Susan Kuchinskas looks at how the Web and mobile business model for apps could work in the automotive sector
Application developers, whether for online or mobile, have two related business problems: How do you get people to try your app out of the plethora of apps competing for their attention?
And, in a world where consumers expect—and can get—information and services for free, how do you make money?
Next to getting the company purchased by Yahoo or Google, the best business model seems to be providing a simple version of the app for free, while offering additional features and functions via paid subscription or purchase.
This so-called ‘freemium’ model is used successfully by TeleNav, for example. Its TeleNav GPS Navigator is available as a free download on iTunes, and there's also a paid version, TeleNav GPS Plus.
"We figured out a way to provide the base-level experience," says Dr. Axel Fuchs, director of business development for TeleNav. "The premium experience has things you don't get for free. The free version offers visual navigation, but it doesn't have turn icons and voice directions."
Try, then buy
Frederic Bruneteau, managing director of Ptolemus Consulting Group, points out that many automakers already have freemium navigation offerings.
For example, BMW offers basic traffic information services, but you have to subscribe to Connected Drive in order to enjoy all the services that come from two-way connectivity.
Bruneteau identifies another version of freemium: try-then-buy. You can enjoy the service for free for a certain period, but sooner or later, you'll have to buy it, by which time you're likely addicted.
Renault's Carminat TomTom in-dash navigation system is free for one year, but then a paid subscription is necessary to continue.
Freemium can enable still another business model: licensing an app to an OEM or mobile network operator, once it's been proven to be reliable and popular.
TeleNav licenses GPS Navigator to Sprint.
"They see it's popular, so they want to bundle it with their data plan to make it more attractive and competitive," says Fuchs.
(For more on apps and data plans, see Telematics, smartphones and the future of connected infotainment, Telematics and the connected car: How to deal with increasing data use and Telematics and the search for a universal data plan.)
Free or ad-free
As shown by the Internet, many consumers are more than willing to have their desktops cluttered with ads. And the almighty Google offers ad-supported everything.
While there was much agonizing over contextual ads showing up next to personal emails when Gmail was launched, now users think nothing of seeing a travel ad next to news of a relative's trip.
While distraction is a serious issue in the driver's seat, companies including TeleNav are already serving or in the planning stages of serving ads. "There definitely will be paid applications and ads within free apps," says Krishna Subramanian, CMO and co-founder of the Velti Mobclix Exchange, a mobile advertising network.
Because in-car applications are unfamiliar to most consumers, ad-supported apps could encourage usage, he says: "You want as many people as possible to engage with this new platform and the lowest barrier to entry. But you need a way to make money."
The way he sees this working is, when someone buys a new car, it might come with 10 free applications. He begins to explore them and use the features, and then he finds that it's worth it to pay an additional 99 cents to get voice alerts or find restaurants.
"Purchasing additional features would be clean and crisp. That's an ideal way for app developers to make money," Subramanian says.
While companies including Mobclix have the technological and back-office capability of delivering ads to in-car apps right now, most in the industry think this is years away. One big barrier is connecting with advertisers and ad agencies. To date, most navigation ads have been sold to a few national chains of hotels and restaurants.
In the meantime, app developers need to get their offerings to drivers, and everyone needs to make a little money.
With any kind of connected-car services or apps, Bruneteau says, "There's a risk that carmakers will ask a lot of money for things that should be free. They will lose that battle. In some cases, the freemium model would be better.”
Susan Kuchinskas is a regular contributor to TU.
For exclusive business insights into the telematics market, read TU’s reports In-Vehicle Smartphone Integration ReportandSmart Vehicle Technology: The Future of Insurance Telematics.
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