Is The Connected Car Living Up To It’s Hype?
Just how big is the connected car market going to be? Accenture estimates that it has the global potential to reach a total €500 billion by 2025 or roughly $430 billion USD. Much of that revenue would be in the form of data access fees and service/software subscriptions. These revenue streams typically feature much higher gross margins than manufacturing, and most dealers and the industry as a whole currently operate on single digit margins, so the connected car has the potential to dramatically impact the auto industry's bottom line.
Want to see how quickly the the connected car is ramping up? Checkout this graph of Google Trends, indicating the change in internet searches and overall interest in the term” connected car”.
Cha-Ching Right?...Sorry, Not So Fast
For those of us in the automotive business, it may look like we just struck gold. But we shouldn’t start counting our profits just yet. The connected car is presenting the automotive industry with enormous challenges that must be addressed quickly or the opportunity will not only pass us by, but possibly threaten our very existence,
How could that be? Well, roughly one half of a trillion dollars will soon be in play. Imagine someone throwing a pile of cash into a crowd of people. In the ensuing chaos, some will end up with a fist full of money and unfortunately some will get trampled.
There is every indication that large tech companies are viewing the connected car as their next source of explosive growth. Since many fast growing tech companies have matured and are no longer experiencing double digit growth, the connected car opportunity must look pretty appealing to them. In fact, Apple and Google already have made significant inroads with their Apple CarPlay and Android Auto.
We must be honest with ourselves. Technology/data companies are far better positioned to monetize data streams than the automakers. Their advantages include:
- Vast IT resources
- Huge talent pool
- Extensive experience with big data
- Culture of moving quickly
Meanwhile, Back In Car Land
While the automakers have made significant investments in technology in the last decade, the fact is that many hurdles remain. A single connected car can generate up to 30 terabytes of data per day. Yet most retail networks are still being greatly hampered by outdated technologies and struggle mightily to achieve even basic real-time data integration. How can these systems possibly handle a huge influx of data that is in many ways completely different from the data that they currently work with?
With the connected car, we are not just talking about basic retail transactions but a myriad of complex data including vehicle behavior, driver behavior, geolocation, and the vehicle's interaction with the vast Internet of Things (IoT). Can the dealer’s and manufacturer's tap into this deluge of data and effectively monetize it with their existing infrastructure? Definitely not.
Slow And Steady Will Not Win This Race
There’s an old joke about two people being chased by a bear. One says to the other:” You’ll never be able to outrun a bear” and the other says : “I don’t have to outrun the bear, I only have to outrun you”.
Since the beginning of automotive, this has held true. Each automaker has only needed to be a little faster/better than their next competitor to survive. This is no longer the case. The tech industry is rapidly advancing into automotive and the game is changing. The entire way of viewing the automobile, its place in society and how dealers and OEM’s function must change as well.
The connected car has vast implications for the automotive and technology industries and society as a whole, many of them very positive. And it’s difficult to know how this will all play out. But one thing is for certain; the industry must get it’s data infrastructure in order and must do so immediately.
The only sensible approach that has any possibility of succeeding, is to have an open data architecture with as much standardization and interoperability as possible. This will allow for seamless integration of high value third party systems and new devices, as well as data storage and analytics. This crucial step must happen before the auto industry can begin to compete with tech companies and reap the rewards that extended connectivity has to offer.