Note: This article originally appeared on TechCrunch.
The car is well on its way to becoming the most sophisticated mobile device in the Internet of Things (IoT), or, to use a phrase that’s more to the point, the Monetization of Things™ (MoT). Linked to the cloud by way of wireless technologies, smart chips, onboard computers and mobile apps, connected vehicles are driving new business models and disrupting old ones. Here’s a look at some of the key monetization opportunities emerging from their wake right now, as well as some not far down the road.
The cloud-connected car of the future is here today — and growing in number. It’s a trend fueled in large part by consumer demand. In a 2014 report by McKinsey & Company, more than a quarter of car buyers said that Internet connectivity is more important than features such as engine power and fuel efficiency. In the next five years, the number of connected cars may exceed a quarter of a billion worldwide, according to estimates by Gartner.
Not only are connected cars catching on fast, their connections are also gaining speed. Automakers have already made 4G wireless connectivity available in some new cars, and the feature may well become standard in most models by 2020. The combination of Wi-Fi and IoT technology paves the way for a bevy of rich services for drivers and passengers alike, such as enhanced navigation, real-time traffic and parking information, streaming infotainment and integration between dashboards, smartphones and wearable devices such as health trackers and smart watches.
New Monetization Sources
Connected cars are changing the way we get from Point A to Point B. In the process, they’re opening new realms of monetization for carmakers, service providers and many other travel-related industries. Revenues from connected car services are expected to top $40 billion (U.S.) in the next five years, according to a July 2015 report from SNS Research. Many of those proceeds will involve a range of flexible billing options, including traditional up-front payments, subscriptions and consumption-based recurring payment schemes.
Data plans will account for a portion of those revenues. They’ll be billed the same as any smartphone plan today, or as simple add-ons to existing plans. However, they represent a significant source of new income for telcos and other service providers.
Additional revenues will come from enhanced editions of subscription services, like SYNC from Ford and EnForm from Lexus, that carmakers have been offering for some time. New cloud-powered versions of these digital services provide value-added features, such as always-on access to emergency services and roadside assistance, teen-driver monitoring and advanced voice control.
Subscription offerings like these enhance the driving experience for consumers. And they give automakers a ready source of ongoing revenue above and beyond the initial purchase price, while allowing them to deepen customer relationships and enhance customer lifetime value (CLV).
A Very Big Market Indeed
The market for cloud-based car services is potentially enormous, and extends far beyond new models. They’re also available to more than 150 million cars built since 1996. That’s the year onboard diagnostic (OBD) ports, which are located on or near steering columns, became mandatory in most cars made in the U.S. and Canada. This summer, Verizon launched hum, its new aftermarket subscription service. For $14.99 it brings a host of cloud-connected services, including accident notification, system diagnostics and stolen vehicle locator services to any older car with an OBD port.
ODB ports are in fact becoming the entry point for a rapidly growing number of cloud-connected mobile apps designed specifically for cars. While many are free, some, like the fleet monitoring app FleetLeed, offer a potentially lucrative source of ongoing data monetization for service providers.
Smart Connected Cars As Active Agents
Today’s new connected cars are able to interact with the world around them and with other cloud-based systems using such IoT innovations as proximity sensors and predictive intelligence. For example, certain Mercedes-Benz models introduced this year can link directly to Nest, the IoT-powered smart home system, to remotely activate a home’s temperature controls prior to arrival.
The potential for connected cars to do even more for us is far-reaching. They’ll soon be able to check us into hotels, notify people when we’re running late, confirm appointments, make dinner reservations, order movie tickets, even pay for gas and parking — all on their own and without intervention. Enhanced services such as these will likely entail subscription- or usage-based billing mechanisms.
Disruptive Forces In Play
From a monetization standpoint, three disruptive trends, made possible in part through IoT innovations, have the potential to dramatically upend business models for personal transportation.
Car Sharing. Real-time access to car availability and mobile connectivity are accelerating the adoption of car-sharing, which customers pay for on a consumption basis. By 2030, as many as 650 million people worldwide could be using some form of car or ride sharing, according toprojections by ABI Research. Joining ride-sharing pioneers like Uber, rental car agencies and corporate fleet operations are getting in on the trend. So are most major automakers. They see it as a smart way to augment traditional sales as the concept grows in popularity.
Pay-Per-Use. One downside of car sharing is that if you want a particular car, you may be out of luck. With a new pricing plan introduced in 2014 by Citroen in Europe, you can own the car you want, but on a pay-per-use basis. Your monthly cost is pegged to how much you actually drive. In other words, the car is priced, and billed, like a smartphone. It could become a popular alternative to car sharing for low mileage or occasional drivers, especially in the world’s burgeoning urban centers.
Direct-To-Consumer Sales. Tesla Motors sells its line of IoT-infused, all-electric vehicles directly to its customers, a taboo that’s been in place for more than 100 years in the U.S. In response, some states, pressured by powerful dealership lobbies, have banned the practice. The Federal Trade Commission (FTC), on the other hand, is in favor of it. Direct selling could be a profound game changer, requiring carmakers to build closer customer ties over time. With direct links to cars by way of IoT, they now have a prime venue for doing just that. They’ll be able to proactively engage customers by delivering upgrades, maintenance services, new features and incentives for upcoming models straight to every dashboard.
The Road Ahead
Technology innovations will continue to profoundly influence how we price — and pay for — cars, in-vehicle digital services, auto insurance and related goods and services. Fully autonomous vehicles are perhaps less than 10 years down the road. In the not so distant future, entire transportation grids will be run intelligently from the cloud. There’s no telling where such innovations will lead. One thing we know for sure, however, is that businesses will need to monetize with greater agility if they wish to cash in on the compelling revenue opportunities from the Internet of Cars.