EkaLore regularly writes about the concept of Alien Invaders, overwhelming competitors that seem to come out of nowhere, break the rules, and suck the profit out of the industry. In response market incumbents often adopt some of these new tactics and strategies. This is our second piece on Mercedes Benz’s efforts at its next-generation vehicle operating system. You can read the first post in the series here.
The MB.OS strategy is distinct from the strategy chosen by other manufacturers like VW or Ford. The strategy chosen is most similar to Tesla's approach. Mercedes Benz is developing a unique platform software for multiple product lines. EkaLore has looked at similar choices by Honda/Sony, VW, Ford, and others. (Related posts can be found at the bottom of the page)
The scale of investment is great even for one of the world’s largest vehicle manufacturers. That can be seen in Mercedes’s choices for global development centers, enterprise partners, market positioning, and regulatory responses. Mercedes has designated a large portion of future developments for MB.OS to occur in a “lower cost” market in China. China’s investment interests in Mercedes also are served by this geographic selection for product development.
MB.OS has selected key enterprise partners from Nvidia, Qualcomm, Alphabet/Google-Android, BlackBerry-QNX, Amazon-Fire, Luminar, and Automobile Linux.
The scale of Mercedes investments in MB.OS is indicated by just some of the spend announced for the multi-year effort. The Sindelfingen center facility cost more than €200M. Of the more than 3,000 technical new global hires, more than 750 were slated for Sindelfingen. Across the enterprise, the estimate was for more than 10,000 software engineers in Berlin, China, India, Israel, Japan, and the United States.
Even Mercedes declined to spend sufficient investment capital on building a complete hardware/software stack. Revenue sharing, on an undefined scale, was used to induce partners like Nvidia, Alphabet/Google, and likely other strategic partners, to invest “up front” and then subsidize delivered per-vehicle products and services in return for some of the “longer tail” revenue stream. The strategy was identified by Mercedes to reduce investment capital usage while enabling feature-based pricing and vehicle configuration options.
MB.OS Schedules are announced for a series of introductory steps for the MB.OS platform thru the early 2030s. In 2022, Mercedes realized approximately €1B in revenue from navigation, traffic, routing, and maps. A goal of an additional €1B in 2025 is in progress. Key market and sales financial objectives for MB. OS-features have been announced as “low single digit billions of euros” by 2030. This revenue target is likely to be only 1%-3% of total sales. Regulatory responses are less clear as approval processes for electric vehicles (EV), automated driver assistance software (ADAS), and vehicle mechanical platforms are still being developed.
The product development life cycle is no longer a comfortable “model year” cycle in step with the competition. Global competitors bring new models, pricing, and updates to the marketplace at different times of the year, depending on considerations such as regulatory approvals, logistics costs, tax subsidies, and local cultural preferences. For Mercedes, three key product development issues will dominate paths to success:
Most critical: Time to market, sequencing of releases, Key drivers: Management decisions of investments, technology, and process
Competitive features regulatory approvals and achieved high quality Key drivers: Competition, regulator behaviors
Market acceptance of business model, operations and buyer acceptance Key Driver: Marketplace participants
The key drivers in two out of three of these product development issues are not in the control of Mercedes. In these shared market spaces, these external forces are intractable to simple spending solutions, navigating regulatory paths, or creating a unique value proposition. Mercedes controls its spending on the R&D necessary to develop and support the MB.OS. By mid-decade, this is expected to be 25% of total platform R&D. The related objective announced by Mercedes is to constrain technology R&D spend within the cash flow plans of the Group. The success of this technology and management strategy by Mercedes will depend on the successful, timely execution of key competencies now being created on a colossal global scale.
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