Autonomous Vehicle Customer Power

Porter’s Five Forces is one of the classic frameworks that business schools teach for evaluating the attractiveness of a business or industry.. Michael Porter, a professor at Harvard Business School, invented it.

The framework is, at its core, a five-item checklist:

  1. Barriers to Entry
  2. Substitution
  3. Supplier Power
  4. Customer Power
  5. Existing Competition

I’m re-wording Porter’s original definitions to the phrases I think of when I step through the checklist, but that’s the gist of it.

I thought of this checklist during a recent conversation about strategy for Waymo (Google’s Self-Driving Car division).

One school of thought is that Google should position itself as the supplier of software to the automotive industry. That’s a position that’s worked well for Android, and it plays to Google’s strengths as a software company.

An alternative school of thought is that Google should build out its own transportation-as-a-service business, because car manufacturers are too smart to get trapped with Google’s software. They’ve seen how that played out for the mobile handset manufacturers, and they don’t want to get “Samsungized”.

Rather than choose between these two approaches, I want to focus here on the narrow question of whether the car manufacturers are “too smart” to get trapped with Google’s software.

The people I worked with at Ford are very smart, and I imagine the same is true at Toyota and GM and most other manufacturers.

But this is where Porter’s five forces comes in.

As a automotive software vendor, Google is in an industry with low “customer power”. There are a lot of different car manufacturers.

Some of those manufacturers are going to be way behind the curve in terms of developing autonomous vehicle software. And those manufacturers will, rationally, decide that their best bet for catching up with the pack is to partner with Waymo.

So regardless of how smart the car manufacturers are, there will be manufacturers out there who will be interested in using Waymo’s software.

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