Apple Car and The Growth of the Services Business

An Autonomous Apple car combined with exclusive content and experiences will create Apple’s next great revenue growth opportunity: services.

As we move towards a future where autonomous vehicles will eventually replace cars with full-time drivers, the automotive, technology and entertainment worlds will soon merge to create the future of in-car entertainment.

When these worlds merge into a closed ecosystem, Apple will be one of the big winners as they will control the hardware, software and content. At this year’s Sundance Film Festival Apple quietly hosted private invitation-only events to meet with talent.

As Apple makes the rounds in Hollywood with a focus on developing original content for their yet to be announced OTT service they are quietly developing the future of content distribution right under our nose.

In a recent research report from the investment bank Morgan Stanley the firm stated: “The car is effectively the 4th screen for media content consumption after PCs, phones and TVs. In our view, this is what Silicon Valley will be targeting by leveraging the autonomous utility.”

In my view, Morgan Stanley is correct in their assumption and I believe that this is one of the next great revenue growth opportunities for Apple. In Apple’s 2015 annual report the company reported $19.9 billion in revenue from services (includes revenue from the iTunes Store®, App Store, Mac App Store, iBooks Store™ and Apple Music™ (collectively “Internet Services”), AppleCare, Apple Pay®, licensing and other services) which was a 10% increase in revenue from 2014 when services generated $18.1 billion in revenue.

When Apple officially introduces their electric autonomous car and a complementary section of the App Store solely designated for their in-autonomous car experience, service revenue will continue to grow year-over-year. In the Apple car section of the App Store Apple will be able to showcase and sell bespoke in-autonomous car experiences that were created exclusively for the Apple car.

Today Americans spend 75 billion hours a year driving which costs $507 billion annually in lost productivity according to Ravi Shanker, lead analyst covering the North American auto and related industries at Morgan Stanley.

With this lost productivity due to driving autonomous vehicles will create new opportunities for companies to introduce new services.

Instead of concentrating on the road and the surroundings, the former driver and passengers in an autonomous Apple car would be able to catch up on work or watch an exclusive Apple movie or TV show on the car’s screens while the car travels down the road.

To make this a reality Apple will need a secure private testing facility where they can test autonomous cars and new technology in secret.

With the introduction of the CA A.B. 1592 bill by Assembly Member Susan Bonilla (D CA-14) on January 6, 2016, Apple looks to have a deal in place to test their autonomous cars in secret at GoMentum Station in Concord, CA.

According to The Guardian Apple has had talks with GoMentum Station as early as 2015. Apple engineer Frank Fearon wrote in an email obtained by The Guardian: “We would … like to get an understanding of timing and availability for the space, and how we would need to coordinate around other parties who would be using [it].”

Assemblymember Bonilla who represents the district that GoMentum Station is located in, introduced CA A.B. 1592 as spot legislation earlier this year which coincidentally is almost a year after Apple first inquired about testing autonomous vehicles.

The CA A.B. 1592 “Autonomous Vehicles: Pilot Project” states:

Notwithstanding Section 38750, the Contra Costa Transportation Authority is authorized to conduct a pilot project for the testing of autonomous vehicles that do not have an operator and are not equipped with a steering wheel, a brake pedal, or an accelerator provided the following requirements are met:

(a) The testing shall be conducted only at a privately owned business park designated by the authority, inclusive of public roads within the designated business park, and at GoMentum Station located within the boundaries of the former Concord Naval Weapons Station.

(b) The autonomous vehicle shall operate at speeds of less than 35 miles per hour.

(c) A change in ownership of the property comprising the GoMentum Station shall not affect the authorization to conduct testing pursuant to this section.

The bill will allow for the testing of Level 4 autonomy. Level 4 autonomy is a fully-autonomous vehicle that does not have any option for human driving—no steering wheel or controls. Could Apple be following the lead of the Google with their self-driving car project by developing a fully autonomous car?

Furthermore, section C of the legislation would allow for a change of ownership without affecting bill. Could Apple be in negotiations to buy GoMentum Station to further their interest in autonomous vehicles?

In May 2015, Apple senior vice-president Jeff Williams called the car “the ultimate mobile device” and said that Apple was “exploring a lot of different markets … [in which] we think we can make a huge amount of difference”.

Could Mr. Williams be forecasting the future of Apple? While we are uncertain at this time, I am certain that autonomous vehicles will create a plethora of opportunities for forward-thinking individuals and companies.

Only time will tell whether or not Apple ultimately decides to produce a fully autonomous car complete with bespoke in-car entertainment experiences exclusive to Apple.

Without having to concentrate on the road at all times we will be able to enjoy a variety of exclusive content and experiences.

An autonomous Apple car combined with exclusive content and experiences will create Apple’s next great revenue growth opportunity: services.

Apple Car and The Growth of the Services Business is an article written by Brulte & Company Co-Founder Grayson Brulte.