One of the most worrying things that research into connected cars has thrown up at Rethink’s Riot Research division, is that consumers have little interest in connected cars. A small number of consumers have shown interest – so far just under 16 million out of the 105 million-plus car owners who could buy connected car services have actually committed monthly cash to the provision of services – which comes to under 16%.
Typically, these consumers spend between $99 a year and $200 per year (an average offering of around $165 or $14 per month) and the big four brands that have recruited the bulk of these customers are General Motors, Toyota, Volkswagen and Hyundai. The services they offer are mostly a packaged bundle of emergency assistance, stolen vehicle locators, roadside assistance, and automatic collision notifications.
In its new report, Monetizing Connected Cars – a multi-billion dollar, 7 year, loss leader, published on 27 January, Rethink breaks down how future revenue in this market will be extracted, and how it sees a contraction of services that the consumer pays for, replaced by revenues based around reselling data for each driver and car on the market. The report also reveals that this market is rather like the smartphone market when smartphones introduced cameras and WiFi – no-one made any money directly out of doing so, but the brands which didn’t introduce those features lost massive market share at best or went bust at worst.
The rationale for the major 20 car manufacturers tracked in this report is to sell data. The primary purchasers of data are seen as driver insurance companies, but also anyone, such as retailers interested in ‘drive-past’ data and in car demographics.
Manufacturers are expected to absorb physical costs in the region of $2 billion per year on bill of materials (BoM; see graph below) costs to build connectivity into cars. But the biggest cost will be connectivity itself. Here, car makers are expected to absorb a further punishing $11 billion in connectivity costs, making the price of entry for the major car makers into the connected car just shy of $13 billion. A completely different hardware BoM for V2X communication is expected to reach an additional $1.8 billion to underpin safety services, bringing the bill for BoM plus connections to $14.7 billion.
The payback today comes in driver-acquired services revenues, of some $2.6 billion, but Riot Research sees this falling to just over $1 billion by the end of the forecast in 2023, with 75% of that being spent in the US, and the remaining global driver community reluctant to part with payments for first-generation convenience and security services, with the exception of in-car consumer WiFi, which will still yield a premium and would be expected to still be on the rise.
The real payback is sale of data – and Riot Research anticipates that even by 2023, this will not bring in quite enough fresh revenue to pay for all the costs; it will not be until 2024 at the earliest that car manufacturers can look at this market and breathe a sigh of relief.
Much of that data revenue will come from the insurance market, already held hostage by comparison websites which drive the margin out of car insurance and which charge affiliate revenues of around $50 per policy. The idea is that data about driving habits will replace comparison sites, with hard data that also leads to a combination of lower customer acquisition costs and lower still payouts for accidents as near-misses and over-the-speed-limit driving will drive up insurance premiums.
Riot Research sees an ecosystem of independent data resellers stimulating a lower risk, healthier insurance market, by driving up data sales from connected cars. The challenge for most of the car manufacturers is whether to take on the extra cost of making cars with cellular connections, and paying for the connectivity to gain driving and car performance data, which can only be monetised over time as an ecosystem builds. On the other hand, failure to get on board the connectivity bandwagon is likely to lead to market share losses and a weak position in subsequent data markets.