The Challenging Business Model for Connected Services in Cars Ralf Hug Trajectory Group, LLC November 7, 2012
INTRODUCTION Trajectory [trə jektrē]: Plotting a realistic path towards achieving a target over a period of time TRAJECTORY GROUP LLC Founded 2009, Chicago, Illinois Strategic advisory, business development and marketing consulting services firm Helps clients stay on the trajectory of success by shaping compelling business models, attractive value propositions and winning business and marketing strategies. Partner & Business Development Marketing & Product Strategy Telematics Strategy Ralf Hug President 15+ Years of Global Management Experience Expertise in Strategy Development, Business Development, Marketing and Product Management In-depth Industry Experience in Automotive, Telematics, M2M, GPS/LBS, Wireless, Consumer Electronics MBA University of Bayreuth, Germany Fluent in English and German Past Management Positions at: 2012 Trajectory Group Confidential & Proprietary 2
TELEMATICS MARKET INTELLIGENCE REPORTS 2012 Trajectory Group Confidential & Proprietary 3
The Challenging Business Model for Connected Services KEY QUESTIONS Is there a business model for the connected car? Jerry Maguire (1996) 2012 Trajectory Group Confidential & Proprietary 4
THE BUSINESS MODEL CHALLENGE The current Telematics business models don t work. Let s find a new one. 2012 Trajectory Group Confidential & Proprietary 5
BUILDING THE CONNECTED SERVICES BUSINESS MODEL Customer Value Proposition Key Resources Key Processes Profit Formula How to develop, deliver and capture value With the Connected Car? Source: Seizing the White Space: Business Model Innovation for Growth and Renewal, Mark W. Johnson, 2010 2012 Trajectory Group Confidential & Proprietary 6
The Challenging Business Model for Connected Services KEY QUESTIONS What monetization opportunities exist? How does the profit formula look like? What stakeholders benefit from Telematics? 2012 Trajectory Group Confidential & Proprietary 7
CONNECTED CAR EVOLUTION Service Profit Model Services Built-in CRM & VRM Semi-Open Platform 2 2012 Trajectory Group Confidential & Proprietary 8
TELEMATICS ECOSYSTEM KEY STAKEHOLDERS Auto OEM A complex world with many stakeholders and competing interests! Handset OEM App Store Provider Aligning Stakeholder Interests to Deliver Compelling Customer Value Proposition Tier 1 Wireless Carrier Finding a winning business model can be challenging! Content Provider Consumers Fleet Owners TSP 3 rd Party Developer 2012 Trajectory Group Confidential & Proprietary 9
CONNECTED SERVICES PROFIT FORMULA Profit Formula Revenue Stakeholder View: OEM App Developer Tier1 Costs Brand Experience Value Needs Platform App Developer Suppliers Partners Dealers OEM Cross Sell Up Sell More Sell LTV Customer Relationship Management - CRM - 2012 Trajectory Group Confidential & Proprietary 10
CONNECTED SERVICES MONETIZATION Many well-known app monetization models exist but will they work for automotive? Free App Paid App App/Services Monetization Subscription Freemium/ In-App Purchase Many Others 2012 Trajectory Group Confidential & Proprietary 11
The Challenging Business Model for Connected Services KEY QUESTIONS We built it. Will they come? Why don t they come (Developers)? 2012 Trajectory Group Confidential & Proprietary 12
KEY SUCCESS FACTORS FOR 3 RD PARTY DEVELOPERS Can any of these success factors be adequately met by auto OEMs today or anytime soon? Big addressable market Quick time to market and revenue Openness of platform and development environment (access to native APIs, richness of platform, ease of development) Leverage of existing development skills and resources Low Developer Entry Cost Customer Billing and Timely Payment processing Clearly Defined Revenue models and favorable terms (NRE, License Fees, Revenue split, advertising) Transparent validation and approval process Easy and timely release process of initial app and update versions Show me the Money! Jerry Maguire (1996) 2012 Trajectory Group Confidential & Proprietary 13
SELECT EXAMPLES AND CASE STUDIES 2012 Trajectory Group Confidential & Proprietary 14
AUTOMOTIVE TELEMATICS APPS AND SERVICES Smartphone vs Embedded: Where do apps and services belong? Infotainment OEM Embedded Car-Centric Productivity Safety Navigation Safety Commerce Safety Intelligent Safety Driving Maintenance Safety Safety Safety User-Centric SmartPhone Apps Impact of: 2012 Trajectory Group Confidential & Proprietary 15
NAVIGATION AND LBS SERVICES ECOSYSTEM From a B2B licensing model for LBS content to a B2C app monetization model. - Will this work? For Whom? Freemium? Paid? In-App? Built-in? Subscription? Other? Send to Car Many Others (Roadside, Insurance, etc.) Parking Weather Navigation Speed Cams Gas Prices Traffic Local Search/ POIs/ Guides LBS/Content 2012 Trajectory Group Confidential & Proprietary 16
Take Rate PAID APP MONETIZATION What s the price sensitivity/elasticity and willingness to pay? 100% 90% 80% 70% 60% Win 50% 40% 30% 20% 10% 0% Loss $0 $1 $2 $3 $4 $5 $6 $7 $8 $9 $10 Price $0.99 $1.99 $5.99 $9.99 $19.99 $29.99 $49.99 2012 Trajectory Group Confidential & Proprietary 17 11/12/2012
SUBSCRIPTION ECONOMICS ENLIGHTENMENT Year 1 Year 2 Year 3 Year 4 TSP Model Telematics Scenario 2013 2014 2015 2016 2017 New Vehicles 200,000 300,000 400,000 400,000 400,000 Activation Rate 90% 180,000 270,000 360,000 360,000 360,000 Retention Y1 50% 90,000 135,000 180,000 180,000 Retention Y2 60% 54,000 81,000 108,000 Retention Y3 60% 32,400 48,600 Retention Y4 60% 19,440 Cumulative Cars 180,000 360,000 549,000 653,400 716,040 High Churn Rate of Telematics Subscriptions App Model App Challenges: App Scenario II 2013 2014 2015 2016 2017 New Vehicles 200,000 300,000 400,000 400,000 400,000 App Take Rate 30% 10% 60,000 20,000 90,000 30,000 120,000 40,000 120,000 40,000 120,000 40,000 App Retention Y1 70% 42,000 14,000 63,000 21,000 84,000 28,000 84,000 28,000 App Retention Y2 70% 29,400 9,800 44,100 14,700 58,800 19,600 App Retention Y3 70% 20,580 6,860 30,870 10,290 App Retention Y4 70% 14,406 4,802 Cumulative Apps 60,000 20,000 132,000 44,000 212,400 70,800 268,680 89,560 308,076 102,692 Smartphone Penetration < 50%, Compatibility (Car/Phone), App Competition, Price, Awareness/Marketing, Distribution Low Adoption of App Subscriptions 2012 Trajectory Group Confidential & Proprietary 18
In Millions SUBSCRIPTION ECONOMICS ENLIGHTENMENT 120 105.2 100 94.2 80 60 54.9 40 20 0 Mercedes-Benz mbrace 22.1 22.7 22.9 18.7 6.0 6.8 0.2 1.0 Pandora (Premium Subs) GM Onstar AT&T uverse (TV, Internet) Comcast Internet Comcast Cable Ne lix SiriusXM Pandora (Ac ve Users) Verizon Wireless AT&T Wireless Source: SEC Filings, Q2 2012, Onstar, GM PR 2012 Trajectory Group Confidential & Proprietary 19
BUSINESS MODEL FORMULA EXAMPLE: FREEMIUM Potential Paying Customers Addressable Market Reach % Sign-up % Conversion to Paid Population Registered Vehicles New Vehicles Vehicle Brand Vehicle Model User/Target Group Market Share Distribution Marketing Awareness Value Need Price Point Price Sensitivity/ Elasticity Smartphone Penetration Phone Compatibility Example: Scenario I Scenario II Addressable Market (Vehicles) 15,000,000 1,000,000 Smartphone Penetration 50% 7,500,000 500,000 Reach 10% 750,000 100,000 Sign-up for Free Service 50% 375,000 50,000 Conversion to Paid Version 5% 18,750 2,500 2012 Trajectory Group Confidential & Proprietary 20
TOYOTA ENTUNE EXAMPLE Entune apps include Bing, iheartradio, MovieTickets.com, OpenTable, and Pandora Additionally, Entune offers a variety of data services such as fuel prices, sports, stocks, traffic, and weather Monetization: Three years of complimentary access to apps Toyota is heavily involved in the process of codeveloping apps that are tailored for Entune, says Jon Bucci, VP Advanced Technology Toyota Source: Automotive News, Aug 6, 2012 2012 Trajectory Group Confidential & Proprietary 21
FORD SYNC EXAMPLE SYNC AppLink connects to smartphone applications through voice commands. Current Apps o iheartradio, NPR News, Pandora Internet Radio, Slacker Personal Radio, Stitcher Smart Radio, TuneIn Radio, MOG Radio and SYNC Destinations, Telenav Scout (pending) o Monetization: Quiz: Most are Free Telenav Scout for Ford Sync AppLink offers a 30-day free trial, unlock via an in-app subscription of $24.99 per year or $4.99 per month. o How many Internet Radio Stations? Why? 2012 Trajectory Group Confidential & Proprietary 22
MERCEDES-BENZ APPS EXAMPLE Mercedes-Benz Apps gives the driver access to Internet Browsing, Google Local Search, Yelp, News and Facebook. Based on embedded connectivity Monetization: o US: Subscription of $14/month with 3 month free trial. o Europe: 9.95 per app (parking, news) 2 2012 Trajectory Group Confidential & Proprietary 23
MIRRORLINK ECOSYSTEM EXAMPLES In-car infotainment solution based on MirrorLink standard MirrorLink offers a seamless way to connect your smartphone to a car Both the smarthphone device and the infotainment system need to include Mirrorlink software Control of smartphone applications through car HMI (touch screen, steering wheel controls, etc.) for navigation, music, telephone and apps, etc. Monetization: o Nokia Car Mode App with MirrorLink retails for $29.99 o o Samsung Galaxy S III gets Drive Link app with MirrorLink free Panasonic ELUGA V AppCarConnect JPN is free Alpine ICS-X8 2012 Trajectory Group Confidential & Proprietary 24
The Challenging Business Model for Connected Services KEY QUESTIONS What about the Advertising Model? 2012 Trajectory Group Confidential & Proprietary 25
AUTO ADVERTISING MODEL - SUCCESS FACTORS Ads need to respect privacy Ads cannot be distracting while driving (safety) Ads need to be rewarding and enhance the experience for Consumers Ads need to be unique and engage in a meaningful way Performance for the Marketer/Advertiser/Content Publisher o Reach & Scale o Operational Cost o Metrics (CPM, CPC, CPA, registrations, downloads, ) o Ad Inventory Ads need to meet personal contextual requirements such as place, time and preferences 2012 Trajectory Group Confidential & Proprietary 26
ADVERTISING MODEL - EVALUATION Ad Economics: Auto vs. Mobile Evaluation: CPM: $10 CTR: 2% Can Auto Ads be superior to Mobile Ads? Transaction Reach 10 8 6 4 2 0 Targeting Conversion to Buy: 5% Viral Engagement Impressions: 1,000,000 100,000,000 Ad Dollars: $10,000 $1,000,000 Auto Mobile 2012 Trajectory Group Confidential & Proprietary 27
The Challenging Business Model for Connected Services KEY QUESTIONS What about Marketing? 2012 Trajectory Group Confidential & Proprietary 28
DELIVERING VALUE MARKETING AND THE BUYING PROCESS 1. If customers aren t aware of your app, they can t consider your app. 2. If they don t consider your app, they can t prefer your app. 3. If they don t prefer your app, they won t purchase/consume your app. 4. If they don t purchase/consume your app, they can t experience your app as competitively superior and be retained. Awareness Consideration Purchase Delivery Avoidable Defections Retention Natural Defections Repurchase Decision Referral Word of Mouth Ownership Experience 2012 Trajectory Group Confidential & Proprietary 29
Thank You! Questions? Please contact me at: Ralf Hug, Founder & President TRAJECTORY GROUP LLC Email: ralfhug@trajectorygroup.com Cell Phone: +1 773 733 6913 Skype: ralf_hug LinkedIn: www.linkedin.com/in/ralfhug Web: www.trajectorygroup.com Twitter: @ralfhug 2012 Trajectory Group Confidential & Proprietary 30
TELEMATICS MARKET INTELLIGENCE REPORTS Visit: www.trajectorygroup.com 2012 Trajectory Group Confidential & Proprietary 31
TELEMATICS PRESENTATIONS Presentation: The Connected Car Comes in Many Flavors Presentation: Envision Automotive App Stores Key Questions Presentation: How to break out of the Commoditization trap? Presentation: Insurance Telematics Challenges and Opportunities Visit: www.trajectorygroup.com Presentation: Innovations in Aftermarket Telematics Presentation: The Challenging Telematics Business Model Safety & Care Productivity & Efficiency Luxury & Convenience Entertainment & Fun Innovations in Aftermarket Telematics Presented by Ralf Hug President of Trajectory Group LLC Telematics@China Tour Guangzhou, China May 16 th 2012 The Challenging Telema cs Business Model Trends and Opportuni es Presented by Ralf Hug President of Trajectory Group LLC Telema cs@china Tour Inner Mongolia, China September 13 th -16 th 2012 2012 Trajectory Group Confidential & Proprietary 1 2012 Trajectory Group Confidential & Proprietary 1 2012 Trajectory Group Confidential & Proprietary 32
ARTICLES AND INTERVIEWS Interview: Insurance Telematics. Challenges and Opportunities English Version Chinese Version Interview: Innovations in Aftermarket Telematics. English Version Chinese Version Article: To Find the Business Case for Telematics, Look Higher Up. Interview: Telematics is here to stay. Interview: The Challenging Telematics Business Model. English Version Chinese Version 2012 Trajectory Group Confidential & Proprietary 33