Connected car services becoming a billion euro business, study predicts
Connecting cars to the internet is a strong trend. Oliver Wyman expects a penetration rate of 50 percent of all new vehicles by 2016; in Japan, North America and Western Europe this rate will rise to almost 100 percent within 15 to 20 years. At the same time, new generations will succeed earlier ones: Proprietary systems with focused singular services will give way to convergent and increasingly open systems. The rationale is no longer to bring the internet into the car but the car into the internet.
In its current study Oliver Wyman identified seven service-based business segments which in the medium term will conquer the vehicles and promise to become a billion-euro business for the service providers. These business fields are safety and remote service; fleet management, mobility, navigation, infotainment, insurance, and payment systems. Particularly strong growth is expected for remote diagnosis and technical services; examples for applications include automatic maintenance information and remote workshop connectivity, for instance for remote troubleshooting and software updates. In addition, the European e-Call system for automatic emergency calls will become mandatory for all new vehicles from 2015 onwards. In Europe alone, Oliver Wyman experts estimate the demand to about 16 million units annually.
Fleet management systems are already in operation. Oliver Wyman author Juergen Reiner expects them to be further rolled out systematically into the volume market into standard platforms. These systems will become cheaper with each vehicle generation. Reiner estimates a CAGR of 20 percent per annum, adding up to 5.6 million units by 2016. Customers expectations to be "always on" even in the care and to have intermodal functionality at his disposal also is creating high growth potential.
In contrast, the market for mobile payment systems is regarded as being in its infancy which will develop dynamics only gradually. In this segment, it is essential that service providers first will emphasize action to gain and increase acceptance from users as well as from business partners.
The market for all of these services will be rather competitive, Reiner predicts. OEMs, tier ones and after market service providers will compete against each other. For premium OEMs it is important to leverage its existing customer base and its vehicles to keep an edge on the service provider competitors, Mr. Reiner analysed. In order to maintain its innovation and integration dominance it will be important for the OEMs to further develop their business model from today’s system integrator towards a service integrator. This means that they should dominate the content and bundle the diverse service offerings in the car. In order to do so, they have to meet the right decisions regarding platforms, standards, content and services – a multitude of risky decisions to take. It can already be risky to bet on the wrong smartphone platform, the consultancy said in its study.
Particular high added value can be achieved through vehicle-related services such as safety, security and after-sales services. Less sense does it make for OEMs to organize navigation and weather data as well as infotainment content. In these segments, OEMs should find the right partner and expand existing alliances. As a good example the study cites the partnership between Renault and IT service provider Atos. In the context of this partnership, Renault utilizes Atos’ IT infrastructure which offers a broad variety of services including an app shop and payment services. From the side of after-market players, Apple stands out: Through its voice control system Siri, the company succeeded in getting under contract at seven premium carmakers including Audi, BMW and Daimler.
While it will be necessary to develop adequate payment models for connected cars, providers also can make money through subscription models. The Oliver Wyman study estimates the value of a connected customer to several hundred euros per year. This vaue results out of direct payments for services, through commercialization of customer’s personal mobility data and by other means. Already today, millions of customers are willing to spend about 100 euros annually for internet music streaming alone. This readiness to pay will be exploited quickly in automotive infotainment, the study predicts.
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