Monetizing Telematics
Charlie Gorman - ETI - October, 2013

Everyone knows that vehicle telematics is on its way to be one of the most significant technologies to hit the automotive industry in a very long time.  And, everyone knows that they need to be involved somehow, but are not clear what that means.  It seems that there is no shortage of experts who claim to know the end game, but are struggling to figure out the first steps.  The future market for telematics products is huge and yet everyone currently involved is struggling to find that magic combination of telematics goodies that makes consumers line up as if it were a new i-phone. 

I have watched presentation after presentation where the speaker proclaims, with incredible confidence, to know what motorists want, but then later cannot make a business case for implementation.  Either his or her idea is technically too difficult and expensive to accomplish, or research has shown that motorists are not willing to pay for it.

So monetizing telematics has become an important subject in itself.  In some ways it may be the most important topic because without a free-enterprise engine to power it, telematics is not going to go anywhere.

When it comes to monetization, many of the articles I have read turn to the smartphone industry for comparison.  This is good because the similarities are compelling and the smartphone can be a key component in a vehicle telematics configuration.

Smartphones are devices that form a telematics link between its user and the services he or she is interested in.  It acts as a sensory device capable of capturing sound, video, global position, motion, etc.  It is an input device capable of gathering information from other sensory devices. For example, the credit card reader that plugs into the headphone jack.  The smartphone is also an output device capable of displaying graphics, video and text; producing sounds; and connecting to other output devices.

Simply having a smartphone in your pocket provides motorists a certain level of vehicle telematics.  Vehicle position, driving directions, speed, voice communications and every other telematics functions common to both vehicles and smartphones.  Even a vehicle crash can be detected by a smartphone.  A simple app using the phone’s accelerometer could be used to report potential crashes.

If a phone can do all of this, who needs vehicle telematics?   If a phone can do all of this with free apps, does it at least partially explain the difficulty everyone in automotive telematics is having with monetization?

But there is one aspect of vehicle telematics that only the vehicle can provide.  Just like the smartphone, the vehicle is a computer.  But this computer contains hundreds of sensors, modules and actuators that gather data about the vehicle and implement commands.  Basically the vehicle is an input/output device.  When connected to a diagnostic application either in a smartphone or any other device capable of remotely connecting to the internet, all of the vehicle’s diagnostic and maintenance information can become available to whomever the vehicle owner wants to share it with.

The problem is that vehicle manufacturers only have access to their own diagnostic information and no one else’s.  To what extent are they willing to provide their customer with a similar telematics experience that those customers already have with their smartphone usage?  Unlike the smartphone industry, where the consumer can use any brand of phone they like with apps that work across many platforms, OEMs each have their own API, so the customer has no guarantee of consistency of use.
Some vehicle manufactures will not provide connectivity information to any company that may compete with them in the telematics market and third-party app developers have little interest in investing time and resources into apps that can only be used in one brand.  Also, research has shown that in the smart phone market the ratio of free apps to paid apps is 400:1 with the monetization coming from in-app advertising, a model which is unlikely to transfer to the auto market mainly due to safety concerns. The market then, for auto apps other than navigation, traffic, and audio, is therefore limited.

Thirty percent of customers expect the cost of the connected car should be included in the overall price of the vehicle, while only a fifth of those surveyed felt that monthly contracts or a pay-per-use model would be viable. That isn’t a good sign for the OEM’s profit margins.

So who will pay for telematics?

Vehicle Manufacturers, with a couple of exceptions, are reluctant to share their own technology. Third-party app developers are unwilling to expend the effort on something that doesn’t give them a return on investment. And customers expect telematics to be included in the cost of their vehicle.

Quoted in an article from Telematics Update, Brian Inouye, National Manager Advanced Technology, Toyota, puts it this way: “We need a way to communicate directly with the end user.  If the customer wants to assign their data to a particular establishment then we can enable that.  The customer becomes a happier person.  This could be a differentiator.”

This is an important statement and in my opinion 100% accurate, although probably in a different way than mr. Inouye intended.

Vehicle manufacturers should not worry about telematics except to provide the simplest, safest and most complete third-party interface to their vehicles.  Of course they will develop their own products and they will have value for a while, but as the vehicle age’s app developers in conjunction with systems integrators will develop the market for the time when these vehicles will need the most service and maintenance. 

As the chart below suggests, OEMs only have access to the repairs and maintenance early in a vehicle’s life.  Once the vehicle reaches a certain age, aftermarket service facilities take over the repairs.  It is in the vehicle manufacturer’s best interest to allow easy access to telematics data in support of third party telematics solutions, or risk unhappy motorists.

The repairs required for older vehicles are different than the repairs required on newer vehicles.  OE service manuals are updated through TSBs for a while but once a vehicle reaches a certain age these TSBs stop coming.  Some aftermarket service information providers base their diagnostics on what is actually happening to older vehicles as they age.  In many cases this makes for better diagnostics.

On board telematics systems have a tendency to become obsolete long before the vehicle’s transportation value is used up.  Obsolescence, in this case, includes more than complete failure.  It also means being passed up by newer, better, faster technology.  For example, old i-phones still work, but few people want one.   Even if updated software is made available, old hardware will not be upgraded.

There are other important examples.  OEM scan tools become obsolete at some point.  We have seen over and over again where certain OEM scan tools are no longer made or offered.  In these cases, aftermarket scan tools may be the only solution for these older cars.  The same will probably be true for factory embedded telematics.

Many multi-brand fleets want to have one telematics solution that covers all of their vehicle brands.  Automakers will never be able to offer multi-brand solutions.

Ultimately there will be plenty of business for everybody in the Telematics Market.  Motorists will have an interest in proprietary OEM telematics when the vehicle is young because it will give them access to warranty and other dealer services, but as the vehicle ages they will want choice that can only be provided by a third party.  Automakers will still gain because it will create brand loyalty throughout the life of the vehicle.

Apps will have to be very low cost or even free.  Monetization will come from service groups, parts chains, service information providers, equipment companies, etc. providing lead generation to service facilities within their networks.  Motorists will decide what apps to download based on the affiliation of their favorite service facility.  The more open vehicle manufacturers make their systems to third party developers, the more likely apps will be developed and the more favorable their vehicles will be viewed by customers.

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