By now you’ve seen plenty of stats about the size of the connected car market, such as Infonetics Research’s prediction of $17 billion by 2018. A booming market always has turf wars, so it’s surprising to see so little debate about who will own the customer.
Connected cars are fundamentally different from a lot of other consumer electronic devices where the ownership debate rages. One reason is hardware: The age of the average U.S. vehicle is more than 11 years, and it’s been steadily increasing partly because the quality enables them to last longer.
As a result, a connected car purchased today probably will still be using much or all of the original infotainment, diagnostics, navigation and other cellular-enabled systems a decade from now. Granted, aftermarket vendors will enable vehicle owners to replace some of that hardware. But the cost and, in the case of interior hardware such as displays, the aesthetics of doing so probably will persuade most people to stick with what they have.
In theory, that should mean automakers and their business partners can count on each car buyer to drive revenue for the better part of a decade. But that might not be the case.
Why Connected Cars are Going LTE
The big wild card is LTE, the cellular technology that virtually all connected car products are migrating to if they haven’t already. The connected car ecosystem loves LTE because it provides upload and download speeds fast enough for bandwidth-intensive applications such as streaming HD entertainment and Wi-Fi hotspots – the kinds of services that wow people enough to pay a monthly fee.
LTE also is attractive because nearly every mobile operator worldwide is migrating to the technology. That shift gives it a global cost structure to drive down hardware costs. Global adoption also means cars can stay connected when they’re driven to other countries, such as in Europe.
LTE is already showing up in many developing countries, too. Their growing middle classes want to own vehicles, thus expanding the addressable market for connected car services. Add it all up, and it’s no surprise that Infonetics predicts that LTE will be the fastest-growing cellular technology in cars, expanding 135 percent annually between now and 2018.
But LTE is proving to be as much a disruptor as an enabler. Vehicle owners can switch LTE networks to get a lower prices, higher speeds or better coverage, just as many people do by replacing the SIM in their smartphone to change operators. As the discussions at Audizine here and here show, some Audi owners are already doing that to change their Audi connect services from the incumbent provider, to prepaid alternatives such as PTel Mobile and Truphone.
In that scenario, the vehicle owner still has to have an Audi connect account regardless of which operator is providing the connectivity. But it’s a noteworthy example of how LTE enables consumers to disrupt a relationship between an automaker and a mobile operator. If a mobile operator shares revenue with an automaker in exchange for being the default provider for its connected car services, then churn affects both partners’ bottom lines. This is one of the scenarios that investors and analysts should consider when assessing the connected car market.
To be successful, providers of connected car services will increasingly need the ability to serve customers across multiple operators and multiple network technologies. It’s here that a platform strategy is key. For example, telematics vendors are responding with platforms, including hosted versions, that minimize the cost and complexity of provisioning and managing connected car services across multiple LTE networks, as well as 3G and satellite. These platforms also make it easier for providers of connected car services to offer a variety of rate plans, including pre- and post-paid, and usage-based services. That pricing flexibility enables them to tap a wider pool of potential customers. A platform strategy also is ideal for providing services to fleet owners and other non-consumer customers.
Infonetics that says that some service providers already get up to 90 percent of their machine-to-machine (M2M)/Internet of Things (IoT) revenue generated from the connected car market. With so much money at stake and so many household names vying for a piece, the connected car market will see some fierce turf wars over the next decade.
Thomas McKay is Director of Marketing and Communications for Numerex.