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Key Players and Business Models in the Connected Car

Josh Kern, Analyst

Katrina Westerhof, Research Director

Christopher Robinson, Senior Analyst

Contributors:

Lead Analyst:

E XE CUT I V E S UM M AR Y

• The connected car consists of a complex ecosystem of different players working at different levels of the value chain, including cellular connectivity, cloud management, data marketplaces, and data analytics.

• These players are testing out many different business models at each level of the value chain, many of which involve a nonmonetary exchange – data for analytics, data access for ads, etc.

• With so much diversity in the business models and value propositions possible in the connected car, partnerships and customer relationships need to be analyzed on a case-by-case basis.

• Looking ahead, connected car use cases will be increasingly centered around autonomous driving and cater more toward businesses than consumers.

Executive Summary

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Y-axis: Summary of trends in patents, papers, funding, & more.

“Innova

tion

Inte

rest”

Y-axis: Summary of trends in patents, papers, funding, & more.

“Innova

tion

Inte

rest”

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The connected car is a large market opportunity

The global market for connectivity technologies inside the car (processors, software, etc.) will grow to $12.7 billion by 2030. Related technologies outside the car, such as cloud computing and connected infrastructure, will bring that number even higher.

The Lux Tech Signal indicates a large amount of patents, papers, and funding around the topic of the connected car in the past few years, meaning that commercialization of the technology is happening now.

Those technologies include 5G, vehicle-to-everything (V2X) communication, and autonomous vehicles, all of which are creating more use cases for the connected car.

Cloud connectivity is crucial for today’s connected services

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EntertainmentApplications like Spotify and Pandora are offered as native apps in some vehicles or via a driver’s mobile phone, which can mirror on the car’s head unit using applications like Android Auto and Apple CarPlay.

Diagnostics and Predictive MaintenanceServices that use onboard sensors, diagnostic codes, or analysis of vibration, noise, and harshness allow users like drivers, OEMs, or service centers to analyze mechanical issues with a vehicle.

Usage-Based InsuranceApplications that analyze driver behavior like aggressiveness or distraction based on sensors in a vehicle or mobile phone. The driver score generated is a factor in determining insurance premium rates.

Training Autonomous Vehicles (AV)Companies developing technology for AVs need to upload datasets from sensors and precision maps. Updated maps and machine learning models can then be downloaded by other cars in the fleet.

Location-Based ServicesApplications that make use of GPS and map data to provide suggestions on places to eat and refuel, as well as real-time traffic updates for navigation.

Over-the-Air (OTA) UpdatesThe process of wirelessly updating the software embedded on vehicles. Advanced vehicles can update core safety features or advanced driver assistance systems (ADAS) in addition to infotainment features.

EXAMPLES

Tech and telecom companies are finding new ways to get involved in the connected car

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PLAYER EXAMPLES ROLE IN THE CONNECTED CAR

Application Developers

These companies develop apps for drivers, municipalities, fleets, and OEMs for the benefit of convenience, safety, or cost savings. Application developers also include data marketplaces and analytics, which feed into other applications.

Cloud ServicesCloud services companies handle the vehicle-to-cloud communication by offering services like over-the-air updates. They also can offer APIs for application developers that don’t want to deal with the complexities of vehicle hardware and systems.

Mobile Network Operators

Mobile network operators provide network access to vehicles with embedded or aftermarket modems. They will enable distributed computing for autonomous vehicles with 5G infrastructure.

On the following slides, we examine four levels of the connected car technology stack

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We interviewed players in the connected car ecosystem to understand how they engage with other types of players in the space. From those conversations, along with secondary research, we categorized four important levels of the connected car ecosystem. Although these levels are not exhaustive, they represent a large amount of the connected car activity we see today.

For each level, one or more potential business models are explored and evaluated through a series of case studies in the full report. In each case study, we look at which players are involved, what the value proposition is, and what the business model is and conclude with a Lux Take on the overall strategy of the company of focus.

Cellular Connectivity

Cloud Management

Data Access

Data Analytics

Connected Car Technology Stack

Tesla offers most features for free, only charging for the most data-intensive applications. Still, it could innovate its business model further by selling data or advertisements in exchange for giving those features to drivers for free. As a company aggressively pursuing self-driving capabilities, it may find itself needing to give all drivers OTA updates over cellular in situations where it finds a flaw with its self-driving software.

LUX TAKE

CELLULAR CONNECTIVITY

Example: Tesla

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Value PropositionLike GM, Tesla offers free and paid connectivity plans. The free plan gives drivers basic navigation and OTA updates over Wi-Fi. Its premium connectivity option adds capabilities like music streaming, an internet browser, live traffic updates, and the ability to perform OTA updates over cellular.

Business ModelTesla entered a multiyear exclusive agreement with AT&T to connect its current and future vehicles to AT&T’s cellular network. Vehicles purchased before June 30, 2018 get premium connectivity for free, a rare option intended to increase demand as the company brought its first products to market. Newer owners pay $100 per year for premium connectivity.

Services

Money

Money

NetworkAccess

Driver

CLOUD MANAGEMENT

Remote management of software deployed in vehicles along with the data generated by the vehicle

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Overview:

A new type of Tier 1 supplier – cloud services providers –are helping OEMs by not only storing the massive amount of data generated by modern vehicles, but also helping to manage software updates. Many of these companies specialize in the automotive industry, but top technology companies like Amazon and Microsoft are also starting to offer basic cloud services for automotive. This is still a very young use case, but three business models we see are:

1. The cloud services company provides basic data management and software updates.

2. The cloud services company provides the same services as (1), along with APIs that allow app developers to easily create in-vehicle apps.

3. The OEM develops its own applications and handles its own cloud management (through either acquisitions or in-house development).

1

2

3

Money Money

APIs

OEMCloud Services

Company

Cloud Services

MoneyApp

DevelopersMoney

Platform Access

Platform Access

OEM

App Developers

Cloud Services

Cloud Services

Money

App Developers OEM

Cloud Services Company

Connected car services will target players other than drivers

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We are increasingly seeing new connected car use cases for players like OEMs, fleets, and insurance companies. Many of those have to do with utilizing data and data analytics to improve operations or gain insight into how to improve R&D. While drivers can be a source of revenue for those offering connected car services, the total addressable market of revenue coming directly from drivers can only be so large. Just as smartphone app developers learned to use advertisements to supplement revenue from app users, connected car services will also need to find revenue streams other than drivers.

Much of future connectivity will revolve around safety and autonomous driving. Because those services will be most valued by governments and insurance companies, we expect those players to spend more on connected car services.

Smartphone analytics to provide insurers with driver behavior scores

Wirelessly collects temperature and pressure data from deployed tires

to improve future products

Examples of connected car services for improving operations or R&D

Autonomous vehicles will require mobile edge computing

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Autonomous vehicles will generate 4 TB of data each day. Most of that data will be pre-processed on the vehicle, but the physical limitations of onboard computers will require much of that data to be offloaded. While cloud computing suffices today for many connected car applications, tomorrow’s applications will require lower-latency communication due to the large amount of data being exchanged. One solution is mobile edge computing, which utilizes 5G to transfer data at low latency to data processing sites located near the vehicle.Vehicles within a close range will offload some of the autonomy computation, such as updates of HD maps, to these base stations.

Mobile edge computing creates an opportunity for MNOs, IT equipment providers, and developers of V2X roadside units, which may communicate with data processing sites. It will also create an opportunity for application developers that run their applications on the mobile edge instead of the cloud or the vehicle.

Mobile Edge

Connected Car

Cloud

5GV2X

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