I was asked recently by a client to provide an overview and commentary on the state of connected cars and in-vehicle infotainment (IVI) technologies, ecosystem trends, and how I anticipate these to shape over the next 12-24 months. Specifically, we did not want to focus on connectivity technologies per se, but rather explore the drivers and the inhibitors that influence and shape the business ecosystem of connected cars.
All in all, the activity in the connected car space will continue to be top of mind for OEMs and suppliers, wireless carriers and service providers, regulatory agencies, and the general public. The heightened activity, however, will not bring significant convergence in the next few years.
Here is why.
Automakers Continue to Control the Conversation
Don’t let the announcements about technology collaboration with Google, Apple and Microsoft mislead you. In the near term, the uncomfortable status quo will persist: OEMs will resist opening up the vehicle platform and will be slow to let outsiders into the fold, especially when it involves giving them access to critical vehicle data. Whether driven by fear of exposing critical information to competitors and regulatory bodies, refusal to relinquish opportunities to deliver value-add services, or just traditional thinking, OEMs will continue to dictate the trajectory and cadence of the conversation.
OEMs will respond to potentially threatening moves by industry outsiders such as Google’s autonomous car prototype. While Google’s innovation continues to capture headlines, expect OEMs, in particular Mercedes and Audi, to push the envelope with advanced active safety and autonomous driving features. Traditional OEMs will leverage their strengths in global manufacturing and supply chains to gain an advantage over outsiders such as Google and Tesla.
Misalignment with Consumer’s Mobile Digital Identity Slows Down Adoption
Since the early days of telematics, connected car technology and affiliated services such as OnStar were built into the car, and consumers were limited to those services that were offered with the car (and had to pay subscription fees the OEM thought the market will bear).
But with the ubiquitous popularity of smartphones and plethora of mobile services, many of them free, consumers find built-in vehicle-centric IVI devices technologically inferior, costly, and slow to keep up with technology advancement available on consumer products.
Consumers prefer using their smartphones not only because they offer a wealth of useful apps and information that are always up to date, but because the personal data and personalized services delivered via the user’s smartphone are the proxy for the user’s mobile digital identify. This identity offers consumers an uninterrupted modality-independent digital presence: same experience and services independent of the location and the mode of transportation being used.
Automakers will continue to offer built-in technology and vehicle-centric services. But as they continue to add options and features to out-innovate the competition, the in-vehicle experience for drivers and passengers is becoming more complex and requires re-learning and re-personalization—a stark difference from the smartphone experience.
Consumers may be willing to pay a premium for certain technologies, for example, a larger touch screen, especially if they are able to replicate the small handheld screen onto it, but they are not likely to agree to pay additional monthly fee for services they can already access through their smartphone. So while innovation in built-in IVI will continue to grab headlines and offer some brand differentiation, OEMs will have only a limited success selling new services to consumers.
Concerned Consumers Take a Wait and See Attitude
Concerns and ongoing discussions relating to connected car security and data privacy are top of mind among regulatory agencies, automotive industry insiders and the general public.
In addition to concerns about possible hacking into car electronics and disrupting vehicle to vehicle communication, there are lingering fundamental questions about car data ownership: OEMs, service and content providers and consumers see it somewhat differently, especially when it comes to sharing and using information collected and transmitted by connected cars.
The lack of consensus, adequate regulations and common standards is not going to slow down innovation and technology evolution. In fact, it’s going to be the other way around, as the playing field for the time being is open and less restrictive. However, in the short term, the open innovation space will also result in poor systems interoperability and market fragmentation.
Concerned consumers will take a wait and see attitude, expecting further proof that connected car technology is robust and that their personal information is not being exploited.
Alliances and Partnerships Win
While OEMs were busy trying to sell telematic services through proprietary and closed business offerings, the aftermarket was much more diligent. In recent years, a plethora of consumer-grade plug-in OBD II modules appeared in the market from companies like Automatic, Dash, MetroMile, Plex Devices and Zubie. These devices plug into the car’s OBD II port and connect, either wirelessly or via Bluetooth, to a consumer cell phone and, voilà, a DIY connected car.
Third parties, from mainstream insurance companies to app developers to do-it-yourselfers and hackers are exploring new service options leveraging the treasure trove of data flowing from the car’s OBD II port, cutting the OEM out of the loop. Much of this activity will come from upstarts and established companies that aren’t from the mainstream automotive business. Leveraging inexpensive off-the-shelf technologies, these companies offer consumers connected cars gadgets, apps and business services (many free of charge) such as gas station locations and prices, charging station locations, parking information, traffic updates, car data monitoring, and many others.
2015 should see the continuation and acceleration of the wave of M&As and partnerships activity in the general Internet of Things (IoT) space and in “connected mobility”. In addition to the headline grabbing acquisitions of ThingWorx and Axeda, we witnessed Kore buy RACO Wireless, and Sierra Wireless buy Wireless Maingate. Of particular interest was the new partnership formed between Jasper and Telenor Connexion. And while I was editing this article, Harman International announced the acquisition of Red Bend.
Wireless Carriers will be the Biggest Losers, Unless…
Wireless carriers are hungry to capitalize on the promise of connected cars and the always-connected consumer lifestyle. This is quite logical, considering, for example, estimates by CTIA that by 2017, 60 percent of all cars sold in the U.S. (about 10 million vehicles) will have built-in wireless connectivity.
Indeed, wireless carriers have been providing automakers with telematic connectivity services for over two decades. However, connectivity has become an interchangeable commodity, differentiated primarily by price.
Recognizing the business risk in becoming a commodity supplier, wireless carriers have been and will continue to make significant investment in developing and demonstrating not only next generation 4G LTE global wireless voice and data networks, but also in mobile and IVI technologies such as voice recognition, driver distraction reduction, and car-home integration. AT&T is probably leading the pack with AT&T Drive Connected Car Platform, which is at the center of the company’s global connected car strategy.
But despite these efforts, wireless carriers will not be able to reach significant traction beyond the current vehicle-embedded SIM card based data services. However frustrated by the protective practices of auto OEMs, carriers will continue to compete for exclusive contracts with automakers.
Wireless carriers are torn between the old business model which is driven by data volume and average revenue per user (ARPU) and the desire to be a strategic partner but not having a sustained strategic value. Carriers need to think differently about ways to leverage global connectivity infrastructure and expertise as the platform upon which to provide OEMs and consumers greater value. This value is more likely to come from partnerships and acquisitions rather than from new technologies that attempt to compete with OEMs and suppliers.