Telematics and connectivity: Which comes first, the app or the money?

Krystyna

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4th November 2010

As the smartphone market continues to burn white-hot, OEMs need to ask themselves one crucial question: Which comes first, the app or the money?

Business models are still fuzzy, because so many issues around software production and delivery, safety concerns, and consumer demand are still unclear.

Some OEMs wonder whether they should even expect to make money from in-car apps or just put apps down as cost centers or marketing expenses.

“The auto industry has a very well-established and complex value chain,” notes Steve West, vice president, emerging technology and media, Alcatel-Lucent.

“If you’re going to change the game, you have to understand how does that play out, where does the money flow, who needs to participate, what’s their slice of the pie, and how do they monetize their participation.”

Make cars, sell apps

While OEMs may hunger for incremental revenue from app sales, Mark Boyadjis, analyst and regional manager of North American automotive research for iSuppli, thinks they will ultimately realize that they need to focus on making and selling cars.

He points out that $2 or even $45 in revenue from the sale of an app is dwarfed by even the thin profit margins OEMs make from selling a car.

“Is revenue something OEMs are interested in? Absolutely,” Boyadjis says.

“You may make an extra $2 million on an app that may have only taken two months to develop. It could be very lucrative for an OEM, but never will it be the main source of revenue and never the main focus.”

Who develops the apps?

No matter how apps get into the car, someone still has to develop them.

The best and most efficient way to produce, test, and sell apps is still unknown.

(For a look at the mismatch between automotive and software development, see ‘What telematics firms can learn from Web 2.0’.)

“There’s a big question, ‘Do I develop my own apps or go to a developer who has cool apps on Android or the iPhone and integrate that?’ It will be both,” Boyadjis says.

Mark Perry, director of product planning for Nissan, says his company is open to providing application programming interfaces (APIs) that will let developers hook apps to the in-car systems of the electric Leaf.

But at this point, Nissan needs to put the pencil down and ship the car.

Meanwhile, Ford is actively recruiting mobile app developers to allow existing or newly created apps to interface with the Ford SYNC API through AppLink.

AppLink can access mobile apps stored on a user’s smartphone and allow them to be controlled through the SYNC voice recognition system.

All the OEMs are moving forward, Boyadjis says. They have no choice.

“The consumer electronics industry will always be faster than automotive, but OEMs are quickly understanding that there are ways to get apps into the car quickly without the issues,” according to Boyadjis.

Safety questions

Consumers aren’t the only ones who will drive automotive app development.

There is also a growing call for limiting or banning the use of apps, and even smartphones, in the car. (For an overview of proposed regulation in the United States, see ‘Driver distraction: The battle over in-car apps’.)

“It becomes very important for the OEM to decide what they want to brand,” says Martin Rosell, managing director of WirelessCar, which is owned by Volvo and also provides telematics services to BMW.

“It will not be the Wild West.”

Of course, all these considerations depend on another crucial question: What apps and services do consumers really want?

Right now, it’s difficult to say.

While an early adopter segment has eagerly taken up auto-oriented mobile apps, and turn-by-turn navigation and streaming Internet radio already are taking off, the most popular applications may not yet have been invented.
(For more consumer-friendly apps, see ‘How to customize telematics to meet consumer preferences’.)

The hottest automotive apps may not show up until the technical, business, and communications infrastructure has further gelled.

Susan Kuchinskas is a regular contributor to TU.