Telematics and new V2V/V2X business models

Telematics and new V2V/V2X business models

Most experts expect the United States National Highway Traffic Safety Administration to mandate that new cars enable basic vehicle-to-vehicle(V2V) communications in the next five to 10 years. If so, basic crash avoidance technology—cars broadcasting their locations, speeds and headings to those around them—will become a commodity rather than the luxury feature this and other ADAS systems are today.

But the mandate could fire up an aftermarket industry with incentives or government tax credits, according to Egil Juliussen, principal analyst and fellow, IHS iSuppli. "An ADAS system is useful no matter if anyone else has it, but V2V is only useful if many cars around are equipped,” he says. “It's the network effect."

He points out that there are approximately 250 million autos on the road in the United States today, and we sell only 13 to 14 million cars a year. At that rate, it could take decades to get the V2V network effect. But adding V2V communication capability through personal navigation devices, specialized aftermarket devices or even smartphones could provide critical mass while boosting sales for device manufacturers, Juliussen says.

The scenario he thinks most likely: "There are some things included in the base price and then some kind of subscription, whether pay-per-use or incentive-based."

Additional revenue opportunities

Don't forget that there may be additional revenue opportunities to reach passengers with infotainment options that would be too distracting for a driver but highly engaging for everyone else. In this scenario, the vehicle's embedded system would communicate with a machine—such as a Web server—over a cellular connection. "If I'm in the rear seat, what would I pay to stream a video to my kid in the back seat? Maybe I have a real-time connection with my home FIOS from Verizon," says Janet Schijns, vice president business solutions group, Verizon Wireless. (For more on telematics and the back seat, see The great telematics face-off: Tablets vs. rear screens and Telematics and infotainment: Designing rear-seat solutions.)

"In the U.S., the OnStar business model of a flat annual fee for core services is getting tougher and tougher to renew," Juliussen says. "The number of people willing to spend $200 for safety and security is dwindling." That's 10 times truer in China, he adds, while this model never even got going in Europe.

IHS iSuppli sees the market dividing into two segments: core safety and security features that need to be rolled into the new car price, and a small segment that will renew services subscriptions—at $50, not $200." There is potential for some vehicle-to-infrastructure (V2X) service—for example, road/weather/traffic information from road sensor—to be sold to someone or other, either as a one-time purchase, by subscription or in a service bundle.

Scott J. McCormick, president of the Connected Vehicle Trade Association points, out that mobile network operators already have this capability. "Telecoms can sell you a service for one time or for one day, they know how to do that. They haven't stood up and said, ‘I want to be the CRM or the B2B function that stands in the background,’" he says.

Richard Bishop, principal of Bishop Consulting, agrees. While for DSRC communications, there's no carrier—and therefore no possibility of a subscription—he says the existing business models that bring in traffic, information and entertainment to the car could be just as well used for V2X services. Moreover, Bishop says, "There could be room for intermediary players. For example, with traffic signals connected to the cloud, there might be a company that specializes in bridging all these local transit agencies with their own ways of operating and helping to pull that data into the cloud. I could see that as extension for existing traffic information providers, or it could be someone else." (For more on telematics and cloud computing, see Telematics and cloud computing: Hey you, get onto my cloud! and Telematics and the cloud: 4 keys to in-car offerings.)

Who gets the payoff?

While there seems to be clear ROI in crash avoidance technology for insurance companies, Juliussen points out that society, not carmakers, reaps most of the benefits from reducing crashes and road injuries. He estimates that auto accidents cost the United States $230 billion in 2010, and that, after 10 years, a V2V mandate might reduce that by as much as 34 percent. That's a huge benefit to society, but the technology is a cost to OEMs.

"There's no question that the return on investment for society is very high, but how do you get some of those benefits to auto companies that are bearing the cost? I don't know if there is any way," Juliussen says. If NHTSA does mandate V2V, he thinks automakers will simply add the cost to the price of the car, so consumers will foot the bill.

Schijns of Verizon Wireless thinks that the very small cost of installing DSRC, compared to the cost of the entire car, will be more than offset by benefits and cost savings that may be difficult to quantify. For example, Schijns says, if an OEM wants to update the car's software and the owner needs to go in to a dealer to do it, it might cost $300 to $400 worth of a mechanic's time. "Now, when the car is connected, maybe in the middle of night, I push the software update down. If I do software updates twice a year, each costing $300, I save a lot of money," she points out.

Cost savings

Diagnostics and early warnings of equipment failure could provide more cost savings to OEMs while the car is under warranty, she says. "It's a $2,000 repair if it's not caught early, but only a $50 repair if it is," she says.

Vehicle-to-infrastructure communications that let the dealer alert the customer of a potential breakdown not only saves the OEM money, it also can increase customer loyalty. "It costs a lot of money to get a customer and lots to lose it, says Schijns. V2X services “are part of the overall experience they have with their car. When you bundle that all up, the return on investment far outweighs the cost of connectivity." (For more on telematics and dealerships, see Telematics: How positive customer relationships improve ROI and Telematics and dealerships: How to connect dealers to connected cars.)

But OEMs must use the benefits of remote diagnostics to lower their warranty costs, Juliussen says: "That has been the biggest benefit to GM, although they don't want to talk about it. Remote diagnostic savings is enough to pay for basic telematics hardware costs. Then you can charge, to some extent, for offboard information." He points to the example of Inrix, which is providing more and more predictive and real-time information to drivers via its V2X infrastructure and data partnerships. "If, when you commute, you can save 10 or 15 minutes on your travel time, you're willing to pay something for that," he says.

"The big decision point is 2013, when the US government decides whether to make V2V a mandate or not," Juliussen says. "My perspective is that this is a no-brainer. You do it because the long-term benefit is so great, there's no question that you should do it." With that mandate could come a greatly expanded V2X industry.

Susan Kuchinskas is a regular contributor to TU.

For more on the related field of V2X, see V2X telematics: Taking ADAS to the next level and V2X telematics: From testing to tipping point.

For more all the latest telematics trends, visit V2X Safety & Mobility 2012 USA on March 20-21 in Novi, MI, Content & Apps for Automotive 2012 on April 18-19 in Germany, and Telematics Detroit 2012 on June 6-7.

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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