Connected Vehicles services: Warming up in this Indian summer?

This is a repost of my earlier post in LinkedIn, posted on April 2019: https://www.linkedin.com/pulse/connected-vehicles-services-warming-up-indian-summer-nagarajan/

If you’re in the habit of watching the Indian automotive space closely, you would’ve noticed a bevy of unusual TV spots, like the one below.

Hyundai and Maruti(Nexa), which between them sell nearly 70% of all passenger cars in India, along with Honda and MG Motors (more on this later), have been placing TV ads for connected vehicles services — positioning their vehicle connectivity app and features front and center in these ads. Hyundai is showcasing its Blue Link app — top features like remote vehicle start, ‘find my car’ etc., and Maruti is positioning Nexa Connect — an all encompassing app for its Nexa vehicles, which also prominently include vehicle connectivity features.

What’s very unique for these ad spots is that none of them prominently feature any specific vehicle model in their line-up (this is despite a bevy of new model launches). And these aren’t path-breaking brand new tech either — Hyundai’s Blue Link technology has been around for a few years, and the Nexa app is actually a branded black skin on top of the old ‘Suzuki Connect’ app — the base technology for which has also been around for a while. They’ve been offered as opt-in services, which a customer can choose during a new vehicle purchase, and available only with select models, free for a year or two, but never prominently positioned until now. What prompted these companies to place them now in prime-time TV spots in the middle of IPL matches?

Connected Vehicles services as a feature: The MG Hector effect?

One hypothesis is that Hyundai and Maruti are reacting to the unique launch of Morris Garage’s Hector. MG had a very unique launch event early this month, where an entire hour was dedicated to “i-Smart”, their vehicle connectivity solution — but hardly a peek on the other hand into any other feature or spec of the new model they’re launching in India. The entire positioning of Hector so far (including with the TV spots) has been prominently about its vehicle connectivity features, pushing back any other typical vehicle spec for an SUV/Crossover. Perhaps positive buzz for MG’s connected vehicle features launch prompted the market leaders to react this way. Hyundai too isn’t far off in plugging in vehicle connectivity as a differentiating feature. The new Venue SUV is labeled ‘The Connected SUV’ very prominently in Hyundai’s latest media launch splash.

What does offering vehicle connectivity as a vehicle feature (as opposed to an add-on service) mean? It implies that OEMs want to bundle these features as a differentiation into the vehicle specs and ask the customers to pay for them up-front — rather than offer them as value added services for a vehicle owner and collect fees later. This might seem as a sound strategy: connected car apps (like Honda Connect) which have been earlier launched were provided as a free opt-in service for a year, after which the consumer has to pay and subscribe to continue using services. There is no publicly available data for renewals, but it has been learnt from observation that the renewal rates for such services in India have been abysmal across brands. Hence it might make good sense to roll-up connected vehicles services into an up-front multi-year bundle and add it as a line-item into a car’s purchase cost. But there is a catch to this.

Why this may necessarily not be a good thing — for the OEMs.

When I buy an iPhone, I pay for all bundled services (like FaceTime) offered with the phone up front, and I expect these services to work consistently till the time I own the phone. These bundled services are then as ubiquitous as the native features of the phone (like voice calls). Like-wise, when connected vehicles services are bundled and positioned front and center as key vehicle features, they will likely be viewed as integral to the vehicle as say ABS and cruise control. These have two major implications:

1. OEMs lose the opportunity to separately monetize these services. Imagine the paroxysms of horror if Apple had asked for a fee when it rolled out the group FaceTime upgrade. Also — the smartphone comparison doesn’t extend to the ability to offer an ‘app store for the car’. Unless the OEM stays in control of the entire connected vehicles value chain, it is in no position to collect rent for additional services (unlike an Apple or Alphabet)
2. Any degradation of perceived quality of performance of a vehicle feature has a severe impact on the vehicle brand. Once a customer perceives that she pays up front for a car feature, she expects it to work with very high levels of reliability. This is where it gets tricky for vehicle connectivity, especially in India. Connected services are beyond just telematics units and consumer apps — they need serious investments in keeping the lights on (reliable connectivity services layer, deep expertise in consumer support & app maintenance, a data platform which can support device lifecycles end-to-end and so on), and are quite prone to multiple points of failure (from vehicle side issues, to connectivity failures and beyond). But all of this will not be visible to the end user, who will only see over-speeding alerts pop into her smartphone an hour after she’s finished driving.

Viewing vehicle connectivity as a vehicle feature will also imply overall pressures to bring input costs down. This usually results in a race to the bottom in pricing, typically led by Tier-1s and other suppliers. There is a very real possibility of connected services becoming commodity features with little scope for different avenues for monetization and innovate service offerings.

Connected services have a great potential to allow vehicle OEMs to truly un-bundle the car, and allow them to tap into multiple aspects of ownership and ridership of the cars they sell. Specific challenges (technology, monetization, brand perception etc.) need specific strategic interventions from OEMs — which include a very thought through approach for positioning such services in the market. Such considerations are very essential in deciding who among OEMs, data platform providers and MNOs will end up making money out of vehicle connectivity. It will be interesting to sit back and watch how this dynamic plays out in the Indian passenger car market in the coming months.