by Greg Ross, Connected Vehicles Practice Lead, motormindz
This is a reprint from an article featured on Automotive News.
Finding the Sweet Spots to Build a Monetization Model for Connected Car
In its 2016 landmark study, Monetizing Car Data, McKinsey analyzed the coming opportunity for connected vehicle data by charting out how four industry megatrends of autonomy, connectivity, powertrain electrification, and shared mobility will generate massive amounts of new vehicle and driver data. To begin the study, McKinsey posed the following key question:
How might industry players in the evolving automotive ecosystem turn car-generated data into valuable products and services?
Although these trends have each come a long way since 2016, this question remains a key point for OEMs and other industry players to resolve in 2021 and beyond.
So how should OEMs go about constructing a Monetization Model for Connected Car in 2021? motormindz recommends a four-stage “Finding the Sweet Spots” exploration and development approach.
Stage 1: Core Competencies
For many OEMs, the first place to look for opportunities to monetize connected car data has been external – targeting insurance companies, fleet managers, fuel merchants, tolling providers, and consumers of parking and traffic data.
But, while these third-party use cases grow, OEMs should also look closer to home to boost Connected Car returns by focusing on core competencies. Typical high-volume OEMs have millions of dollars of untapped opportunity to use Connectivity to create internal and external cost savings, quality and safety improvements, efficiencies across operations for themselves and dealers, as well as time and cost-saving conveniences for consumers.
Services and applications for connected car technology that illustrate a core competencies focus are conducting warranty repairs via OTA software updates, providing service reminders through a live vehicle connection, providing inventory management by tracking assets directly through vehicle hardware, and gathering ownership feedback through real-time vehicle usage statistics.
Coincidentally, McKinsey’s study also exposed that consumers are most interested in connected car features that make mobility safer, more convenient, or save time and money. These affinities are highest among high-usage, younger, and privacy-concerned drivers. And we see several OEMs introducing proprietary services in these areas in recent years, while several others are instead establishing partnerships.
OnStar is an example of GM making a strategic choice to build from the ground up, while other OEMs have chosen the partnership route. Neither choice has an inherent advantage – rather the key for OEMs is to select the best strategy based on what they do well, what third parties do well, and how the two overlap most optimally with what consumers want – in the context of their other enterprise efforts, goals, and expenditures. It’s getting this nexus of convergence right that provides the most fertile ground for OEMs.
Interestingly, there may also be areas of core competence where third party solutions have beaten OEMs to the punch. Yet, rather than compete directly, a better strategy may be data licensing schemes that can bring more value to consumers in exchange for usage insights to drive sales, service, and marketing programs more intelligently.
Finally, OEMs can build apps & services that are complementary to popular third-party ones to drive more users into the data-driven world of vehicle safety, convenience, and time & cost savings that they own – regardless of whether those consumers are retail, fleet, or otherwise.
Stage 2: Data Control, Access, and Syndication
While motivation to monetize connected vehicle data is driven by various factors and complexities we’ll explore a little later, it remains at all-time highs even though required investments to compete effectively are non-trivial.
OEMs must invest and control data collection processes, procedures, APIs, and other access points to connected vehicle data, as well as moderate and scale data management infrastructure. The chief advantage to this is the ability to then utilize this data infrastructure to develop and serve owned apps & services based on proprietary and protected data streams to produce experiences that create value directly for consumers.
Operations management is also critical to ensure consistent flow and quality of data, as well as contracting and policy making to control access and drive monetization through standardized pricing, terms, privacy policies, usage limitations, and data disclosure requirements. In doing so, OEMs need to be mindful that they are taking on the role of both data stewards and data suppliers – neither of which is something they are used to, nor are they likely to have the proper processes and infrastructure required to be successful already set up. Extra planning will be needed to learn proper performance expectation under SLAs; performance against data integrity, cleanliness, and availability, as OEMs will now be held to highest standards for data management and delivery.
OEMs must also drive product, service, and partner development & management in diverse areas that are unfamiliar to a traditional OEM: like building, managing, and scaling a full community developer platform that exposes data through a full set of APIs, a full-featured SDK, as well as comprehensive developer terms and contracts, as well as comprehensive and automated developer and contracts administration.
Stage 3: Strategic Partnerships
OEMs have many reasons to monetize connected car data in addition to direct data usage. First and foremost, to create or acquire their own OEM-branded services in the areas of vehicle safety, ownership concierge, service retention, remote usage and control, and charge management. The best use cases for OEMs should be tightly aligned to the unique data ownership areas identified during Stage 2.
The next best use cases lie within the areas of creating internal savings and efficiencies in collection of field & testing data for better product development engineering & planning, providing OTA service updates, and building apps and services that enable and improve internal fleet management.
Additional opportunities exist, from recovering the costs of base hardware installed into each new vehicle to provide connectivity infrastructure at the network’s edge, to offsetting wireless carrier fees, to recouping ever-increasing vehicle and driver data storage and processing fees. The best strategy for these areas may be to find strategic partners whose existing business models are well-aligned to consumer needs, but also could provide some or all of these benefits back to the OEM. This approach would greatly reduce investment risk associated consumer adoption through direct development of OEM-owned IP.
OEMs should also explore new revenue streams from vehicle and driver data through third-party service providers targeting consumers – such as parking services, toll payments and collection, taxation, traffic routing and information, and vehicle & driver analytics.
OEMs also have an opportunity to monetize to meet the needs of third-party service providers using data or connections for their own business models such as fleet management, usage-based insurance, service delivery, and/or rental services amongst others. They may be able to affect these strategies through new partnerships or even M&A.
Stage 4: Ecosystem Design and Development
McKinsey’s reference to an ecosystem was to the larger Automotive ecosystem, its development due to ACES trends, and how the players within it might create ad-hoc products and services based on volumes of newly available vehicle and driver data.
In contrast, our reference here is to how OEMs should be using systems thinking – like the second and third order thinking Apple used to create iTunes distribution and subscription infrastructure with a future App Store and third-party app development community already in mind. OEMs should construct their Connected Car ecosystems as distribution and subscription platforms in order to encourage consumer-paid growth, third-party partnerships, and data portability – and to answer consumers’ liquid expectations through open-standards-based value creation.
But building an ecosystem isn’t necessarily “easy money.” Connected car volumes haven’t yet reached critical mass, so monetization may be limited, temporarily. For example, it’s difficult to effectively use vehicle connections for traffic management or road tolling until most vehicles actually have a connection. Additionally, OEM pricing power may be constrained due to popularity of aftermarket substitutes for data and connections, such as plug-in OBDII devices.
Further complicating the path forward are powerful Silicon Valley competitors. Apple, Google, and Amazon have all found a privileged position inside new vehicles through CarPlay and Android Auto; voice interfaces like Alexa, Siri, and Google Voice; and pre-established payment relationships. With these major players staking out their positions in the car, OEMs are right to prioritize opportunities to monetize – but they will need to be smart about where they invest, and how they partner.
The key is to progress through these four stages by mapping out areas of opportunity driven by core competencies, and led by owned data, internal operations, dealer services, or services to existing retail and fleet customers. Also, OEMs need to determine the overall role they want to play, either simply as a core-competencies-focused services provider, or as an enabler of third parties through strategic partnerships, or as a more advanced creator of a consumer value-creation distribution and subscription ecosystem.
While the complexity here may seem daunting, motormindz possesses decades of experience successfully leading major OEMs through them, and has proprietary access to dozens of SMEs and executives who have designed and led large-scale digital transformation, enterprise ecosystem, solution acquisition, and supplier & technology partnership strategies that properly blend core competencies with third-party specializations to help achieve maximum value creation for enterprise at the scale being offered in Connected Car today.
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