Growing Connected Car Revenue Marries Automakers to Silicon Valley

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Silicon Valley and Detroit are starting to look more like an official couple these days as connected car services promise to drive new recurring revenue streams for OEMs. The engagement of tires and tech is a match made in heaven with connected car services projected to deliver over $42 billion by 2022.

Automakers are making the courtship official this year at the Consumer Electronics Show in Las Vegas this week, with at least nine automakers, including Ford and Fiat Chrysler, in attendance and revealing cars and tech at CES that won’t even make the stage at the big Detroit North American International Auto Show the same week. “Obviously, CES has grown increasingly important for automakers to demonstrate that they are advanced technologically and they have innovative vehicles coming,” said Autotrader senior analyst Michelle Krebs in an article in The Detroit News. With the coming of connected tech-heavy autonomous vehicles on the horizon, a lovely and lucrative marriage between Silicon and Iron is a certainty.

In this interview with editorial director of IoT Now Jeremy Cowan, Aria co-founder and CIO Brendan O’Brien talks about how the proceeds from this new arrangement will involve a range of flexible billing options, including traditional up-front payments, subscriptions and consumption-based recurring payment schemes.

IoT Now: What are the likes of Ford, Audi and GM doing that they have never dreamed of before?

O’Brien: Just take a look at recent actions by OEMS like Audi, General Motors and Ford. Audi is currently offering two different types of ‘lifestyle access’ programs including on-demand cars, and pooled usage.

Ford just picked up San Francisco crowd-sourced-commuting company Chariot (which uses Ford vehicles), and they have also promised fully-autonomous vehicles by 2021. The autonomous cars from Ford will only be offered (at least initially) as a commercial mobility service, and not for traditional purchase, pointing to a shift to usage-based, recurring revenue models.

General Motors is also getting into the autonomous ride-sharing fray, and they say they will be launching a fully autonomous vehicle with its partner Lyft in about five years. GM has also started its own car-sharing service called Maven, in addition to its partnership with Lyft.

Previously, automakers were content with a very hands-off fleet sales model where rental companies and then ride-sharing and car-sharing companies like Uber and Zipcar were sold vehicles at volume discounts or provided with special offers for exclusivity.

But it seems they see the writing on the wall when it comes to the changing tastes of millennial consumers — they are less likely to participate in traditional purchases and more likely to buy ‘experiences’. Automakers are not about to be left out. Though it is a massive culture-shocking change from measuring success to margin-at-sale to long-term annuity and recurring revenue from services, the opportunity is too large to take a pass.

IoT Now: What can businesses do now to develop their connected vehicle go-to-market strategies

O’Brien: Mainly, they have to prepare for that massive culture change. Automakers, their dealer networks, the wholesale model — it is built on and relies on long-standing traditions and agreements. Today’s customers are used to self-service, to doing their own research and making purchases on their own terms. To these consumers, the dealership model is archaic, painful, and unnecessary.

While upscale and boutique, Tesla is proving that the current dealership model could virtually be a thing of the past if the industry can break down its own bureaucracy. Tesla is the model, and ignoring this model will be done at the peril of mainstream OEMs (original equipment manufacturers).

While it won’t disappear entirely, the current dealer-centric model is a dead man walking. It will and should be more like, say, an Apple Store, where the purchase is made online, the transaction handoff, value-adds, and continuing service happens in the store, and tech upgrades happen over the air. The dealership becomes part of the relationship, not the entire relationship.

There is also a major technical infrastructure aspect of this for OEMS — they have relied entirely on a one-time sales revenue model for the last 110 years. They just don’t have the back-office capability to handle selling, billing, and provisioning products and services outside the dealer network and with a recurring revenue and customer lifetime value model.

If this is to scale, they need to prepare their billing and accounting systems and practices today, not after the next launch or acquisition. Internal evangelism for this shift needs to start in the finance office.

Recognizing growth and revenue is going to change—margin models cannot be counted on for much longer. The CFO has to be on board. The best path to getting this new thinking socialized for many OEMs is more likely to be their in-house financing divisions (if they have them), as concepts like ‘annuity-based returns’ (where profit is realized over time rather than at initial point of sale) is far less likely to feel ‘foreign’.

Many of the explorations at OEMs of non-traditional ‘transportation as a service’ ideas are originating from these finance divisions for that very reason.

Read the full interview at IoT-Now.com