This is the second text on the internet of cars and addresses the following issues:
- Which business models are already entrenched in connected transport, and which ones are emerging?
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Generally speaking, there are two business models in the networked transport market - capitalizing on cost savings or potential profits. With remote diagnostics technologies and the ability to fix and modify various systems, the first model was the most profitable for most OEMs. Owners of networked cars, in turn, also noted the savings that remote diagnostics bring.
Over the air software updates are another technology that has tremendous potential for cost savings. The promise of this technology lies in the proliferation of automotive software, its growing complexity and the need to fix bugs throughout its entire life cycle.
Previously, there was limited benefit to this market, but now more and more opportunities are emerging in the automotive industry (and other industries). Their appearance can be explained by the development of network technologies, the proliferation of connected cars and the expansion of sales channels for a larger number of customers.
Revenue opportunities are also growing as drivers and passengers consume more content - thanks to improved web technologies, user interfaces, and a variety of content sources. An example is music streaming services that have become incredibly popular lately.
Internet car market prospects
The table at the beginning of this publication provides an overview of market values for vehicle data and vehicle content. Also, this data is an update to the tables I used in IHS Markit. If you want to know more about connected vehicles, you can check out the detailed and comprehensive IHS Markit reports.
The left column shows the data types, the average is the ratings for users and providers, the right is the ratings for the drivers / car owners. Opportunities for cost reduction are highlighted in red, prospects for profitability are highlighted in blue.
The values may change depending on how often the vehicle is used and personal usage patterns. Estimates are based on annual vehicle value, using all features (with some exceptions)
Estimates for the telematics complex
The telematics complex includes the main telematics systems and the five segments listed at the top of the table. Remote diagnostics bring significant benefits to the OEM, and can save you $ 100 to $ 200 over the lifecycle — the cost savings come from lower warranty coverage. For most car makers, the warranty costs between 2% and 3% of annual revenue, and there are periodic spikes in the event of problems and recall campaigns (Source: Warranty Week).
If you follow the recommendations of the remote diagnosis service, car owners can save about $ 50 in maintenance costs per year. Also, when providing information about monthly remote diagnostics and maintenance, the car owner will be able to sell his car for 10% more.
Automatic Collision Notification (ACN) and eCall can become some of the most important and valuable features of a connected vehicle, as they can save lives by reducing emergency response times. These potentially life-saving features are the reason why eCall is mandatory in all new vehicles sold in Europe.
It is also worth noting the importance of monitoring systems for a stolen car, their numerical estimate can be equal to the full cost of the stolen car, which will be returned to the owner. Owners of vehicles with such systems may be entitled to a discount on insurance coverage - especially for luxury car insurance. A company that offers stolen vehicle tracking services as part of a telematics system can earn anywhere from $ 20 to $ 50 for a one-year subscription.
Remote control functions (such as remote engine start or door unlocking) are mainly a convenience for the driver. Such functions are included in telematic services and are billed annually along with all other functions of these systems. Profit from remote control functions is estimated at $ 10-20 per year.
Many telematics systems now have tariffs available for use in the car via Wi-Fi. The pioneers in the implementation of these technologies were the developers of the OnStar system in 2015. By 2017, all GM vehicles had LTE-enabled communications systems with built-in wireless LAN. The advantage of this approach compared to using a data plan on a smartphone is better signal reception in places with poorer coverage, since the car antenna is better than the one installed on the smartphone. Also, mobile devices with Wi-Fi support that do not have their own tariff plan can connect to the network. The potential income from subscribing to a telematic data plan is between $ 50 and $ 150 per vehicle per year.
The importance of over-the-air updates
OTA updates can be divided into two segments - updates to fix bugs and updates to improve functionality. Compared to dealer updates, you can save between $ 50 and $ 100 for each over-the-air update. Automotive OEMs will also likely roll out updates more often if they can be installed over the air. Car owners, in turn, will appreciate the convenience and time savings that come with these upgrades.
The long-term benefit of over-the-air updates is functional software updates that extend the capabilities of electronic systems. Even if only a subset of drivers / owners pay for such extensions, huge opportunities will open up for automakers and their partners. Tesla was a pioneer in this area, and it was this company that demonstrated the benefits and capabilities of this business model.
Profits from functional software can vary as they depend on the features that become available. In numbers, this benefit ranges from $ 50 to $ 3,000 per upgrade. Benefits for the car owner - he will receive an improved car with an increased lifespan and a higher value in the aftermarket.
Market assessments of cybersecurity
Cybersecurity in connected cars is becoming a necessity. At the end of June 2020, the UN adopted two new automotive cybersecurity regulations called WP.29. It is expected that these regulations will be finalized and published in early 2021, after which they will enter into force in 54 countries - this list includes European countries, Japan and South Korea. Despite the fact that the USA and China are not included in this list, most likely these countries will also use information from the WP.29 regulation.
The potential income for cybersecurity software and service providers ranges from $ 10 to $ 20 per year. The benefit for drivers is a safer vehicle and personal data protection.
Preventing cyberattacks is most important to automakers. Each cyberattack can cost an OEM hundreds of millions of dollars in urgent software updates, mitigation costs and reputational losses. Successful attacks can lead to hundreds of thousands of drivers being rejected (at least temporarily) from using hacked cars.
Automotive content market estimates
Automotive content is primarily an income opportunity. For simplicity, we'll only discuss two segments - cloud data and entertainment. The cloud includes all the variety of content that may be interesting (or useful) to the driver and passengers - social networks, news, various related information. Probably, as the bandwidth of communication channels grows, the variety of types of content will also grow. Video content can also be used in cars, but only by passengers (or by the driver if the car is parked). Revenues from the use of cloud services are wide and are estimated at $ 10- $ 50 per user per year.
Nowadays, entertainment is mostly music and it is moving into streaming format (like Spotify and Pandora). Music streaming services use two business models: paid subscription and shareware with ads. Profit per user without a paid subscription is about $ 20-25 per year, while the average paid subscription costs $ 50-60 per year. The shareware model with advertising that does not require money from users dominates the market - it is preferred by 90% of all users. The proportion of paid subscribers is likely to increase over the next five years.
SiriusXM, which acquired Pandora in 2018, generates significant revenue from satellite radio, which is primarily used in cars. Most of their coverage comes from the United States, and a small proportion of their total income comes from Canada. SiriusXM's annual revenue per subscriber in 2019 was about $ 165.
Vehicle and driver data
There are many types of vehicle and / or driver data that are of value to various industries. The most famous category is use-based insurance (UBI). UBI is a type of car insurance that uses stored (or collected in real time) information about driving skills and habits to assess the risk of a particular driver. UBI provides many benefits, but perhaps the most important feature of UBI insurance is that it motivates drivers to get better. Drivers who improve their driving skills will benefit from significant discounts and other insurance benefits from UBI.
Many automakers and automotive data aggregators provide data to the insurance industry. The average fee for data on driving skills and habits is between $ 10 and $ 15 per driver per year. This partnership is very beneficial for insurance companies, since collecting data using their own devices and systems increases their costs by $ 25-40.
Navigation and Location Based Service (LBS) services fall into several categories. Despite the growing prevalence of navigation applications for smartphones and other systems, turn-by-turn navigation using a telematics system is still quite popular. It is worth noting the popularity of downloads by location. This category also includes growing volumes of traffic with parking information, including the reservation of free spaces and the determination of their availability. Information on gasoline prices in a certain area is also included here, but it usually refers more to mobile applications. The estimated potential profit from this data ranges from $ 20 to $ 50, depending on the number of categories and how often they are used.
Vehicle speed and location have been used to collect traffic information for over a decade. In the early stages of obtaining traffic information, suppliers entered into agreements with fleet operators to obtain traffic data. This whole structure has undergone significant changes after the advent of smartphones - users receive free applications, and in return they give data about their speed and location, and this state of affairs has become the norm. Providers of traffic information received little savings. Users are also happy - they get traffic data for free and save their time
Location tracking information also motivates the driver or passengers to use e-commerce. This segment is expanding and has an estimated cost of service usage of $ 10 to $ 30 per user per year. These types of e-commerce often offer driver / passenger discounts with estimated savings of $ 10 to $ 50 per year. This segment intersects with the market category, which we will talk about further.
Marketplaces are a new category of services where users can order products directly through the telematics system. Merchants register as partners of the marketplace and can then promote their product to users. There is no subscription fee for user registration. Promotions and coupons are also part of the system. The car manufacturer (or telematics system supplier) receives a commission based on the purchases of the drivers. The profits of an automaker or telematics system provider can vary significantly from driver to driver - between $ 20 and $ 40 on average. Integration with the telematics system reduces the distraction factor when using e-commerce in the car (compared to using a smartphone).
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