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5. Analysis of Automotive IoT Business Models
Business opportunities have expanded in many ways since the growth of IoT. As previous discussed, business models with value-added services within a “smart car” has greatly changed car manufacturers’ relationships with customers. There is no doubt that the vehicle is turning into a powerful hub creating important partnerships among the IoT Ecosystem. OEMs are providing hardware to bring best solutions: Additional M2M components are contributing to the platform; software developers are delivering customer-centric applications; peripheral services are enhancing the experience of the user; service providers have the infrastructure to offer unique services and a complete solution; and data capabilities are optimized by analysts and marketers among insurance companies; gas companies and media and entertainment sectors. How IoT is affecting model business will be discussed below.
Figure 9 Select Players in the Automotive Ecosystem
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5.1. Freemium Business Model
Infotainment services in the car may give away a basic version of an offering for free in turn, persuading customers to pay for the premium version or upgrading to additional services. This
“freemium” business model attempts to attract a high volume of customers to the company but make money from the small number of people who end up paying for premium versions, and generating revenue while canceling out the income lost from the free offerings. In this case, the Internet would be the distribution channel for digital services and could also result in long-term subscription-based models.
5.2. Customer Loyalty Business Model
Connected services are strengthening the car manufacturers’ relationships with their customers.
Customers are thereby retained and loyalty enhanced when they are assured a value beyond the actual product (vehicle) with value-added services. Revenue streams are continuous throughout the life of the vehicle as manufacturers can monitor customer experiences in real-time while driving on the road. This makes the customer “voluntarily bound” to the company. The goal is to increase loyalty by enhancing product quality and investigating potential post-sale opportunities such as repair and maintenance requirements for the car. The “emotional connection” is rewarding for both parties.
5.3. Hidden Revenue Business Model
Infotainment helps to generate financing through advertising as either a main source of income for the content provider of the car or an extra source of income. These advertisements come from a third party where “attracted customers” are of value to the advertisers who fund the offering. For example, Onstar has a new AtYourService feature that brings commerce directly
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appear on the car’s dashboard showing retail advertisements located in the vicinity of the driver.
All three parties benefit – the customer, the content provider and the retailer.
5.4. Leveraging Customer Data Business Model
New value is created in a connected car allowing companies to collect customer data and then using it in ways that benefit the company, customer and interested third party. Much like data being obtained through the usage of Facebook or Amazon, in which they leverage for own purposes of selling relevant products or pertinent data directly to other companies, automotive manufacturers and service providers are generating revenue when they implement this same type of business model. Auto partners have a lot of data in terms of demographics, what type of people are buying certain types of cars, what content users enjoy, etc. Offers can then target existing or new customers with the use of vehicle and driver usage, preferences and other data.
Figure 10 Connected Cars Becoming Big Data Platforms
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5.5. Open Business / Open Source Business Model
Collaboration and partnerships within the Automotive IoT ecosystem is a main source of value creation. Companies are actively searching for innovative ways to form strategic cooperation with suppliers and customers. This open business model is and has been adopted among numerous car manufacturers by extending their businesses to software engineering. Another part of this open business model in relation to the software department is providing non-proprietary source codes to the hardware installed in the car so that it can be freely accessible via tethering to any driver or passenger. Money is made from the services that are complimentary to the product.
5.6. Orchestration Business Model
This is similar to forming partnerships within the ecosystem except that within this model, the company is focused on its core competencies. For example, value chain business operations or segments are outsourced and actively coordinated, allowing the company to cut costs and benefit from either economies of scale or increased performance in other areas that contribute to the bottom line. AT&T and other telecom players are extracting revenue from content bringing connected car users exclusive content such as video and games that can be streamed from the car to personal mobile devices. They work together with Hulu and Netflix subscription services to carry out this core product offer. This type of business model can also be considered a type of
“revenue sharing.”
5.7. Pay Per Use / Car Sharing Business Model
Insurance is a big driver for M2M applications in the automotive industry. In India, both car manufacturers and insurance companies are looking into solutions for people to pay as they
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companies to calculate price on a daily basis. This business model, in which actual usage of the car is metered, allows customers to be able to pay on the basis of what they can afford and consume, ultimately attracting customers who wish to benefit from this flexibility. Today, car sharing is on the rise and further collaboration among auto manufacturers, rental brands and car sharing companies like Zipcar, StattAuto and GoGet have the potential to make money by promising customers personal convenience in this new age where gaining access to cars is better than owning one. Peer-to-Peer (P2P) is another type of car sharing model where a fleet of cars owned by the community allows the marketplace to match owners of cars that are available to other drivers to rent.
5.8. Solutions Provider Business Model
Vodafone in the UK delivers end-to-end solutions that manage the entire M2M automotive deployment. They offer car manufacturers modules and devices, wireless networks, telematics services platform, data security, global delivery, logistics in billing 3rd parties, and 24-hours customer support. This full coverage of service offered from consulting and design and development to implementing and giving feedback, is the specialized know-how given to car manufacturers. By extending their service capabilities to customers, Vodafone and other full service providers make revenue through this value chain. Furthermore, maintaining close relationships with customers allows them to obtain greater insight on customer habits and needs to continuously improve its products and services.
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Figure 11 Chart Depicting Vodafone’s Complete Solution to Customer