The connected car: a US$282 billion opportunity, but who pays?

Machina Research

Matt Hatton – Director, Machina Research

In October 2013 Machina Research published its annual view on the connected car market. While it represents a tremendous opportunity, there remain critical issues to be resolved, not least who pays for the services and how?

The automotive sector is probably the most exciting in M2M, particularly for mobile network operators, module vendors, and sundry others associated with cellular M2M. Machina Research forecasts that by 2022 there will be 1.5 billion automotive M2M connections globally, up from 109 million at the end of 2012. Revenue from the sector including devices, connectivity and services is set to increase from US$20 billion in 2012 to US$282 billion in 2022, a compound annual growth rate of 31%.

Of the 1.5 billion connections approximately 21% in 2012 are Vehicle Platforms, i.e. factory fitted devices that provide a platform for multiple applications. The remaining 79% are application-specific, usually aftermarket, devices that perform a specific function. By 2022 Vehicle Platforms will become increasingly important, accounting for 36% of all connections.

As part of the report Machina Research identified a number of issues that need to be resolved, of which a major one is pricing. For single-function devices, such as a stolen vehicle recovery solution, there is a simple set of models for payment based around up-front costs and monthly subscriptions. However, as embedded connections supporting multiple applications become more prevalent, the dynamics are not so clear. There is an increasing requirement to support a wide variety of types of services over a single embedded connection. Broadly speaking there are three types:


  • Manufacturer data – Information on the vehicle that is useful to the automotive OEM, for instance in terms of selling additional services, such as servicing, or for analyzing vehicle performance.
  • Vehicle-oriented features – Some, such as remote unlocking, are simple additional features and are likely to be bundled as part of a connected car portfolio of services. Others are more ‘premium’ services such as navigation or stolen vehicle recovery (SVR). These are characterized by highly predictable traffic (or at least small amounts of traffic). Pricing for ‘vehicle-oriented services’ can be handled through an enhanced subscription with the automotive OEM. Most offer tiers of services including navigation, SVR,  emergency/breakdown call, and many others, charged on a monthly basis.
  • High-bandwidth services – This includes high volume data services focused on media and entertainment and the ‘rolling hotspot’ model, as launched by the likes of Audi, whereby the car provides a broadband data connection over which multiple devices (e.g. tablets) connect.

The issue with regard to charging for these services relates to risk. With the first two categories there is generally little risk of generating unpredictably large volumes of data. With the ‘high-bandwidth services’ category, however, it is very difficult to predict usage. This will have a knock-on effect on either margin or adoption: Automotive OEMs will be wary of providing an unlimited service for fear of ultra-high usage, while pitching the price too high will result in lower user adoption. The only viable solution is for the driver to assume the risk, i.e. by paying for what they use in the same manner as they would do for a handset or mobile broadband plan.

However, here we run into a potential stumbling block. If the automotive OEM is contracting with a mobile network operator for the provision of the connectivity to support the ‘manufacturer data’ and ‘vehicle oriented features’, the end user is potentially lumbered with that same operator for connectivity, regardless of whether they want to use that provider. Many, for instance, would welcome the opportunity to have their car data usage billed to their existing smartphone account.

One solution to the problem is to use smartphone tethering, whereby the usage would automatically go to the driver’s bill. Many automotive OEMs already favour this approach for all connected car services. Another would be to build in a second connectivity module specifically for this purpose, although this would simply add to additional cost with no real benefit beyond what could be provided with a brought-in WiFi/cellular router.

Most OEMs, however, are committed to an embedded solution and are potentially looking for options for multi-operator support, i.e. being able to connect simultaneously to multiple operators via one connection. In this case, and other solutions such as multi-IMSI, the challenge is still the same: allowing access to the second user-selected network via the active connection that is supporting other services. In some markets where national roaming is a common feature, the ability to punch through one operator’s network to another’s APN is comparatively easy. However, it does mean that effectively one operator is a wholesale host of another’s traffic. Therefore commercial arrangements will need to exist between operators to handle this. In other markets this capability doesn’t yet exist.

For high bandwidth services OEMs will increasingly demand multi-operator support and MNOs will need to find a way to support it. Yes another healthy technical challenge for mobile operators as they evolve to meet the needs of the OEM community.

Machina Research published its view on the connected car market in its annual report “M2M Communication in the Automotive Sector” in October 2013. For more details contact


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