Connected cars are becoming more and more self-evident, especially for new-car-customers. According to a VDA (German vehicle manufacturers' association) forecast, the share of connected cars will amount to 80% in new registrations in 2017.
Customer surveys and competitive analyzes made it clear to the automotive industry that car manufacturers, who provide s the convenience of automobile connectivity to their customers, will have a stronger position on the market. For the industry, it is no longer the question whether connected cars with associated applications and services are essential purchasing decision factors, as it is already a fact. Rather, the question arises how to benefit from this recognition as a car maker.
First of all the implementation of connected car services always means to the car maker to modify the vehicle’s architecture and on-board electronics. Connected solutions have to match regulatory safety requirements in the jurisdiction where the manufacturer operates. Specifically, the regulatory authorities require that in case of accident the car automatically alerts the relevant services about the accident and its location, which enables the rescue services a to contact the driver through the car’s internal systems and to attend the place of the accident. The exact requirements differ in each country, but car-makers, however, are required to equip cars with Telematic Control Units, which increases the cost of the car.
Surveys confirm that consumers expect three main comfort and convenience aspects from connected-cars: Onet is the ability to control the vehicle remotely: to know where the car is, and to be notified if any incident occurs. The second concerns remote climate control, especially in countries with a harsh climate. The driver wants to control the in-car climate via engine start-up, or the cooling / heating system. The third point is convenience: The consumer wants to be confident in his car and its condition, all the time. If the tires deflate, he wants to receive a notification about it; if there is an error in the on-board systems, he wants to know so that he can decide what to do.
Connected-car solutions can also offer an improved quality of user experience, when the car has a video screen, by making it possible to connect the vehicle’s multimedia system to a wide range of cloud services.
To change the car’s on-board electronics, it is necessary to determine what is to be connected up. The car-maker has to consider data transmission; especially if they are operating in various international markets it is inevitable to comply with local legislation. Most countries have specific requirements for the storage of personal data, requiring such data to be stored within the country and not transferred overseas. So car makers need to understand who will ensure the transfer of data from the car to the cloud and how this will be done. Accordingly, the question of server infrastructure arises. All connected cars generate a huge amount of data that must be stored and analyzed. Current experiences show that each car generates an average of 30-50 megabytes per month. If we multiply that by the number of cars and the number of months they will be in service, there will be a huge volume of data to be stored, backed up, and distributed regionally in accordance with the regulatory requirements. This presents a certain technological challenge.
Not less important is the question of how to make customers happy. On the basis of Bright Box’ experience, the best way to provide services to consumers is via smartphone. Smartphones have very high penetration all over the world, and are equipped with operating systems that app-downloads. This is the most convenient and effective way to deliver services to consumers. Taking this fact into account, it is necessary to comply with the requirements and recommendations of smartphone vendors in terms of performance, appearance, and platform integration. For example, all platforms now have social network integration, depending on the region—a fact that must be considered. Local adaptation must be very deep. And it is necessary to bear these facts in mind during the system’s design and launch stages. Apps will be different, and therefore it is necessary to consider all these factors when scheduling deployment.
Experience shows that it advisable not to use the telematics platform to cover all services and markets at once. It is also recommendable to consider the implementation of connected services not as the addition of another option in the car, like new seats or a new multimedia system, but as an IT project, and to follow the methodologies accepted in the IT industry for software implementation.
At present, the most effective methodologies are globally recognized to be flexible ones, such as Agile and Scrum, which dictate that services need to be implemented iteratively. Any connected car solution can be updated remotely. With connected car technology the car-maker can deliver updates via the cloud, as is customary with modern software manufacturers such as Apple, Google, and Microsoft. In the process they can roll out new services, modify existing ones, improve the user experience, and correct any errors. Accordingly, it is better to run this kind of service by proceeding from a smaller function set to a larger one, constantly analyzing the functionality provided, tracking use statistics, and improving it with each update.
By combining flexible software elaboration with this approach, car manufacturers can implement the core technology very quickly, within a period of six or seven months, test it by using manufacturer-accepted standard methodologies prior to marketing, and then add more and more updates. It is not necessary do everything at once but recommended to start with a few functions, and then gradually and constantly add new ones. This also has positive impact on consumer satisfaction with the car and the brand. Receiving all these new features, months after buying the car, extends the pleasure of ownership and brand loyalty.
The attention to the engineering and technological characteristics of the software and of the infrastructure that will support the connected car service is of essential importance. Experience indicates that it does not make sense to invest in a specialized data center but to use the cloud instead, which minimizes the cost of the product launch, particularly since there are lots of vendors providing cloud infrastructure. If the manufacturer sees the potential to generate revenue himself, he can always transfer the service to his own data centre.
How to monetize independent connected-car solutions
The first option is to make the services paid. Car-makers can distinguish between different expenses for the launch of their products. Everybody has cars that they sell with a few modifications. There is always a choice: either provide connected car functionality for the entire range, or offer it only for premium class. It is important to find a balance.
In this case, users pay for the service themselves. But, according to our statistics, this option works less well. No more than 30% of users are willing to pay any significant extra money for this kind of service. At the same time, more than 80% of respondents say they want connected services in the car for free. They have paid for the car, and they think that’s enough.
The second option is a freemium model. Car-makers can see what happens in a sector like IT: how free services work, especially those with a large audience (search, mail), and how they are monetized.
One answer is that these services are monetized through data or through the sale of data to third-party companies that sell services or products to the auto manufacturer’s audience. Thus, the car-maker can create a marketplace where a variety of additional services are sold to motorists. This requires that the telematic services and applications are free. According to our statistics, more than 90% of consumers who receive such functionality for free activate services and really use them at least twice a day. This means that the application will attract high traffic, and any marketplaces that there may be will be effective because of their large audience, comparable to the total audience for the car manufacturer.
Besides marketplaces, selling data about drivers can be useful to all companies interested in this audience. First of all, there is insurance. The smart insurance business is growing worldwide. This is linked to the fact that insurance companies find it very profitable to reduce risk by selecting policies and offering discounts based on driving style.
A safe driver who is willing and able to provide data about his driving makes an attractive client for an insurance company, allowing them to reduce the cost of insuring against accidents. Insurance companies will pay to gain access to clients of this kind. Thus, the car-maker can get the business of generating leads for insurance companies, and creating a marketplace for insurance services. Selling data is relevant also for car dealers and providers of map services.
If the manufacturer sells a large volume of cars, the last version of monetization is the most appropriate. For manufacturers operating in the premium and luxury sector, with a small audience, the easiest way is to include the cost of these services in their margins, and make them available free of charge. But for manufacturers in the mass sector, selling very high volumes, it is better to monetize connected car functionality through the sale of additional services, and through selling data to third parties. This must of course be done with the driver’s consent: and, in turn, drivers will receive discounts and special offers.