In the first of a two-part series, Susan Kuchinskas reports on making in-car apps pay.
Embedded connectivity or smartphone platforms let OEMs add that consumer-device cool factor they hope will boost sales and fuel driver excitement. But that stuff isn't cheap.
In the telecom world, revenue from app sales for the four leading app stores rose 11 percent in the first quarter, totaling a whopping $2.2 billion globally, according to market researcher Canalys. In the automotive world, most OEMs will be lucky to zero out their development costs in the near future.
In fact, there is no shortage of pundits who believe OEMs will never make money from apps.
Speaking at last year’s Telematics Update conference in Munich, Roger Lanctot, associate director for automotive multimedia & communications service, Strategy Analytics, said it in no uncertain terms: "Can you handle the truth?" he asked an audience of some 700 automotive executives. "You won’t make money with apps."
Instead of building Apple-like app stores with thousands of products, something consumers are unlikely to pay much money for, Lanctot advised OEMs to pare down their app offerings to a handful of auto-centric apps and pour the rest of their resources into customer relationship management (CRM) and safety applications.
But that does not mean OEMs won’t try. Needless to say, they have little choice as customer expectations build for an in-car experience that is similar to portable devices, and as apps and content become an important differentiating feature, particularly for young drivers.
(For more on in-car apps, see Telematics: What's next for apps and services, part I and Telematics: What's next for apps and services, part II.)
Making apps pay
When it comes to paying for apps, a few models have begun to emerge: a one-time charge; a subscription for connectivity and/or use of apps; and longer-term, more blurry possibilities that include the bundling of customer relationship management solutions with OEM-run, automotive app stores.
A one-time charge for apps is by far the most obvious option. However, many apps would have to cost tens, even hundreds of Euros, given the size of the market and the many special considerations app developers must pay attention to, including driver distraction, OEM brand identity and fragmentation of platforms.
“The effort to reach sales volumes is too high, which leads to high app prices,“ says Timo Salminen, head of automotive at Ixonos, a Finnish mobile solutions company. “The demand will have to be met by someone other than the developer community, namely by those who need the apps to support their core business. I am mainly talking about automotive OEMs and content and service companies, such as TuneIn, Spotify and TomTom.“
Subscriptions are another way for OEMs to monetize apps, particularly for driver-relevant services, such as real-time traffic, gas prices and parking information.
BMW has successfully combined both approaches.
Most of its connected solutions come through ConnectedDrive, the carmaker’s suite of telematics services, which in Germany costs €250 per year after an initial complimentary period. BMW Apps, which is sold as an option for a one-time fee of €150,then integrates the iPhone and provides the driver with additional services, such as Internet radio, Facebook and Twitter.
Says Phil Johnston, product manager for the BMW Group Apps Platform from the BMW Group Technology Office, "The [BMW Apps] option is how we make our money; the integration is how we please our customer."
In-car ads largely a non-starter
Ad-supported models are also a possibility, though they currently command little enthusiasm among OEMs, with the exception of Pandora and other radio/music services that can take advantage of consumers' acceptance of terrestrial radio’s saturation with advertising.
"I don’t know anybody who is promoting advertising," says Jörg Lützner, director of online services, Continental Automotive Systems. “It clutters the screen and leads to distraction.”
Further out, OEMs could get incremental benefit and direct or indirect revenue from customer relationship management functions, tactics such as sending the car owner back to the dealer for regular servicing or offering them deals on products and services.
"This comes from the recognition that asking a customer to pay €9.99 for an app which they get for free on the smartphone is not going to fly," Lützner says. "The business model will be more complex, and the topic of CRM will come into the game much more. If you can grow dealer services, you have profitability possibilities."
Livio recently released two new products intended to help OEMs generate new revenue from apps. The FM Traffic Button allows drivers to push a button and receive traffic reports that are updated every few minutes. OEMs can share revenue generated through ads during the reports.
Livio Keys, meanwhile, is a communication link between vehicle manufacturers and software developers that provides tools and customizable services. OEMs can provide month-long, free trials for an app, for instance, and then receive a portion of the pay if the driver then commits to a paid subscription.
The bigger picture
Jean Cherbonnier, CEO of Navx, a producer of content for connected cars, frames the return on investment for OEMs even more broadly.
Apps and content “are not the car manufacturers’ only business,” he says. “OEMs are selling a car, a service, maintenance and all kind of other stuff. Of course, if they just look at the PNL for buying content, they are clearly in the red. But if they look at the PNL of the company, they are selling cars with head units that will allow them to introduce new services, to understand better their clients and to, maybe, generate new sources of revenue or increased loyalty.”
Grégoire Heugel, sales director automotive and mobile at Michelin Travel Partner, concurs. According to him, money spent by OEMs on apps and content is money well spent. “In the end, they will make money, even if content adds costs to the car," he says. "It will enable them to justify premium positioning and/or [add] differentiation.”
Susan Kuchinskas is a regular contributor to TU.
For all the latest telematics trends, check out Content & Apps for Automotive Europe 2013 on June 18-19 in Munich, V2V & V2I for Auto Safety USA 2013 on July 9-10 in Novi, MI, Insurance Telematics USA 2013 on September 4-5 in Chicago, Telematics Russia 2013 in September in Moscow, Telematics LATAM 2013 in September in Sao Paulo, Brazil, Telematics Japan 2013 on October 8-10 in Tokyo and Telematics Munich 2013 on November 11-12.
For exclusive telematics business analysis and insight, check out TU’s reports: Telematics Connectivity Strategies Report 2013, The Automotive HMI Report 2013, Insurance Telematics Report 2013 and Fleet & Asset Management Report 2012.