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TMCNet:  Connected cars in the fast lane [ (United Arab Emirates)]

[December 24, 2013]

Connected cars in the fast lane [ (United Arab Emirates)]

( (United Arab Emirates) Via Acquire Media NewsEdge) By 2020, the connection of a car with its environment will be significantly strengthened and thus become an important feature for differentiation in the competition of automobile manufacturers (OEMs).

The truth is, connected devices are possible because of machine-to-machine (M2M) communications - which use wireless data networks, sensors, software to conduct remote monitoring, measurement and condition recording, in-field data collection, and other sophisticated processes. This eliminates manual, time-consuming work and minimises human intervention.

Within the automotive industry, M2M's potential is considerable; after all, in this day and age, safety and assistance systems are increasingly becoming standard in every vehicle. Indeed, thanks to mobile internet connections, automobiles can now inform drivers in real-time about dangerous spots and accident sites. And, in the future, this technology will further assist the driver in reaching his destination in a safe manner. In fact, according to a Connected Car 2013 study conducted by engineers at management consulting firm Booz & Company - in collaboration with the Center of Automotive Management - by 2015, car manufacturers worldwide would have generated 19 billion euros thanks to connected safety features and safe driving components.

Growth potential The connection of passenger cars to the Internet is the next digital wave and so, unsurprisingly, the M2M market is expanding rapidly. In the Middle East and North Africa (MENA) region, it is estimated to reach over $2 billion by 2016, representing 6.1% of the global M2M market, driven mainly by the demand of new vertical services. Automotive M2M services are expected to have a large share of this new revenue by 2016, with 12 million automotive M2M connections, up from just three million in 2012.

Such rapid growth presents companies with a unique opportunity. "To successfully enter the market, however, they must develop the right business model, and partnerships to provide the end-to-end innovative services that consumers and businesses expect," said Bahjat El-Darwiche, a partner with Booz & Company. "In particular, telecom companies will need to determine their growth strategy based on their core capabilities and their positioning in the overall M2M ecosystem." He added: "They will have to develop right-to-win capabilities including vertical innovation, solutions development and management, end-to-end horizontal platforms, and commercialisation. Some of these capabilities can be achieved through internal development, while others may require acquisitions or creating collaborative business partnerships of a kind that are very different to the contractual relationships that currently exist." By building these capabilities, telecom companies will be able to deliver on the two sets of services required by connected cars: core and value added. Core services include fleet management, usage-based insurance, driver intelligence, and road tolling. Value-added services include driving and green reports, navigation and mapping, remote vehicle diagnostic, weather and traffic reporting, and social media connectivity.

By 2020, the automotive industry's connected safety features and safe driving components are set to generate up to 49 billion euros in global sales volume. In addition, according to Booz & Company's study, China and the US will lead the sales markets for OEMs with integrated Connected-Car products. In parallel, the analysis reveals that growth will occur particularly between 2015 and 2020 - driven by the product segments "Safety" and "Driver Assistance".

However, the enormous sales and growth potentials form only one part of the argument for car manufacturers and suppliers to strategically open up the market to this segment.

The connection of a car creates completely new customer contact points, provides the OEMs with manifold opportunities for a stronger personalisation of the range of vehicles and offers substantial added value for driver and manufacturers. However, if an OEM doesn't take these chances, he risks losing market shares to the competitors in the short-term rather than in the mid-term.

Driver intelligence services can monitor the driving behavior of new, young drivers along with older ones. Insurance companies can then personalise premium based on driving behavior rather than age alone. Moreover, parents can receive reports on the driving behaviors of their teenagers. Finally, road tolling services enables customers to pay tolls through devices attached to their cars, based on their geographic location (geo-fencing). This allows governments, highway, and road operators to reduce costs associated with building and maintaining road toll stations, and saves time for drivers.

"With support from governments, insurance companies, automotive players, and technology vendors such value-added services are becoming integral to connected cars in both developed and developing nations," explained Bassam Hajhamad, a Principal with Booz & Company. "Although only a few of these services are on offer in the MENA region, providing them will be an important part of the growth in the automotive M2M market. The challenge will be to elaborate the correct business and distribution models." In terms of business models, successful automotive M2M providers are increasingly subsidizing the cost of devices and set-up fees to promote device penetration in the market. These firms lease device to users, or provide them for free and only charge a monthly subscription.

"This technique is facilitating the entrance of telecom operators into the automotive M2M market as they master the monthly subscription fees models - a departure for telecoms players used to annual contracts," stated Hajhamad. "Another model, used for road tolling services, is pay-per-usage which charges a commission for each toll payment or for the distance driven." In reality, for a long time, the younger generation was identified as digital avant-garde and thus was a key target group for new Connected-Car products. However, convenience and driving safety for older drivers and passengers is equally important. And, it can be achieved via internet-based safety, assistance and so-called 'well-being' products - such as fatigue, well-being and vitality assistants.

In effect, those are the very market segments which promise the highest sales and return potentials in the Connected-Car market for the automobile industry.

Distribution models: The first is a business-to-business-to-consumer (B2B2C) or business-to-government-to-consumer (B2G2C) model that distributes products to insurance companies, telecom operators, or governments which then provide the M2M services to fee-paying customers. In the alternative model, business-to-consumer-to-business (B2C2B), the automotive M2M provider sells devices directly to consumers. The consumers use the devices to produce driving reports that they share with insurance companies to obtain better rates. Automotive M2M services in the Middle East are a growth market thanks to the new digitization trends that are driven by government initiatives, combined with growing demand from Generation-C and enterprise customers.

As part of their digital agenda, telecom operators in the region can grab the first mover advantage if they move fast to build the correct capabilities, partnerships, and models that will help transform our automobiles into the next digital device.

(c) 2013 ITP Business Publishing Ltd. All Rights Reserved. Provided by, an company

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