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The complex-free route for operators to the rewarding connected car business
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The complex-free route for operators to the rewarding connected car business

Posted by Zenobia HegdeFebruary 2, 2017

The connected car ecosystem is one of the most advanced of all IoT and machine-to-machine use cases. Most of the world’s largest mobile operators are working hard to stake a claim on this growing opportunity.

This is especially true in Europe as major operators including Telia Company, Telefonica and Vodafone are all adopting strategies to deliver connected services to take advantage of this largely untapped market.

Revenue sharing and profit

Each mobile operator is approaching the connected car market from a slightly different perspective. The majority are still taking baby steps, discouraged by market uncertainty, technological complexity and the inability to see a lucrative business model for the delivery of services.

Some operators are partnering with car manufacturers to deliver connected services at the point of manufacture. A few are looking at how they can profit from the aftermarket and provide services for car users once the car is on the road. Only a handful of innovative operators are taking a deeper look, says Erik Ramberg, CEO of Springworks.

Some of these operators are considering their position in a more comprehensive ecosystem of consumer auto services, an ecosystem with a more profitable approach to revenue sharing for a whole host of relevant third party companies.

Connected car services include everything from performance updates on fuel usage and average speeds, to alerts on the wear and tear on parts like tyres and batteries, to real time services such as where to park and having the car paying for parking or how to avoid traffic, to drivers journals and usage based insurance.

With the ‘connected’ element being the vital delivery engine for these services, the big question for operators to consider now is figuring out the path to the greatest profit in the world of connected cars.

Driving or supplying?

Most OEMs or car manufacturers do not have the capabilities needed to succeed in the mobility space alone and are partnering with operators but more on ‘supplier’ terms. The one truly valuable and profitable aspect for operators however, is the delivery of subscription based connected car services.

Up until now, operators have ignored this and have just been doing the ‘plumbing’. Mobile operators that figure out how to move up the value chain and get closer to the customer will have significant rewards.

Fighting market complexity

With connected services for cars set to generate sales of US$155 billion, automakers, suppliers, service providers, operators, M2M companies and technology companies are all honing strategies for their slice of the revenue. There are of course challenges and the level of complexity in the market has been making it a very high effort and a costly one.

Mobile connectivity first found its way into cars via the owners’ smartphone with car manufacturers and service providers such as insurance companies and repair shops delivering apps to drivers’ mobiles. The challenge here is serving a consumer marketplace made up of multiple devices, operating systems and billing methods.

The software platforms providing such services will need to validate and support multiple devices in multiple countries and this has technical issues, language issues as well as the different local driving laws in each market to take into account.

A smarter, subscription-based model for operators

A more logical approach for mobile operators is to involve OEMs in their on-going business model taking a country by country approach to working with local partners and delivering services to local subscribers via a platform. Carriers having success with this approach are Telia Company and AT&T. AT&T is the service provider for General Motors’ OnStar, a service with over six million subscribers in the US, Canada and China.

Telia Company on the other hand is propelling itself up the connected car value chain with a white label service that goes far beyond basic connectivity. The operator has leveraged a platform that allows it to integrate with other car service partners allowing insurance companies, parking services, fleet management companies and car repairs businesses to plug into the system and provide services to drivers.

This in turn enables Telia Company to deliver a range of smart services to all car owners in Sweden, regardless of the age of the car, using a plug in On Board Diagnostics (OBD) dongle with an app or API. The driver plugs a telematics unit in the car’s standard OBD socket, which then connects the car through Telia Company’s network to aggregated connected car services via the cloud.

The services includes at launch: 4G Wi-Fi, service warning alerts, parking information and warnings, tyre change notifications, car inspection, road side assistance, eco driving features, usage based insurance services, tampering alarms, geo fences, dashboard data and drivers journals.

Testing an attractive business case

Connecting cars in this way makes perfect sense from a business perspective, especially when working with automotive service partners such as insurance companies and repair shops. Insurance companies have already shown that telematics systems can reduce claims expenditure by up to 30% whilst repair shops can save time for both themselves and their customers by doing a remote diagnosis before the car arrives.

By signing up customers to a connected car service platform, operators can drive sales of further subscription-based services to customers and start taking a share of the revenues. Perhaps more significantly is their ability to connect the vast numbers of unconnected cars currently on the roads. It is estimated that there are 175 million cars in the whole of Europe that are connectable for an aftermarket solution.

Finding a simple and cost effective way to target more than a hundred million new drivers has lucrative potential. This is especially true given the ability to collect and analyse customer data related to the consumption of these additional services. By forming a detailed view of customer behaviour, all be it on an opt-in basis, operators can form a contextually accurate picture of existing users to drive upsell opportunities through targeted and relevant offers.

The operators that maximise the connected car opportunity will monetise new digital strategies and smart data, working with partners and third party service providers to enable them to offer users premium services. These data-centric business models depend on revenue from ongoing services and the sale of information.

As such, they have the potential to change not just the car itself, nor just the driver, but how the entire industry operates. The vehicle of the future is already taking shape.

The author of this blog is Erik Ramberg, CEO of Springworks

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Zenobia Hegde

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