Jerri-Lynn Scofield explores how complex consumer demand is forcing the traditional telematics market to evolve and partner with new players
New companies now offer products and services for connected cars that were not part of the traditional vehicle value chain. These include software players—such as app developers, OS distributors, and developers of communications protocols—and wireless carriers and semiconductor companies. “Many of these competencies and resources lie outside the traditional automotive industry,” notes Partha Goswami, technology manager, connected vehicle and infotainment, General Motors.
TeleNav, for example, provides location-based navigation apps and is now expanding into the automotive sector. Airbiquity, which designs and operates a global service delivery infrastructure, is providing packet-based communication over a voice channel for connected car applications.
It’s not just new players who are active in the connected vehicle value chain. Long existing wireless providers, such as “Sprint, Verizon, and ATT are finally starting to take a more proactive role in this industry,” says Greg Geiselhart, director of the Americas, WirelessCar. This compares to the very passive role these companies have played in the last 15 years of the development of the telematics industry. The explosion in apps has largely driven this shift in mindset. Wireless companies “play a crucial role in how you access mobile apps and what they are,” says Geiselhart. (For more on apps, see ‘Telematics: The demand for in-car apps’ and ‘Getting inside the mind of the telematics consumer’.)
Telcos, by their general nature, have certain core competences, including customer care and management of subscriptions and renewals. The ability to leverage these competences presents a “phenomenal opportunity for OEMS,” says Geiselhart. “Telcos have tens of millions of customers, and their ability to translate customer care into the automotive sector will give the OEMs a new way to engage and interact with users of their vehicles.” OEM interaction with customers in the past has been exclusively through dealers. (For more on telcos, see ‘Telematics and driver distraction: Telcos take control’.)
TSPs and vehicle-centric services
The increased visibility for wireless companies, however, will not crowd out other TSPs and, in fact, “the experience they have is more crucial than ever,” says Geiselhart. Since telcos themselves are not familiar with integrating services into automobiles, “it’s important for them to be utilizing established or experienced service providers in the auto domain for the delivery of vehicle-centric services.”
There’s a clear dichotomy, with the telcos playing an important role in the delivery of consumer-oriented apps. Other TSPs bring to the table their understanding of vehicle-centric services, such as the ability to relay an emergency call or to perform a door unlock. “It’s not just delivering Facebook into the vehicle,” Geiselhart notes.
With new stakeholders being brought into the value chain, and traditional stakeholders playing an increasing role, there’s considerable flux over how payment will be made for the plethora of new telematics services. Ultimately, consumers will pay, but “there’s no standard framework yet, and every OEM has various schemes in place,” says Goswami.
Payment systems include the option of a one-time upfront charge upon purchase of the automobile and some variant of a monthly or annual subscription fee. “Consumers steeped in free apps and other freebies from the Internet are not necessarily keen on paying yet another bill for yet another new infotainment feature or service,” Goswami points out.
The payments puzzle
Revenue sharing is part of the payments puzzle, and Goswami cites as a guide how consumers purchase Apple apps with revenues split between software developer and Apple itself. This model could be extended to connected cars, where there exists “very similar sharing mechanisms between app developer and OEM,” he says. “The notion of freemium is also getting lot of attention where a basic free service is monetized by a paid premium service.”
“Advertisements could potentially be another payment approach, at least in the longer-term. OEMs have traditionally supplied car radios, with costs reflected in the initial purchase price. Consumers don’t pay for content directly but via an advertising model that kicks in. Goswami recommends looking to what’s being done with mobile advertisements in phones as a possible guide to future financing of telematics and infotainment options, with appropriate attention paid to driver distraction issues. Many mobile apps are now financed by banner ads, for example. (For more on mobile ads, see ‘The role of telematics in next-gen mobile advertising’.)
Payment for telematics options will likely comprise some hybrid of a one-time payment built into the price of the car, plus some form of monthly subscription, possibly offset by ads. Goswami suggests this is a long-term scenario, and technical and business issues for custom content have yet to be worked out. But in future, he predicts, in-car advertising will be consumer-, location-, and context-specific and might follow “a click-through advertisement revenue sharing system just like Google.”
The limits to revenue sharing
Geiselhart warns that the revenue sharing concept can be taken too far: “Revenue sharing has a place, but it has to have a place in the appropriate context.” The OEM both understands and is the major beneficiary of providing the telematics service. “Some people think or believe that having a yearly subscription should be enough to fund a program,” says Geiselhart. “There’s enough of the cake there that everyone can split it up. That type of philosophy is not sustainable.”
Instead, he suggests that a significant portion of the value created by any program is internal to the OEM. As the key financial stakeholder, they have the major financial stake in it. Revenue sharing will not work in the longer term if “the OEM gets everything and it doesn’t cost them anything,” says Geiselhart. A successful, sustainable revenue-sharing model “cannot take away a lot of the internal value that should be recognized by the OEM itself.”
Jerri-Lynn Scofield is a regular contributor to TU.
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