In the long evolution of the connected car, we’ve seen vehicle OEMs evolve from years of relative discomfort and often indifference related to the value of connectivity and data, to finally waking up to the fact that we are entering a new era of user-centered, data-driven services and values.
From a traditional auto industry OEM perspective, today’s discussions of smart systems focus almost exclusively on communications — the “pipe” — and very little on the data and information value. Focusing on the communication element alone as ‘first-order’ business value amounts to grabbing the wrong end of the technology stick. Communications steals the limelight and potentially eclipses the real revolution: utilizing new networking technologies and embedded intelligence to liberate information from sensors and leverage collective awareness.
Since the advent of vehicle connectivity, there have been three generations of technology and architecture: the first cycle focused on safety, fleet management and relatively simple applications; the second cycle largely comprised of infotainment and entertainment innovations; the third is where we appear to be today – with a rapidly growing community of innovators enabling “hyper aware” vehicles that can sense their surroundings.
What is important about the next generation of smart vehicle and transportation systems is the combined impact of these legacy cycles of innovation. While there is standalone value in each cycle of innovation – embedded software, communications and information services – it is the combination of these innovations that will inform significant disruption moving forward.
The Connected Vehicle Market is Rapidly Growing
source: Harbor Research
The Emergence of Vehicle Data Ecosystems
Data ecosystems organized by players such as Amazon, Google, Facebook and Netflix—have demonstrated that they can create enormous value for B2C businesses. Google, Facebook, Amazon and similar peers have a unified usage and data relationship with their respective users—so much so that they don’t require additional data sources to create value within their business models. Mobile phone data-feeds come from virtually everyone today and provide consumer Internet players with just about anything and everything in the universe they would ever want to know about the user. Maybe too much.
Data-driven applications will become the core value creation mechanism within the vehicle arena in part because it is a market that shares many similar characteristics to the consumer and mobile Internet. The convergence of collaborative systems, vehicle communications and data-driven applications is enabling new and novel relationships between and among technology suppliers, service providers, OEMs and users who are all becoming participants in shared data ecosystems and new value delivery networks.
This will bring an end to the era of “command-and-control” alliance and partnering strategies with a dominating “host” company at the center dictating rules to “parasitic” partners. Collaborative communities and new value networks will be self-organized by diverse players; what we like to characterize as “strange bedfellows.”
The depth of this shift has begun to suggest itself, but it is by no means accomplished. It’s a shift from knowing “what happened” to knowing “what is happening”—all the time—and then automatically alerting and controlling systems with that knowledge.
People in cars continuously interact with both the vehicle and the surrounding environment including virtual points, such as future restaurant reservations. This is really the collision of two entirely different computing and data interaction legacies and technology architectures. For mobile device manufacturers it’s about the interoperability of vehicle systems with smart phones, while network carriers are focused on providing a value-added services layer on top of always-on connectivity. For technology innovators, it’s about disrupting existing business models by providing new data application services that are enabled by embedded computing and connectivity.
The automotive manufactures are faced with an opportunity for creation of value or massive destruction of value as the car becomes commoditized and competition for on-going service revenues intensifies. All of the stakeholders have an opportunity to act as the integration point, but it’s those who partner with “strange bedfellows” to create a shared data ecosystem who will succeed in the next chapter of the connected vehicle market.
Data-Driven Connected Vehicle Applications
source: Harbor Research
Will Vehicle OEMs Be the “Orchestrators” of Data Interactions?
Digital and Smart Systems innovations are creating the potential for visionary players in the vehicle ecosystem to step into the critical role of “innovation orchestrator.” In this role they will be conductors of the entire ecosystem, enabling innovative passenger journeys that are accompanied by a whole new realm of lucrative services. Top players in the emerging vehicle data ecosystem are in an ideal position to enable new innovations, but they and others in the connected vehicle arena must learn to be responsive to new trends, technologies and evolving driver preferences.
The ongoing transformation of the transportation venue is being led by seemingly unlikely partnerships between automotive and tech industry players—creating several discontinuities across the smart vehicle system with perhaps new data orchestration, management and brokering innovations being the biggest disrupter.
Connected Vehicle Data Ecosystem
source: Harbor Research
Data is Enabling a New Generation of Application Services
In consumer and commercial transportation applications, “always on” wireless connectivity to both people and vehicles is essential. Transportation market players are investing in networking and data applications to extend new services to customers in a wide range of applications such as providing real-time feedback to users on driving performance, user-based insurance services, preemptively predicting vehicle and route problems and systems to support maintenance and vehicle health.
With the demand for greater connectivity set to soar, the emergence of 5G-enabled connected cars will enable powerful new capabilities for vehicles but consumers will still be looking for better integration among mobile and transport devices, and improved user experiences and interfaces.
For commercial fleets, always on connectivity enables visibility into driver performance, theft prevention, fuel management, electronic data logging and other services that can decrease costs for enterprises who own and operate fleets. A broad range of connectivity and network services providers are announcing diverse partnerships to provide more seamless always-on connectivity for fleets, even if the vehicle is in a remote location. Combinations of network services (e.g. cellular, satellite, etc.) will help fleet managers monitor vehicle location and performance.
From a data perspective, we have seen a significant shift in the last three years as technology innovators enter and disrupt the automotive space. Data has become the currency and value driver of investments in smart vehicle technology and services. Massive amounts of data will require significant levels of processing in all vehicles–not just in $100k+ luxury cars. It is estimated that a connected vehicle will send 25 gigabytes of data to the cloud every hour ̶ this will require high-speed, yet cost effective network capabilities.
Vehicles are Becoming Major Integration “Nodes”
Users will require that connected product device ecosystems are not siloed. For example, vehicles leveraging geo-fencing technologies can communicate with the driver’s smart home to turn on the lights when the vehicle approaches or open the garage once a vehicle arrives at home. In the future, consumer purchasing decisions will be driven by seamless integrations of hyper-aware vehicles and their surrounding environments. Manufacturers need to anticipate the types of integrations across adjacent markets like retail and the smart home.
Consumers now demand vehicle infotainment technology and connectivity as standard, and they are also beginning to recognize the value of integration into larger systems; therefore, technology suppliers and OEMs need to develop technologies with an eye towards use cases that integrate vehicles with smart parking systems, virtual applications like Open Table, and other adjacent offerings that can enhance the user’s experience. It’s certainly an exciting time for the transportation venue, as smart system integration and automation will rapidly transform this space in the coming years.
Emerging Connected Vehicle Data Value Chain
source: Harbor Research
Data-Driven Ecosystems Enable Autonomous Vehicles
Across the transportation landscape, autonomous vehicles in the passenger and commercial car and truck context provide the largest opportunity to catalyze the development of connected transportation and are the inevitable next phase of the connected car.
To bring autonomous cars to market beyond just the simple point solutions of making cars that drive themselves, market participants will need to engineer their products to embrace a new and much more valuable data-driven portion of the automotive value chain. The data that cars can generate opens up huge potential revenue streams for both the carmakers and autonomous tech suppliers, as well as third-party developers that may sell data back to the cars to increase the level of productivity and cooperation across the entire transportation ecosystem.
For truly new ways of deriving revenue, it comes down to data. No longer are simple hardware and leasing sales the way to prosper in the autonomous vehicle era. With autonomous vehicles, the hardware will be in place for automakers, tech companies, and a host of new entrants to drive new complex applications within and between ecosystems ̶ collaborating with homes, other cars, business services like distribution and logistics systems, and numerous others.
What Are The Challenges Facing the Connected Vehicle Space Today?
We have entered a new era of “strange bedfellows” in the smart transportation arena. We are rapidly evolving beyond “hub and spoke” connectivity and simple narrow function applications to a new cycle of continuous innovation from very diverse players.
Though their business models have begun to intermingle today, all of the major categories of players in the connected car arena have historically operated within well-established business models that reflected the distinctive competencies that each group believed to be at its core. The advent of Smart Systems, particularly the emergence of device and usage data, is causing a blurring between these legacy business models, forcing all the major players in the connected vehicle world to re-think their strategies and re-consider their relationships across the vehicle system.
Our analysis points to many significant challenges in realizing the value of such a community of innovators, including:
- Adopting non-traditional business models that are intended to provide new innovative services and solutions
- De-coupling of innovations between these increasingly interconnected player types due to misalignment between the OEM’s vehicle development lifecycle and the vehicle technology lifecycle
- Anticipating new smarter systems and service innovation modes that are not widely adopted today because of the fragmented landscape
Although the automotive sector was relatively stable over the past 20 years, there is no-doubt that established players in this market are facing a potentially massive disruption in the next 3-5 years. In order to create value, companies must partner with strange bedfellows to drive new smart services for their customers and users. ◆
This essay is supported by our Market Insight, “Connected Vehicle Ecosystems.”
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