Stephanie Flores explores strategies for generating revenue from growing consumer adoption of telematics products and services
There’s no question that telematics is growing in the mass market as consumers want to stay wired inside their cars. But the big question for automakers and third-party vendors is: How and where to make money from this growing trend?
Although many drivers cite safety and security as their primary concerns, navigation, infotainment and Bluetooth integration are the key areas of growth. Leo A. McCloskey, vice president of marketing for Airbiquity Inc., a Seattle-based provider of telematics solutions, says consumers don’t know what to expect from in-car telematics: “They are waiting to be led by automakers. One of the keys will be to make it easy for the consumer's digital lifestyle to be accessible inside the vehicle, through the vehicle systems and purposed for the vehicle experience.”
Just as computer manufacturers did not create new services but made services available to and purposed for the computer experience, McCloskey suggests, automakers will make vehicles that incorporate the consumer's digital lifestyle and make it accessible and usable within the vehicle. (For more on telematics and digital lifestyles, see Telematics and Generation Y: Making the car an iPhone on wheels, Telematics and the socially networked car and Telematics and the socially networked car, Part II.)
Statistics suggest that automakers better jump on that bandwagon—and fast. According toGartner Inc., a research and advisory firm, smartphone sales were up 72 percent last year and accounted for 19 percent of total mobile communications device sales. The biggest growth was seen in the United States and Western Europe where broadband networks can support the full capability of the phones.
Integration, integration, integration
Integrating these devices is among the most paramount of tasks that every automaker is actively pursuing, says Mark C. Boyadjis, senior analyst and manager for the automotive industry at IHS iSuppli. “Within the automotive industry, these devices have seen an increasingly important role within the vehicle and are now becoming an extension of the vehicle’s center stack and navigation platforms,” he says.
And while navigation and location-based services and apps are on the rise, drivers consistently rank safety as a top concern in the vehicle. In a recent survey, 82 percent of auto execs worldwide ranked safety as an important reason for their customers’ car purchases, according to KPMG’s 2011 Global Auto Executive Survey.
“The most value will be safety, though value will be underappreciated except for the most dire of circumstances,” according to McCloskey. “Certainly, if one examines re-subscription rates for connected vehicles and personal navigation devices, it is fairly clear that value and cost are not in alignment presently.” Navigation is already more greatly sourced from mobile devices, McCloskey points out, so navigation will be little valued from automakers.
However, he adds, automakers could potentially generate revenue by integrating navigation services from mobile devices with the vehicle’s resources. For example, a car manufacturer could make the onboard GPS chip an extensible resource. The in-vehicle experience will integrate location-based services, so automakers may share in that revenue, McCloskey argues.
The in-vehicle experience will also integrate handset apps and cloud services, some of which may be co-branded and receive additional optimization, creating value and revenue for both parties. McCloskey also posits that mobile operators may introduce services that automatically block incoming text messages and other distractions, but only for the driver and only when driving, creating joint marketing opportunities and potential revenue splits.
Another place for automakers to seek revenue is in-car infotainment. In 2010, consumers spent $2 trillion worldwide on digital information and entertainment products and services, according to Gartner. This is expected to increase to $2.8 trillion by 2015. The largest spending segment last year was subscription-based access and usage services at 62 percent. The $1.2 trillion included mobile and wired voice services, fixed broadband services, online gaming and video services, such as subscriptions to pay TV. (For more on subscriptions, see Telematics and the search for a universal data plan.)
Boyadjis says one area of entertainment with potential for automakers is radio subscription services. Automakers and app developers have an opportunity to generate revenue if they can properly integrate this from a mobile device. For example, this year Pandora has announced partnerships with Hyundai and Toyota to connect the online music streaming service to cars via iPhone.
Until the in-vehicle experience includes services from mobile devices, McCloskey says, don’t expect brisk growth. “Device-based and cloud-based services must be incorporated into the vehicle experience in a manner that benefits all within the ecosystem,” he says. “Consumers are adopting smart-mobile devices in droves. Bringing that enthusiasm to the vehicle will harness consumer interest and accelerate the connected vehicle experience.”
Stephanie Flores is a regular contributor to TU.
For exclusive telematics business analysis and insight, check out TU’s reports on In-Vehicle Smartphone Integration Report, Human Machine Interface Technologies and Smart Vehicle Technology: The Future of Insurance Telematics.
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