo EX90 and Polestar 3.
Google Maps is challenging the territory of established players like HERE and TomTom. We expect Google will further develop its in-vehicle navigation to make EV use easier and support higher levels of automated driving.
Lastly, the next-generation vehicles will be software-defined vehicles. This will allow companies to generate various recurring software revenue streams. As a result, the car software market will grow. Apple sees this growth potential in the auto industry and likely wants a piece of the pie. This is hinted by Apple’s move to introduce next-generation CarPlay, which will deeply integrate with the vehicle to take over interior screens and instrument cluster, and allow users to control climate and radio. So far, 14 automakers have confirmed to integrate new CarPlay, which is set to launch in late 2023. Therefore, in the future, we may see Apple developing complete software that runs on the vehicle without a partner iPhone, similar to Android Automotive. There are reports that indicate Apple is working on its ‘Apple Car’ as several patents related to cars have been filed by the company. This will allow Apple to replicate its strategy of using its software and services to monetize its hardware.
Therefore, in the era of software-defined vehicles, we may see the next round of battle between tech giants Google and Apple, this time for supremacy in the automotive OS, which will be the heart and soul of the car.
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