By the end of 2020, the worldwide revenue stream from Internet of Things will touch $8.9 trillion – a rise of over 85% over the 2012 figure. The IoT ecosystem is easily one of the fastest growing sectors in the tech domain, and the concept of ‘connected cars’ has gradually emerged as the most cutting-edge niche of this sector. It has been projected that, by the end of this decade, around 20% of all vehicles will have wireless connectivity in one form or the other – and overall shipments of ‘connected cars’ will jump by 4 times (over the 2015 sale figure). Smart passenger cars will generate nearly $150 billion as sale proceeds. In the discussion that follows, we highlight some key trends and stats from the sector of IoT for the automobile industry:
Evolution of telecommunication technology
In terms of connectivity, smart cars can be powered by the 2G, 3G and 4G/LTE technologies. While 2G was the most common a couple of years, 4G/LTE will be prevalent in most sophisticated connected cars by 2020 – thanks to the continuous improvement in the speeds and reliability of telecom networks. Integrated connectivity solutions are also growing increasingly popular for establishing IoT for cars – as embedded connectivity takes a backseat. Within the next 5 years or so, approximately 45% of all vehicles across the world will have integrated connectivity.
Note: Apart from embedded and integrated connectivity, tethered connectivity is also frequently deployed in smart cars.
Europe, rather expectedly, is the biggest market for IoT for cars. The total number of units of connected cars in the US is expected to go beyond 70 million in 2020. More interestingly though, it is the Asia Pacific that is the fastest growing geographical region for connected cars – with an average compounded annual growth rate (CAGR) of 32.6%. The US and Latin American markets are also rapidly expanding. Globally, connected cars will be a $46.7 billion industry by the end of this decade. For the 2014-2020 period, the CAGR for this industry has been projected to be 10.8%.
Types of in-car services
As the focus shifts squarely on electric cars, and vehicles like robo-taxis and long-distance automobiles become more and more commonplace – the range of services available in car will also expand. At present, the services made available through IoT can be classified under three major heads: firstly, there are supply-side services, like infotainment tools, driver assistance setups, fast cloud-connectivity, and streamlined human-machine interfaces (HMIs). Next up are the ‘smart mobility services’ (or the ‘consumer-side services’), which include social media inclusions, private entertainment, navigation tools, ride-sharing systems, and even ecommerce systems. Finally, there are the ‘connected car services’ – which are generally made available through dedicated mobile applications (and offered either as one-time purchases or subscriptions). These services include emergency support, automatic braking systems, collision prevention, and the like.
Note: As IoT for automobiles grows further, the array of connected car services will expand. Buyers will be able to easily implement these services over the standard features of their vehicles – and the average level of car automation will increase.
The growth potential of vehicular IoT is enormous – and this fact is not lost on leading OEMs (original equipment manufacturers) from the automobile sector. Last year, the 5 biggest OEMs contributed a whopping $46 billion+ towards research, innovation and development/deployment of technologies and tools related to connected cars. Feasibility, however still remains an issue – although the rising investments in ‘digital innovation for cars’ will buoy the growth rates of the connected car segment worldwide.
User-base of cloud-based cars
Onboard diagnostic ports, or OBDs, became compulsory for cars in the United States and Canada in 1996. Cloud services can be implemented in all the 150 million-odd vehicles that have hit the roads in these two countries since that year. Mobile app developers have also started making car-specific applications – which use the OBD ports as their trigger points. In 2015, Verizon launched an aftermarket subscription package called ‘hum’ – which offers system diagnostics, collision notifications, and a host of other cloud-connected services, for $14.99. In future, availability of such tools will increase greatly. The market is, obviously, large enough to generate (and maintain) high demand levels.
Hardware/software for connected cars
Smart car technologies have come a long way since the days of General Motor’s OnStar for Cadillac DeVille (launched in ‘96). At present, telematics control units (TCUs), head unit displays (HUDs) and human machine interfaces/dashboards (HMIs) make up the basic hardware setup for connected cars. The software, on the other hand, cover a lot of things – right from infotainment, handsfree calling and car performance notifications, to navigation & traffic routing, wireless hotspots, remote vehicle controls, and emergency assistance. With innovations being a key marker of IoT for automobiles, both hardware and software resources for connected cars will grow more sophisticated in future.
Revenue-distribution and demand-share
Revenues from the connected car sector come primarily from three types of services – autonomous driving services, safety services, and pure connected services. The collective revenue from all the three sources stands at $45 billion at present – with industry experts expecting a jump to $53 billion in 2017, and $156 billion by 2020. Safety services will remain the most sought after add-ons in connected cars, closely followed autonomous driving services. The general ‘connected services’ (like navigation, entertainment and car management) will make up 28% of the revenue stream from IoT for vehicles.
Note: The value of connected car services is already included in the list price of nearly 40% of the cars in which they are available. By 2017, 67% of the value of these packages will be reflected in the list price of vehicles.
8. Main drivers of IoT ecosystem in cars
Certain factors have really fueled the proliferation of Internet of Things in the automobile industry. Apart from the fast-rising volume of smartphone sales and the growing number of car-related apps churned out by app developers worldwide, the constant expansions in fleet sizes, the booming market for global telematics and the new governmental regulations (in Europe and the US, for instance) have all helped to boost the demand for connected cars. Automobile production levels on a global scale has been stable lately, while the value chain has involved more collaboration. This has also made the inclusion of IoT services that much easier. Finally, and perhaps most importantly, the demand for more sophisticated in-car services by drivers/car owners is growing with every quarter. That has automatically boosted the supply-side.
9. Enabling technologies in connected cars
Wifi connectivity is a critical, but certainly not the only, element of enabling technologies that power smart cars. In 2017 and beyond, other tools and services, like Near Field Communication, Automotive Ethernet, in-car Bluetooth and integrated GNSS systems will all gain in popularity. The 5 enabling technologies will combine to make cloud-based car services more robust, efficient and reliable. In 5-7 years from now, riding a car as we know it might just totally get revolutionized.
10. Connected car platforms
Apple’s CarPlay (iOS 7 and later; launched in 2014; version 10.0 was released in September this year) is easily the most talked about smart car platform at present. In a January 2016 report, the Cupertino company stated that well over well over 100 car models already use, or are likely to start using the CarPlay standard (including the Chevrolet Cruze, Hyundai Sonata, Audi Q7 and Ford Escape). Android Auto – another popular connected car platform (projection standard) – entered the field a year later than CarPlay, supporting Android 5.0 Lollipop and later versions of the OS. Windows Embedded Automotive, QnX and MirrorLink are other infotainment platforms for smart cars that are rapidly growing popular.
Note: Android Auto is, arguably, the platform with the most, and best, features. It, along with Apple CarPlay, work towards bringing smartphone functionality (read: app functionality) closer to vehicular operations.
11. Chief monetization channels
Why are the OEMs investing in a big way on connected car technology? That’s right – to earn revenues and handsome profits. To generate value from the services, a viable monetization model has to be followed. Tesla and Mercedes-Benz have shown a way – with cloud services being included in the cars from the outset. The data on customer services can be collected and collated to form a business model with optimized monetization (revenue-sharing is likely to be an integral part of such models). Real-time tracking of connected car information can also show improvements in quality, performance and in-car efficiency – and monetization can be11. done on the basis of that. For multi-modal transportation, customer database can be created and maintained, for monetization later on.
12. Inhibitors in the path of IoT implementation for automobiles
The demand is there and the supply capacity is also there – combining to lift up the adoption of connected services in vehicles worldwide. However, there are certain inhibitors as well, that hold back (or at least, slow down) the growth of this market somewhat. Prime among this is the rising apprehensions over information security and privacy (the growth of IoT in general has increased cyber security threats, as an unfortunate side effect). The relatively complicated nature of most connected car tools is another important factor. Things are still in an experimental stage – and hence, there remains the problem of certain platforms not being compatible with the available connectivity solutions. Cost optimization considerations might also make a section of buyers stay away from the smart car technology, hurting adoption figu res. Over the next few years, most of these inhibiting factors (with the probable exclusion of cyber security) will become less significant – and the connected car market should start to grow at an even faster rate.
13. Importance of peer-to-peer communication
Machine-to-machine (M2M) – or more accurately, vehicle-to-vehicle (V2V) communication will become an integral feature of connected cars by 2020. With navigation and speed information being broadcasted across cars, the chances of accidents should go down significantly. What’s more, notifications can be generated to intimate people about approaching cars. Timely V2V warnings can make driving a lot safer.
Note: For the futuristic vehicle-to-vehicle communication to actually materialize, newer, smarter car models will be required. These will mostly come bundled with select connected services.
14. Shift in revenue sources
As awareness and adoption about connected car grows and more innovations take place in this domain, revenue figures will grow. However, a closer inspection will reveal interesting shifts in the chief sources of earnings. In the next half a decade or so, car software, cloud-based services and electronics will become the major earners for suppliers, in place of parts in the car body (chassis, engine, etc.). The profit figures of automakers will grow flatter, as automotive afterservices take centrestage in an IoT-dominated vehicular ecosystem. Finally, the share of emerging markets (e.g., China) in the overall revenue stream from connected cars will increase – with European and North American countries moving towards saturation.
15. Premium vs Volume car models
Cars that fall in the premium range (both in terms of prices as well as quality) are the biggest users of automobile IoT systems. This scenario will continue at least till the next year. Industry professionals have predicted that 64.6% of the total revenue from connected cars will come from these high-end vehicles, in 2017. With an eye on greater adoption, things are likely to change over the next five years or so, however. By 2022, premium cars will contribute less than 50% of overall revenues, and the share of cheaper, volume-based cars will be higher.
Note: Nearly 75% of smart car service packages will be provided with the smaller volume cars, by the end of 2022.
16. The biggest players
From Ford to General Motors, and from BMW to Mercedes – the biggest names from the automobile market are already in the IoT ecosystem. From the technology supply side, there are companies like Delphi, Sierra Wireless, NXP and AT&T, apart from Apple and Google. More auto companies as well as software/hardware firms are likely to join the bandwagon – as in-car infotainment and other services reach the next level. By 2020, 3 out of every 4 new cars, and nearly 23% of ALL cars, will have connected services.
Looking a bit further forward, the autonomous car market (i.e., driverless cars) will reach the $43 billion mark in 2025. Both Apple and Google are working on driverless car models – with the Apple Car reportedly eyeing a 2019 launch. The average price of a ‘connected car’ is on the higher side (~ $55000), but that is expected to slowly go down – as the services become more common in cheaper vehicles. It will be fascinating to track how IoT for the automobile industry actually shapes up over the next few years. One thing is for sure though…car rides are all set to become a whole lot smarter!
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