Will new business models make mass market telematics a reality?

Traditional business models have proved inadequate in encouraging widespread adoption of connected

services. But will the rapid evolution of web-based services enable new models that can meet consumer

expectations and be commercially viable? SBD’s latest report analyses these new generation of business

models and examines which are likely to succeed and which ones aren't .

This strategic report also examines the requirements for a viable connected car business model and the

disruptive technologies behind new business models. So whether you are a vehicle manufacturer looking to

fit telematics on a large scale, a tier-one supplier, Telematics Service Provider (TSP) or telecom operator

looking to move up the supplier value chain, this report is an invaluable tool in deciding your future strategy.

For additional information please email ABallatore@sbd.co.uk or

telephone Alessio on +32 478 765506 and he will be happy to deal with

your enquiry.

Connected Car business

models of the future: A

strategic review

SBD Connected Car researchSBD Connected Car research

This report will help you:

Understand the disruptive factors that are going to

influence the success of future business models

Future proof your business model by including cautionary

steps to deal with disruptive technologies

Analyse how easily CE or internet business models can

be applied within automotive telematics

Examine if telematics can ever really be offered for free to

customers

Learn what business models will be successful for tier-

one suppliers, TSPs, telecom operators, insurers and

content providers

New models promote faster uptake of connected technologies ...

The automotive industry has been pursuing the Connected Car dream for over a decade, but in many markets has

struggled to achieve widespread successes by using traditional business models. This is pushing automotive companies to

consider new models that could promote a faster uptake of connected technologies and services in the car.

Through its consulting division, SBD has worked closely with vehicle manufacturers, tier-one suppliers, service providers

and telecom operators in helping them to discover and implement more successful business models for enabling mass-

market telematics services. It is these valuable experiences that has enabled SBD to prepare this insightful and in-depth

report on future Connected Car business models. Below is a summary of some of the key lessons contained within the

report:

'Strategy should always come first'

'Without a great product, business models do not matter'

'Always get the best out of your value chain'

Will telematics ever be 'Free'? Yes, but there are different flavours of 'Free'

Step 1: Identify your strategy

Connected car services should always be considered as a tool for supporting a vehicle manufacturer's overall corporate strategy. If your strategy is to become the EV leader over the next decade, connected car services should be developed to support this strategy. Similarly, if your corporate strategy is to revolutionise the customer experience at dealerships in order to attract recurring aftersales visits, your connected services should be tailored in such a way that compliments this vision. WARNING: The worst possible approach is to develop connected car services as a copycat response to what others are doing in order to 'remain competitive'. Unless connected services are closely tied to a larger corporate strategy, they will prove to be an expensive failure.

Step 2: Develop a value proposition

There is often a risk of becoming too preoccupied with business models without first developing a great product or value for customers. Whilst not every great product is destined to succeed, mediocre products will almost always fail regardless of what business model is used. In this respect, the success of the business model you adopt will be intrinsically tied to how good of a product/service you have developed.

Step 3: Choose your value chain

There is an on-going battle for control across the connected car value chain, as different stakeholders (tier-ones, TSPs, telecom operators and content providers) aim to position themselves as the dominant partner for vehicle manufacturers. All of these players must carefully judge the opportunities and risks associated with expanding vertically across the value chain (instead of forming partnerships) before jumping. For vehicle manufacturers, the right value chain should grow organically out of the overall strategy (Step 1) and the nature of the product (Step 2).

Step 4: Pick a pricing model

A key question often asked is: Will telematics ever be 'Free'? Connected car services are in many ways an ideal candidate for the 'Free' model, as they do not form a part of vehicle manufacturers' core offering. So SBD does see a long-term trend towards services being offered to customers for free. However, there are many different flavours of free, and choosing the right one will determine whether your business model is successful or an expensive failure. 'Free' models that rely on large numbers of users in order to get an economy of scale cannot succeed in automotive telematics. However, cross-subsidy models whereby telematics is given away for free when consumers pay for another service (e.g. if customers visit official dealerships for their scheduled maintenance) have a much greater chance of succeeding - particularly if they align with your corporate strategy.

Note. For more on this refer to SBD's CEO Vision report "A Paradigm shift away from telematics features and towards end-user experiences"

...know what tomorrow brings...know what tomorrow brings

SBD Tel: +44 (0)1908 305101 E-mail: postbox@sbd.co.uk www.sbd.co.uk

TABLE OF CONTENTSTABLE OF CONTENTS

1. Executive summary1. Executive summary

2. Understanding the construct of a business model 2. Understanding the construct of a business model

2.12.1 IntroductionIntroduction

2.22.2 Distinguishing between Strategies, Business Distinguishing between Strategies, Business

models and Tactics models and Tactics

2.32.3 Requirements for a viable Connected Car Requirements for a viable Connected Car

business model business model

2.3.1 Attract and retain customers 2.3.1 Attract and retain customers

2.3.2 Withstand threats 2.3.2 Withstand threats

2.4 Disruptive influences on future business models 2.4 Disruptive influences on future business models

3. Business model trends for vehicle manufacturers 3. Business model trends for vehicle manufacturers

3.1 Introduction3.1 Introduction

3.2 App3.2 App--based models based models

3.3 'Free' models 3.3 'Free' models

3.3.1 Free model 1 3.3.1 Free model 1 -- CrossCross--subsidy subsidy

3.3.2 Free model 2 3.3.2 Free model 2 -- AdAd--based based

3.3.3 Free model 3 3.3.3 Free model 3 -- Freemium Freemium

3.3.4 Free model 4 3.3.4 Free model 4 -- Profiting from data Profiting from data

3.4 Future trends3.4 Future trends

4. Business model trends for other key stakeholders 4. Business model trends for other key stakeholders

4.14.1 IntroductionIntroduction

4.24.2 TierTier--one suppliers: Balancing vertical and one suppliers: Balancing vertical and

horizontal integration horizontal integration

4.34.3 Telematics Service Providers: RevenueTelematics Service Providers: Revenue--share share

models models

4.44.4 Telecom operators: Reprogrammable SIMs & Telecom operators: Reprogrammable SIMs &

vertical integration vertical integration

4.54.5 Insurance providers: Covering the cost of PAYD Insurance providers: Covering the cost of PAYD

hardware hardware

4.6 Content providers: user4.6 Content providers: user--generated, online and generated, online and

'Free’ 'Free’

4.7 Future trends 4.7 Future trends

LIST OF FIGURESLIST OF FIGURES

Fig. 1 Strategies, Business models and Tactics Fig. 1 Strategies, Business models and Tactics

Fig. 2 Key success factors for a Connected Car Fig. 2 Key success factors for a Connected Car

business model business model

Fig. 3 Adoption and popularity of traditional connected Fig. 3 Adoption and popularity of traditional connected

car business models car business models

Fig. 4 The virtuous cycle of AppFig. 4 The virtuous cycle of App--based business models based business models

Fig. 5 Different ways in which companies can profit from Fig. 5 Different ways in which companies can profit from

Freemium Freemium

Fig. 6 Growth in Honda telematics subscribers after Fig. 6 Growth in Honda telematics subscribers after

introduction of new business modelintroduction of new business model

Fig. 7 Summary of Navteq consumer survey into Fig. 7 Summary of Navteq consumer survey into

locationlocation--based Adsbased Ads

Fig. 8 Potential for new automotive business modelsFig. 8 Potential for new automotive business models

Fig. 9 Vertical vs Horizontal integration strategies for tierFig. 9 Vertical vs Horizontal integration strategies for tier

--one suppliersone suppliers

Fig. 10 Developing 'Diagonal' integration strategies for Fig. 10 Developing 'Diagonal' integration strategies for

tiertier--one suppliersone suppliers

Fig. 11 RevenueFig. 11 Revenue--sharing business model between TSPs sharing business model between TSPs

and vehicle manufacturersand vehicle manufacturers

Fig. 12 Coverbox platform architectureFig. 12 Coverbox platform architecture

Fig. 13 Future trends for business models across Fig. 13 Future trends for business models across

connected car value chainconnected car value chain

The SBD Commitment...

From technical trends reports to conducting end user surveys, SBD has over 15 years of experience of providing strategic advice, insight and expertise to the automotive and associated industries globally.

At SBD, we help vehicle manufacturers and their suppliers bridge that gap between system design and actual market needs. Our diverse team of experts understand global market and technical requirements and how to plan cost-effective systems for the future that customers value and are willing to pay for.

About the report author...

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For a quotation or further information please contact

Alessio Ballatore on:

Email: ABallatore@sbd.co.uk

Phone: +32 478 765506

Fax: +44 (0)1908 305 106

Pricing:

Report Electronic pdf copy

TEL/3770 - A review of current and

future Connected Car business

models

€1500

Andrew Hart (Senior Project Manager - Advanced Research Division)

Andrew is recognised throughout the industry as a leading authority in navigation and traffic information, helping vehicle

manufacturers and suppliers understand the technical, business and consumer trends in Europe. Andrew sits on a number

of international forums and is a notable speaker at leading ITS events in both Europe and Japan.

Connected Car GuideGovernment edition

SBD/TEL/3610

Last update: September 2011