Take the Financial Risk and IoT Can Deliver

Robert Gray investigates the ROI from connecting consumers to the IoT.

“If you offer it, they will order it.” Carmakers and Tier 1 suppliers may be subscribing to this mantra, borrowed from the Kevin Costner film Field of Dreams, where he built a baseball stadium in a corn field and ghosts of famous players past showed up to play ball.

Auto industry insiders and analysts say that is an error. While that seemingly crazy construction project in a cornfield yielded a Hollywood ending where Costner’s character has a catch with his dead father on the magical baseball diamond, automakers have thus far had less luck with its IoT offerings catching on with consumers. Companies are investing millions of dollars in connectivity apps and services but the uptake has thus far been slow.

There are a number of reasons offered by observers, privacy safeguards are squarely on consumers’ radars, greater collaboration will be needed by companies in the space, and of course different technologies must be integrated but there are several other issues that will get IoT on base, so to speak, with consumers: improved user experiences and time for a technological paradigm shift to take hold.

“The number one thing is usability, it’s still too difficult to use services,” asserts Martin Kristensson, senior director for autonomous and connected vehicles at Volvo Cars. “IoT services, delivery to trunk with Amazon and other services and apps within the vehicle – paying for parking in the car, with all of those it’s still too complex and complicated. You think it’s easy enough but not really.”

Practicality still scores a home run with consumers, according to Kristensson: “The killer feature today is starting the heater. If I’m leaving for work at 7:30 in the morning, then the car is warm and the ice is gone when you get in the car at 7:30. This may not be a big hit in California but it’s big in the Nordics! It heats up and de-ices the car by the time you get in. We have the same feature with air conditioning, but if it’s a hot day you can wait two minutes and it’s OK but if it’s really cold and freezing you need the heat.”

While this application clearly has a use case that solves a very real problem, other tech has yet to prove it’s more than another complicated connection. Bret Boyd, director, with the emerging technology adviser Grayline Group in Austin, Texas notes: “Right now a lot of these applications are cool things to show your friends but some novelty wears off a little bit over time.” While Boyd says, “the connected refrigerator hasn’t blown my mind,” he does see more useful products and greater adoption coming, just not yet. He says IoT is still in the early innings, like in a baseball game where teams test each other to see who has the best “stuff” but that a paradigm shift away from car ownership to cars as a service is coming that he expects will boost uptake in vehicles.

With vehicles as a service through Uber, Lyft, or other companies, Boyd says consumers “can be scaled up or down to another service. It’s easier to do that to buy or subscribe to applications and services that plug into our house or other applications. It’s not as compelling when the core anchor of car ownership still exists.”

As car services further develop their own platforms for vehicles and services it will offer new ways to sell subscriptions for customer service, whether proprietary or for suppliers. Volvo has taken the lead on this with its Care by Volvo concept, a subscription service for its XC 40 SUV that includes insurance and basic maintenance. The TV commercial event hints at a paradigm shift for automobiles as onscreen text says, “you used to buy music, too”.

Michael Sherrod, the William M. Dickey Entrepreneur-in-Residence at the Neely School of Business, Texas Christian University says this Volvo program is a game changer. “The idea of (car) ownership is changing drastically,” he says but notes there’s still a generation gap. Sherrod, who at 66-years-old, says Baby Boomers like himself prefer to own their own car while his students aren’t as dead set on having their own vehicle.  Another issue is the matter of getting consumers to pay for new services. He notes that since widespread access to the internet, people expect content and other services to be free of charge, noting that media companies have felt the sting and many are facing resistance as they belatedly try to charge for their service.

Sherrod sees adoption growing slowly at first as consumers are given trial periods before being asked to pay and the best services will generate social media momentum that will extend beyond the early adopters. Ultimately, Sherrod sees the automakers developing platforms that they sell maintenance, insurance, and other services such as travel planning, think Airbnb or Trip Advisor with special offers. “It’s just like Apple, you come every two years and get a new phone. That’s what cars are going to do, and they’ll use that platform and more to it,” he says.

UBI has made inroads with consumers and insurers in that recent Ovum research paper and survey, insurance executives see the IoT and telematics “significantly changing” developed markets and having an even greater effect “transforming” the industry in emerging markets.

But some like Boyd say the proposition for UBI and the model isn’t convincing enough yet for many drivers to make the switch. Analysts agree that companies that aren’t even in the insurance business today will likely disrupt the industry and could be the market leaders within a few years time by building their entire business around UBI and tracking drivers.

There are some other applications that are gaining traction with consumers and producing impressive ROI. In addition to the timed heating and deicing system, Kristensson points to navigation systems as services that are readily available and have a large uptake, whether it’s GPS, voice activated assistants, or talking to another person. In fact, he notes that the call center to program the vacation system is quite popular in China. “We have speech control functions with an on call button, so customers can talk to a call center. I tell them I’m going to an Italian restaurant in downtown Shanghai and they control your navigation system. It’s a mix between new tech and old-fashioned tech with a human talking to you.”

He points to one other improvement that may boost revenue and improve the user experience – the open app store the carmaker recently announced. “I’m convinced it’s the right way to go, any app system built around the vehicle – that’s going to fade.” Kristensson says. “Any app ecosystem has to be connected to what you use on your phone.”

Clearly each market will have different gateways to greater adoption. As the IoT game gets into the deeper innings it’s likely easier and better UX combined with greater familiarity with the tech, and a further shift in the vehicle ownership/subscriber model should lead to more automakers and Tier 1 suppliers closing on more lucrative connected applications and services.