Connected Car Industry: Big Picture

Hard to believe it is over 20 years since the first connected cars appeared in the United States. General Motors is considered the pioneer when it introduced its first telematics system in late 1996. Ford was also in the game, but quickly abandoned its system. The GM OnStar system became the leading telematics system and still retains that title today with cumulative sales of OnStar in the 50 million unit range in the United States. OnStar has been the most influential telematics system and has forced many of GM’s competitors to enter the connected car market.

However, Tesla is now the technology leader with a truly connected car that is far ahead of other auto OEMs. Tesla can update all its software and collects tremendous amount of usage data and leverage this data and analytics for rapid and frequent over-the-air (OTA) software updates. Tesla can do this due to its advanced system architecture. Most OEMs are developing their own version of Tesla’s capabilities but have a long way to go to match Tesla.

Telematics services were developed for the needs of the auto manufacturer and for the car owners. There are other constituents and industries that see value in receiving car data or generating revenue from sending data or content to cars. These forces have already changed the connected car industry dramatically and more changes are on the way.

To give you more perspectives on the current status and future trends of connected car technologies and markets, I will provide answers and perspectives on the following questions. This will take at least two columns and maybe more.

• What can be connected? Short answer: hardware, software, data, content, events, people
• How is it connected? Short answer: embedded modem, smartphone, Wi-Fi, Bluetooth
• What is the infrastructure that connects the car data to the customers?
• What is the infrastructure that connects outside data and content to car systems and people?
• What car data has value to customers in the auto and other industries?
• What data and content has value to electronics systems & people in the car?
• Are there technology issues that slow down connected car adoption?
• What are the business models—current and emerging?
• What are the long-term market opportunities for connected cars?
• What is the long-term impact of autonomous vehicle technology on connected cars?

The connected car industry is growing in multiple directions with new market segments emerging and resulting in increased structural complexity. I always like to draw a big picture of complex industry segments. In the computer age, a picture is worth 1,024 words, to paraphrase an old saying.

Connected Cars: Big Picture
The next figure is a simplified view of the connected car industry. There are many more interactions and connections today and more links and relations are created on a regular basis.

Click the image to enlarge. (Source: Egil Juliussen)

The left side summarizes the connected elements located in the car. There are essentially two segments—the many car electronics systems or ECUs (electronic control units) and the activities the connected driver performs. The ECUs generate most of the data coming from the car, that are used by a growing number of customers. ECUs are also a growing destination for content going to the car as OTA software updates are being added to many new auto models.

The connected driver is increasing in importance both as a generator of valuable data to multiple industries, but also as a consumer of music and other content, and as an e-commerce user while in the car. Connected passengers are important too as they may connect their mobile devices to the connected car system but are included with the connected driver for simplicity in the figure.

These two connected car segments are linked to the outside world via one more wireless devices as shown in the middle of the left side. The most common connection is the embedded modem, which has been the key to telematics systems for nearly 25 years. Smartphone growth and capabilities have made it important as a core functionality of telematics systems. Most telematics systems can now connect to both a modem and a smartphone. Both Apple and Google are supplying smartphone-integration software that most auto OEMs are now using as part of their telematics or infotainment systems. The driver smartphone may also be used as a standalone connection outside a telematics system. This has more potential for driver distraction, even if it has a hands-free interface.

Short-range wireless technologies such as Wi-Fi and Bluetooth are also used for car connections—mostly between the telematics system and a smartphone or pad. OTA software updates are often done via the drivers’ home Wi-Fi local area network.

V2X or Vehicle-to-Everything includes communication between vehicles (V2V); communication between vehicles and traffic infrastructure (V2I) and communication between vehicles and pedestrians (V2P). Unfortunately, there is a standard battle between the auto industry and cellular industry. The auto industry developed V2X that uses DSRC technology based on the IEEE 802.11p standards. The cellular industry has developed the C-V2X standard which has some overlap with DSRC, but is based on 4G and 5G technologies. It has become both a technology and political battle with sometimes bitter arguments. It is likely that C-V2X will win this battle since some of the auto OEMs have joined the C-V2X side. China has decided to use C-V2X and is testing deployment with its 5G roll-out.

The data transmission to and from the car are primarily via the cellular network with multiple segments enabling the communication. The telematics service provider segment (TSP) is probably the leading segment and they are associated with one or more specific auto OEMs.

Many smartphone apps from a growing number of companies are sending and receiving lots of content and data to the car. Third party companies and aftermarket firms are also connecting to car systems and/or the driver. The insurance industry was a pioneer in using aftermarket devices that connected to the car’s OBDII to get driving information to better estimate their customers driving risks. This segment is called user-based insurance (UBI) and is growing in popularity.

A picture of how the car data is distributed to their customer via aggregator companies are shown in red. The content going to the car use blue color in the figure. Both segments are greatly simplified in terms of data flow and the number of companies involved. Only a few company examples are listed. A future column or two will explore more details on how these data monetization segments are structured including perspectives on the key companies.

Data from the Car
The data coming from the car was primarily to help the auto OEMs. The monthly or on-demand remote diagnostics has been the most valuable telematics data for the OEM and their Tier 1 suppliers for nearly two decades. The value is primarily from cost saving that lowers warranty cost. It also identifies problems that are fixed early in the production cycle of the car, which often results in better reliability and reputation.

Remote diagnostics has also been the most valuable telematics service for the car buyers for similar reasons. Remote diagnostics identifies early wear-and-tear problems before they become bigger and more expensive repair issues—assuming the car owners get these small problems fixed. The resale value of a connected car with monthly remote diagnostics history usually gets a price boost.

There is much more car data that have potential value to a variety of industries and companies. The auto OEMs did not have the expertise to develop these businesses for a long time. It took car data aggregators such as Otonomo to develop the business models and cloud platforms to do so. Aftermarket aggregators such as Verisk, which covers the insurance industry, have also expanded the reach of car data opportunities.

The car data aggregators are changing the business in a win-win way with the auto OEMs. The OEMs now provide the desired car data to many aggregators in return for a share of the aggregators’ revenue. This is expanding the customer potential and reach for car data. I will add more perspectives on the car data market and technology later.

Content to the Car
Content opportunities to the car does not get as much attention as data from the car. However, there is much development and new opportunities are emerging. For the OEMs, the most promising is OTA software updates, which is another cost saving business model. Remote software updates are less costly than updates at car dealers. The percentage of cars that are updated via OTA is much higher than dealer completion rates.

Functional software updates that add capabilities to ECUs is a new revenue generator for the auto industry. Tesla has shown the way and many auto OEMs are working hard to introduce their own systems for functional software updates. Current auto electronic system architecture using CAN-based bus design is not conducive to functional software updates. As Ethernet based system architectures are deployed in large numbers, functional software updates will be much easier to do.

There are many other content opportunities to the car that are emerging—especially to the driver. Music has always been the leading car infotainment, which is now moving to a streaming format via the smartphone. Map updates, traffic information and parking data are growing in importance.

A new service segment to the driver is emerging and is called marketplace service after the name of GM’s pioneering product. It is essentially an advertising and e-commerce platform that is connected via the telematics system to minimize driver distraction issues. Retailer must sign-up to with GM’s Marketplace to participate. This makes it easy for the driver to order goods as part of their daily driving routes. GM gets a commission based on the drivers’ purchases. Promotions and coupons are part of the system.

Goods deliveries is a growing business and is also emerging for connected cars. Since many connected car trunks or doors can be opened by using a one-time code via the telematics system, this allows for delivering packages to a car. E-commerce package deliveries or some grocery deliveries can be done this way.

The next column will continue looking at connected cars and will focus on answering more of the questions that were listed in the beginning of this column.

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