Building shareholder value through telematics: where should OEMs and their suppliers invest?

Building shareholder value through telematics: where should OEMs and their suppliers invest?

Telematics both in terms of permeation and the quality and range of services available is growing at a rapid pace. Yet it is still not clear where OEMs and their suppliers should focus their innovation efforts in order to ensure that it is their shareholders and not those of say Apple or Google who benefit from the telematics revolution. The opportunity Already, examples abound of telematics being used to change the car owning and driving experience: from safety and security, through diagnostics and relationship 1 management, to insurance and car rental. By 2020, according to Machina Research, $600 billion or 20% of the value of new connected vehicles will be attributed to connected life. The challenge Whilst the opportunity is uncontested, who will actually benefit is still to be decided. Organisations across the industry including OEMs, Tier 1 suppliers and telematics service providers are making their moves. At the same time, other organisations not typically associated with the automotive industry including Apple, Google, Nokia and wireless service providers are aggressively targeting this valuable opportunity. No OEM, having invested heavily in telematics, wants to see a world in 2020 where owners and drivers simply use their phones or tablets to create the connected car experience. No OEM wants to find itself manufacturing the equivalent of today s television a product with ever-decreasing margins used as the conduit to deliver content and services that the user values but from which the television manufacturer derives no value. 1. Legally mandated (for example, ecall) 3. Other providers hold a strong position in the eyes of the consumer (for example, navigation & entertainment) Telematics Services 2. OEM has a clear advantage over other providers (for example, diagnostics & prognostics) 4. Changes the playing field (for example, rental tracking) OEMs are heavily investing in telematics capabilities and services to pave their way towards new business models that go beyond just making cars. By 2020, they want to be at the forefront in a world where connected cars will be delivering contents and services, as phones or tablets are doing today. The opportunity though won't just be in the car manufacturing and telematics technologies per se. OEMs wants to be at the center of the connected car ecosystem where content creation and service provisioning will be the valueadded opportunity for profit growth. Understanding this rapidly changing consumer demand for the connected car will dictate how automotive manufacturers will be able to fend off emerging competition in connected car services. says Pierfrancesco Manenti, Head of IDC Manufacturing Insights - Europe, Middle East & Africa at IDC."

Focussed Innovation So where should OEMs and their suppliers focus their innovation efforts in order to ensure that it is their shareholders and not those of say Apple or Google who benefit from the telematics revolution? In order to answer this question, we will consider four categories of services provided by telematics: services that are legally mandated, services where the OEM has a clear advantage over other providers, services where other providers hold a strong position in the eyes of the consumer, and services that change the playing field. 1. Legally mandated Some of the functionality delivered through telematics is becoming a legal requirement in Europe. For example, the EU issued delegated regulation in November 2012 with the aim of ensuring that by 2015, all new vehicles sold in the EU have an ecall system fitted and that member states have the relevant communications infrastructure in 2 place for the ecall system to be operative by the 2015 deadline. Up to now, OEMs offering ecall have used it as a point of differentiation and/or a source of additional revenue. PSA 3 Peugeot Citroën positioned itself as leading the rollout in Europe, announcing in January 2012 that it had sold over one million vehicles with ecall. BMW included BMW Assist as part of the price in the BMW 5 Series and up, or 4 sold it for about $650. Going forward however, particularly as the 2015 deadline gets closer, ecall will become nothing more than a must have. All OEMs will offer such functionality and it will no longer be a differentiator in the eyes of the consumer nor 5 will it be possible to charge extra. BMW has already acknowledged the reality of this situation, announcing in April 2013 that it will provide ecall for 10 years on virtually all 2014 models, including the 1 Series and 3 Series. OEMs cannot afford to overspend on functionality that is simply a must have. For ecall and other legally mandated functionality, the focus for OEMs and their suppliers must be on innovation to reduce the cost of provision. 2. OEMs have a clear advantage over other providers For some services provided through telematics, it is very clear that the OEM is best placed to deliver the optimum solution. Remote Vehicle Diagnostics and prognostics linked with customer relationship management (CRM) is an obvious candidate: the OEM knows more about the engineering of the vehicle than any other party, can sell its vehicles equipped to transfer information back to the OEM (no additional sell or consumer-inconvenience required), and already has a relationship with both the consumer and the dealership. Offering outstanding functionality in this area has clear benefits: consumers can be told of the savings they will make in both time and money and the OEM and its dealers are likely to reap increased financial rewards from on-going servicing. As Roger Lanctot, associate director for automotive multimedia and communications service at A recent quote on an online forum hints at the scale of this problem: The guy who sold me the car at [a UK dealership], even though very nice and helpful, told me he had no clue what telematics is. From training the dealer on the shop-floor, to aligning systems and incentives, there is a lot to be done.

6 Strategy Analytics says, We [OEMs] need to have a closer bond with the consumer to make sure we keep them closely bonded with the dealer, because that s ultimately where we make all our money. 7 Some OEMs are already investing heavily in this area. Toyota Friend was launched in Japan in 2012 on a range of electric and plug-in hybrid vehicles. The system uses a private social network to connect all equipped vehicles with their drivers, their official dealers and with the car maker itself. Communicating with the driver via Tweet-like instant messages to his or her phone, Toyota Friend reminds the owner to charge the vehicle, schedule a service appointment or promotes the latest offer from the nearest dealer. 8 In Europe, Fiat is working on mycar, a new CRM system due out in 2014/2015. According to Candido Peterlini, Fiat s VP for marketing innovation, mycar is being tailored to three distinct driver profiles: novices who know nothing about the car and need CRM to basically run their cars, pragmatists who know enough but still prefer the convenience of someone keeping track of service intervals and taking preventive measures to avoid costly repairs due to breakdowns, and enthusiasts who have their car as a hobby and are looking to get the best possible performance out of their vehicle. In delivering a solution that delights the consumer which in turn drives shareholder value, OEMs must consider organisational as well as technical issues they need to align the various groups within an OEM that stand to benefit from collecting diagnostic data. 9 According to a recent GSMA report, Aside from a few noticeable exceptions, this is a challenge that many vehicle manufacturers have been unable to overcome. Despite the challenges involved, delivering telematics functionality around the OEM s core strengths is likely to be the area where OEMs and their suppliers are most able to differentiate their vehicles and drive on-going revenues. The focus for OEMs and their suppliers must be on innovation to delight the consumer. This also applies in the field of safety (beyond legally mandated functions) where OEMs also have significant advantages over and above other non-automotive parties. 3. Other providers hold a strong position in the eyes of the consumer Some of the services provided by telematics are viewed by consumers as the domain of players not typically associated with the automotive industry. Take the provision of information and entertainment. Most consumers have embraced the digital lifestyle and expect a seamless experience as they step into their cars: they are eager to continue using their existing devices albeit without compromising safety. To meet this demand, OEMs have devised innovative methods to smoothly integrate smartphones and other CE devices within the vehicle s head unit (HU).

Many of these mobile and consumer electronics companies are clearly vying for ownership of the in-car 10 experience. Apple, for example, has said that a spoken mapping function will be integrated into the next generation of its ios platform, suggesting that anyone with a mobile Apple product may have a free Siri turn-by- 11 turn navigation specialist (plus POI provider) guiding them down the road in the near future. Google has its widely publicised autonomous driving project, aiming to have a self-driving car available to consumers in 3-5 years. Given the insurmountable challenge of competing with players such as Apple and Google in information, entertainment and navigation, the opportunities for OEMs lie not in competing with these existing players but in developing partnerships that both defend against the tablet on the passenger seat scenario and aggressively increase the value of the vehicle through association with premium brands. 12 Some OEMs are already following this strategy. For example, Apple has an agreement with eight OEMs (including BMW, GM, Toyota, Honda and Audi) to integrate Siri into vehicles starting in 2013. However, it is still early days. What is clear is that OEMs and their suppliers need to focus on innovative partnering with respected players in the fields of entertainment, information and navigation. 4. Changes the playing field Some of the services that telematics makes possible have the potential to completely change the experience of owning and driving vehicles. Take, for example, the car-as-service model that is made possible by the ability to track and monitor rental 13 vehicles. According to Dominique Bonte at ABI Research, Teenagers and young people no longer look at owning a car as one of their major goals for early life. Such shifting attitudes, coupled with functionality enabled by telematics (for example, remote unlocking), mean that car rental is becoming ever more appealing: Zipcar, a car 14 sharing company with over 750,000 members, was recently bought by Avis Budget for $500m. One OEM, BMW, has already invested through DriveNow, a car-sharing service partnership with rental-car company Sixt. What other major changes could be made possible by telematics? For some OEMs and their suppliers, gamechanging innovation, although risky, could well lead to big pay-offs. Meeting the upgrade challenge One challenge cuts across all four types of telematics services that of ensuring the technology remains up to date. The expected life of a vehicle is much longer than that of other mobile devices meaning that consumers are understandably concerned about in-car technology remaining up-to-date. Worryingly for OEMs, if consumers aren t convinced about the feasibility of updates they will be driven towards non-oem solutions and back to the tablet on the passenger seat. Some OEMs are addressing this issue through modular solutions. Audi, for example, introduced a modular 15 replaceable infotainment unit in its A3 model at the beginning of 2012. The Multi-Media extension (MMX) board integrating the processor, working and flash memory has a modular layout making it easy to update the hardware. The software that runs on the MMX boards also has a modular structure and Audi developed the software largely independent of the hardware. Mercedes is addressing the upgrade issue by integrating brought-in smartphones and tablets into its onboard infotainment systems and providing apps through the cloud. It believes it can add value above and beyond the original device. 1 Ralf Lamberti, Daimler s director of telematics, infotainment and cabin E/E talks about putting the car in the Web as opposed to just having the Web in the car. He says: Data is already in the cloud. Applications are also moving to the cloud. In the end, everything, every device that we use on a daily basis will be just a window to the cloud, whether it s your watch, your glasses, the car. Whatever the solution chosen whether it depends upon the cloud, modular hardware and software and/or bringing the enemy within by integrating brought-in technology is a challenge that must be overcome if OEMs and their suppliers are to build shareholder value through telematics.

Working with telecom providers 16 The GSMA forecasts total revenue opportunities from embedded telematics to be 19 billion by 2025. In their pursuit of increasing average revenue per connection (ARPU), telecom operators are keen to invest in telematics and to increase their value- 17 added service (VAS) offerings to consumers. Verizon Communications, for example, spent $612m acquiring Hughes Telematics in 18 2012; Sprint has partnered with M2M Systems Integrator Partners to provide end-to-end development support and to optimise Sprint wireless technology with cutting edge systems. Embedded telematics offers telecom operators with a much broader opportunity to provide more advanced M2M support to vehicle manufacturers including network security, billing, CRM and device management. The challenge for telecom operators is that consumers prefer smart phone integration and tethering options to get data inside their car. OEMs and telecom providers will need to work in partnership if embedded or integrated solutions are to dominate. Conclusion There is no doubt that value is already being created and will continue to be created at an ever increasing scale through innovation in telematics. However, it is still not clear who will benefit most from this opportunity. If OEMs and their suppliers are to be the winners, they must ensure that their innovation is appropriately focused and that they leverage the shared interests of telecom providers. This means focusing on innovation to reduce the cost of provision where functionality is legally mandated, innovation to delight the consumer where the OEM has a clear advantage over other providers, innovative partnering where other providers hold a strong position in the eyes of the consumer and, for some, blue sky innovation to change the playing field. 1. Legally mandated 2. OEM has a clear advantage over other providers Innovation to reduce the cost of provision 3. Other providers hold a strong position in eyes of consumer Innovative partnering Telematics Services Innovation to delight the consumer 4. Changes the playing field Game changing innovation Smartphone integration with in-car infotainment system TCS helped a leading Japanese car infotainment system manufacturer to successfully integrate the iphone and other smartphones with the car head unit (HU). A MirrorLink client was developed for the HU so that MirrorLink-enabled phones from Nokia and Samsung could be used successfully with the car audio and display. The HU client supports all phone apps (for example, Pandora internet radio). TCS also supported Telenav in extending its navigation solution (running on the Apple iphone) to the car HU. Telenav s innovative navigation solution includes spoken turn-by-turn directions with street names, automatic map and content updates, and 2D and 3D moving maps. References [1] http://connectedlife.gsma.com/wp-content/uploads/2012/02/global_impact_2012.pdf [2] http://www.eversheds.com/global/en/what/articles/index.page?articleid=en/industrial_engineering/ecall_aiming_to_improve_safety _in_road_transportation [3] http://www.psa-peugeot-citroen.com/en/media/press-releases/one-million-peugeot-and-citroen-vehicles-feature-ecall-0 [4] http://www.extremetech.com/extreme/151937-match-and-raise-telematics-hyundai-boosts-services-bmw-makes-first-decade-free [5] http://www.extremetech.com/extreme/151937-match-and-raise-telematics-hyundai-boosts-services-bmw-makes-first-decade-free [6] http://analysis.telematicsupdate.com/infotainment/telematics-crm-tool [7] http://analysis.telematicsupdate.com/infotainment/telematics-crm-tool [8] http://analysis.telematicsupdate.com/infotainment/telematics-crm-tool [9] http://www.gsma.com/connectedliving/wp-content/uploads/2012/03/gsma2025everycarconnected.pdf See page 26 [10] http://analysis.telematicsupdate.com/infotainment/telematics-competing-apple-and-google [11] http://www.extremetech.com/extreme/147940-google-self-driving-cars-in-3-5-years-feds-not-so-fast [12] http://analysis.telematicsupdate.com/infotainment/telematics-competing-apple-and-google [13] http://analysis.telematicsupdate.com/infotainment/telematics-and-car-service-model [14] http://www.guardian.co.uk/business/2013/jan/02/avis-budget-buys-zipcar-share-value [15] http://telematicsnews.info/2012/01/10/audi-debuts-new-modular-replaceable-infotainment-unit_j3104/ [16] http://www.gsma.com/connectedliving/wp-content/uploads/2012/03/gsma2025everycarconnected.pdf See page 3 [17] http://www.bloomberg.com/news/2012-06-01/verizon-to-acquire-hughes-telematics-for-612-million-in-cash.html [18] http://m2m.sprint.com/engage-with-us/m2m-system-integrators

Support for launch of connected vehicle services TCS supported one of its US customers in the deployment and sustenance of a connected vehicle platform to offer telematics services. The overall solution is scalable and flexible as the architecture is based on Next Generation Telematics Pattern (NGTP). The platform supports embedded connectivity as well as brought-in phone connectivity and offers a range of services including safety, security, entertainment and navigation.

Contact To find out how your business can benefit from TCS expertise in telematics, contact us at eis.marketing@tcs.com About Tata Consultancy Services Ltd (TCS) Tata Consultancy Services is an IT services, consulting and business solutions organization that delivers real results to global business, ensuring a level of certainty no other firm can match. TCS offers a consulting-led, integrated portfolio of IT and IT-enabled infrastructure, engineering TM and assurance services. This is delivered through its unique Global Network Delivery Model, recognized as the benchmark of excellence in software development. A part of the Tata Group, India s largest industrial conglomerate, TCS has a global footprint and is listed on the National Stock Exchange and Bombay Stock Exchange in India. For more information, visit us at www.tcs.com All content / information present here is the exclusive property of Tata Consultancy Services Limited (TCS). The content / information contained here is correct at the time of publishing. No material from here may be copied, modified, reproduced, republished, uploaded, transmitted, posted or distributed in any form without prior written permission from TCS. Unauthorized use of the content / information appearing here may violate copyright, trademark and other applicable laws, and could result in criminal or civil penalties. Copyright 2013 Tata Consultancy Services Limited TCS Design Services I M I 07 I 13