Thus, the era of software definition has arrived.

Product change in the software-defined era

IC660BBS103 As Deloitte points out, in the era of “software definition”, the change is not only the proportion of software in simple products, its essence is the product from a highly integrated electromechanical terminal, to an intelligent, scalable, sustainable iterative upgrade of mobile electronic terminals.

In order to achieve this ultimate goal, the hardware and software will be further decouple, the hardware structure will be extremely standardized and modular, and the advanced hardware functions will be embedded in the product, and the new functions will be gradually released through the continuous iterative upgrade of the software, so that users can continue to enjoy the innovative application experience without any hardware upgrade.

IC660BBS103

Tesla was a big advocate of this idea and was the first to put it into practice. In 2012, when Tesla launched the Model S, it released the Software Over-The-Air (SOTA) function for the first time, which enables the vehicle to remotely upgrade the vehicle entertainment system and application software, such as navigation system and human-computer interaction interface. When Model 3 was released in 2017, the Firmware Over-The-Air (FOTA) feature was further introduced to enable remote online upgrades of system firmware, once again setting a new standard for the industry.

In this trend, the first is the change of business model and profit model of enterprises. Tesla began experimenting with OTA paid upgrades in 2019, and in 2021 launched two autonomous driving options at different levels: EAP(Enhanced AutoPilot) and FSD(Full Self-Driving). According to Goldman Sachs forecasts, Tesla’s software such as FSD has reached $1 billion to $3 billion in annual revenue, with IC660BBS103 long-term gross margins as high as 90%, while its highest gross margin on vehicle sales is only 32.9%. By 2030, this figure will reach $10 billion to $75 billion. Considering that Tesla’s total revenue for 2022 is $81.5 billion, this figure is remarkable. It can be seen that in the era of “software definition”, software service revenue has begun to play an increasingly important role in the proportion of revenue and profit of enterprises, and enterprises need to re-examine their business models and product strategies.

What is clear is that the revolutionary changes in product Electronic & Electrical Architecture (E /E) triggered by “software-defined products” will also bring about changes in product development models.