Connected Car. How it is changing the Automotive Industry

When people are talking about Connected Car, they are mostly touching the end-customers part of that movement. In Bright Box we’re thinking a lot about the other (dark?) side of that movement. I mean how Connected Car is changing Automotive as todays main driver of the changes in the industry. And there are a lot things to talk about.

So, I will start with some milestones to understand where we are now and where we are going. Let’s say there are three:

• Today (up to 2017)
• Tomorrow (2017–2020)
• The Future (2020-..)

In the prospects of these periods, we will see significant changes in the following areas:

• In-car content and services. Infotainment, navigation and mobile integration will become more and more integrated to each other, where all of the scenarios will cover more than a single screen
• Vehicle Relationship Management. Customer vehicle will always be online, with all the services available, it would be possible to get all the data required to manage and control the car
• Insurance. Most of the insurance products will become telematics based, where drivers will pay based on their use of the car
• Driving Assistance. More and more road decisions will be delegated from the driver to the car

Global Re-positioning

Current global players on the market are:

• OEM (Car Maker)
• Tier-1 supplier
• Internet companies
• MNO (Mobile Network Operator)

Let’s talk about each one in a perspective of global re-positioning.

Re-positioning of OEM

OEMs are moving from hardware production to the Operation Systems and the services around that. For example, OEMs are providing services, like a classical taxi (Daimler / myTaxi), Car-Sharing (BMW / DriveNow), even Mobility-as-a-Service (Daimler / moovel).

Here I can’t stop thinking about all the IT giants from the 90s, which have moved from hardware to platforms and services in the 2000s. The processes are pretty much the same in Automotive these days.

This paradigm shift is making new partnerships possible (such as GM and Facebook, I would not have expected that 5–7 years ago).

Re-positioning of Tier-1

Tier-1 suppliers (for instance Bosch, Samsung, Mahindra) are starting to compete with OEMs for vehicle maintenance, providing diagnostic tools for consumers (mostly OBD-2 based), which will force drivers to visit Tier-1 service centers instead of OEMs dealerships.

Re-positioning of MNO

And for some players, such as MNOs it is a challenge to grow faster. This is new Connectivity consuming channels for them. For instance, OnStar and At&T are doing WiFi In-Car router, Telia are offering WiFi-routers as an aftermarket solution, innovations are happening driven by the need for new connectivity sales.

If you have a look at the pie, everybody is moving from hardware to services and software, automotive suppliers are also trying to take more and more as they can.

Re-positioning of Internet Companies

A lot of opportunities are coming for Internet companies, where players like Facebook, Google (with Android Auto), Amazon (with Alexa) and Apple (with CarPlay) are coming to the market. These companies are doing their best in customer relations, customer retention, on-line payments, selling services, selling content, providing infrastructure and so on. They aim to cover every possible customer need.

The only piece they are missing, from an automotive point of view — is the car’s hardware platform. Here I strongly believe that in a few years some of the Teir-1 suppliers (like Magna Steyr) in partnership with one of them will cover that too.

The next step for Internet companies with whole-featured cars is to acquire all of the existing customers just using brand loyalty and customers’ familiarity with their services.

The only way for OEMs — not compete with that movement, but look for partnerships to complement their missing customer interaction areas.

Same Pipe

Customers mostly spend the same amount of money on their car over 5 years, and this figure has not changed for the last 15 years at least (for instance the D-segment car in Germany costs about 56,000 EUR over 5 years).

I don’t think this will change in the next 10 years. The only possible change is how this money will be broken down between the players. For instance, Connectivity will grow, consuming from other areas, but this will not change the spend structure at the end.

From different market researches about 20% of car owners are ready to make their decision on a new car based on the Connectivity features available in the car. That’s a huge amount of potential car buyers who will choose their next car only on Connectivity features. That is the scary fact, though OEMs still have control, for instance, it is HMI and multimedia systems which they should use for 100% (remember the BMW iDrive button).

Spare parts and services

Market research shows that people tend to trust more apps than servicemen. I will explain that, for instance recommendation to change tiers comming from branded mobile application or comming from servicemen will have a very different effect — much more people will follow it after get it from the application.

Here OEMs have exclusive positions, they have access to all the sensors and data in the vehicle. And using that data they can build perfect recommendation systems, which will help customers use their car more carefully spending less on the service. Other side OEMs will be way effective in planning, producing and organising production lines and supply chains as everything will be digitised and predictable for months forward.

So, the first step is to build mobile applications and make user experiences of hand units much friendlier.

Smart Insurance

Having data on vehicle usage requires a lot of responsibility, and here are some concerns about Data Privacy coming to light.

Let me cover that topic too. For instance, Octo Telematics has 5M connected cars, and they know everything about the behaviour of the drivers. This number is more than the average OEM has at the moment, and that’s a lot of power which is utilized to make customers happy providing discounts on insurance.

Connected Car department

There are a couple of examples in the industry such as OnStar (GM), Tesla, who are implementing their TI strategies quite well. In this companies Connected Car departments are not the cost centres, they are profit centres. It is happening due to huge demand from customers, and that means that all the other companies will experience the same changes.

Resume

So, customers are requiring products and services which will change OEMs more and more, on the other hand, Internet companies are providing all the niche services, excepting car itself. In some point of time two of those players will meet each other’s standards and become the same players on the market, with the same organisational structure and offerings on the market.