Revenue sharing and the telematics value chain

Revenue sharing and the telematics value chain

Brand-new revenue-sharing approaches make it easier to split revenue between wireless carriers, OEMs and content providers. Revenue from in-car apps is mostly a one-way stream: from the OEM to the platform/TSP/service/app developer. There is potential to turn that stream into a pond from which everyone in the telematics value chain can drink. And companies are panting to take this off the OEMs' hands.

"If you're an OEM, and you put together a great platform in the vehicle, that's a cost center," says John Horn, president of Raco Wireless. "What if you were to add new and unique apps to that telematics offering to your vehicle, and the OEM and the app provider and those who are gathering information from the app provider all have the opportunity to share in that revenue?"

Well, it's technically feasible today. So what is the challenge? "It's a philosophical issue, not a technology issue," Horn says.

A more cooperative model

In some cases, a different model could create efficiencies for OEMs, according to Andy Gryc, product marketing manager, automotive, for QNX. For example, QNX typically licenses its tech, such as its audio architecture and operating system, on a per-device basis. "It's possible," Gryc says, "that a single auto maker might spec several products from different suppliers all containing QNX technology."

Currently, OEMs buy one license per device for installed QNX products, which is an established model and easy for OEMs to understand. However, QNX tech may also show up in equipment provided by tier 1s and other suppliers. For example, a hands-free phone solution and a navigation product from third parties also might contain licensed tech from the company.

Gryc would like to use a more cooperative model for working with OEMs, for example, one price per car, no matter how many devices from different suppliers contain its tech. "OEMs wouldn't have to indirectly pay that cost three times," he says. "The advantage for us is, it makes a lower barrier to the introduction of our technology."

Such a strategy would require changes in the way QNX works with OEMs. "It requires a tighter connection between the OEM and us than has been the historic way of doing business," Gryc says. But this is good timing to make such a switch, because QNX is already working with OEMs to define next-generation systems. In this model, he says, "The transaction would happen between the OEM and us; we would provide some way for tier 1s to take advantage of that."

There are several ways this could work. For example, the OEM might buy a certain number of licenses and dole them out to suppliers. One problem with enacting this kind of model, according to Gryc, is that OEMs don't typically make purchasing decisions at the level of the car model. Instead, different people make the infotainment system purchase decisions for different model lines.

Pay as you go

Pay-per-session use of apps is growing in the mobile sector, according to Janet Schijns, Vice President Business Solutions Group, Verizon Wireless. Paying per session for a game or video, or purchases within a game, such as buying a sword, are already accepted on mobile devices. Schijns says we'll see more of this in telematics. She says travel and tourism are the most likely sectors to kick off pay-per-session.

"When you're traveling, there are services you want and need when you're on the road like concierge, travel advisory, tours, that you wouldn't want or need every day,” Schijns says. “A guide that tells you the most scenic way to drive is something you would want to pay for the week you went to New England but not all year. Or, if you're going on vacation, you may want your car scanned to make sure it's performing correctly."

The trick is to develop sensible business models that take advantage of the trend. "It's just chunking it into bite-sized pieces that people are comfort with,” according to Schijns. “That's the challenge the whole industry has.” If my intelligent traffic solution is smart enough to tell me my usual route is backed up, for example, I wouldn’t want to be asked to pay five cents to see the alternate route. If your air bag deploys, you probably wouldn't want to have to input your credit card to call 911.

Who's the banker?

Telematics service providers, platform providers and, of course, mobile network operators all have the technical capacity to bill for connected car services and distribute revenue. Meanwhile, they all tout their flexibility and willingness to deal. The question is, what makes sense? To Schijns, "It's always around, ‘Who does the customer have the relationship with in the telematics solution?’"

For embedded or tethered solutions, the answer is clear: the OEM or the telco, respectively? With the ability to update and add apps and services after the car is purchased, the industry will have to try to conform to consumer expectations. For example, if someone has a navigation service, it would probably make the most sense for the nav provider to upsell the ability to search for nearby restaurants.
But it's perfectly possible that multiple entities could be in a position to try to sell the same service. For example, when someone rents a car, he might be offered navigation at an additional price by the rental company. But he may have brought along a personal navigation device as well as having the option on his smartphone. "Conceivably," Schijns says, "in a building-blocks environment, the same service might be offered and collected by any of those parties."

There's a similar challenge with free, ad-supported apps and services. TeleNav, for example, already offers free navigation as well as a premium, paid upgrade. Some advertisers are willing to pay a premium to reach drivers, according to Axel Fuchs, director of business development for TeleNav, because knowing their location is so valuable. Advertising would enable the model of providing premium services to drivers for free.

TeleNav accommodates several different models for distributing its navigation, according to Fuchs, including letting the OEM provide the service for free or sell it to the customer as well as letting the wireless carrier offer smartphone-based navigation for use in the car. "Technically, we can break it down to the individual customer," Fuchs says, "but it doesn't make sense. The car maker has to decide what it wants to do."

He thinks the best approach for handling billing is to let the party that brought the customer maintain the billing relationship. That's the approach that will make the best sense to customers. "If the customer already has the app on the phone, you don't want to ask him to download a new one," Fuchs says. On the other hand, a Toyota or Ford customer may see the product on the automaker's website, while a telco's customer might find it in the mobile operator's app store.

"The parties involved have to collaborate on a flexible model that reflects where the customer is coming from," Fuchs says, as well as the value each party adds. For example, while an individual bought the app from the telco, the car maker is enabling the app to work on a 10-inch screen on the dashboard. He points out that Ford SYNC already spreads revenue among all the companies that contribute to the product.

"The negotiation has to be that everyone gets something out of it, because everyone is needed in the value chain. There will be some forth and back until everyone agrees on the value that each party gains," Fuchs says. "In the worst case, the consumer will decide."

Susan Kuchinskas is a regular contributor to TU.

For more on revenue sharing, see Telematics and the connected vehicle value chain, Will ‘freemium’ work for telematics apps? and M2M telematics: The need for flexible pricing models.

For more all the latest telematics trends, check out Telematics Detroit 2012 on June 6-7, Insurance Telematics USA 2012 in September in Chicago, and Telematics Munich 2012 on October 29-30.

For exclusive telematics business analysis and insight, check out TU’s reports on In-Vehicle Smartphone Integration Report, Human Machine Interface Technologies and  Smart Vehicle Technology: The Future of Insurance Telematics.

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