Opinion: IoT Meets Auto ServicesThursday 15 March 2018 | News
The Auto industry must embrace IoT, or lose out to the Internet giants but scaling and thriving in an IoT world requires selective investment and collaboration.
The Internet of Things (IoT) is an all-encompassing but vague term. But the daily news-flow and noise it creates continues to increase, particularly as it relates to the Auto industry. Activities of big OEM brands, prospects for connected cars, public safety and policy concerns are grabbing headlines.
Simply put, new combinations of hardware, existing wireless and fibre technologies, cloud computing and new applications are already disrupting multiple industries. It is already impacting EBITDA and cash-flow of businesses today. Given the pace of IoT roll-out, its disruptive powers will only heighten, considering current five-year business plans and investor returns.
Getting a grip on the strategic and commercial impact of IoT requires an unpicking of the nature and implications of what widespread Internet-enabled connectivity means for customers, products, data-enabled digital services and operations.
Current dialogue is all too often drowned in technical debates about standards and inter-operability. Not enough attention is given to commercial prospects of businesses – often as IoT is not yet well-understood by business owners, investors and senior management teams.
The risk of ignoring IoT or misunderstanding its potential is high. At OC&C’s IoT Meets Automotive Services event, held with Williams F1 and BT, the scale of live business disruption came into sharp focus. New IoT-enabled services are contributing to a decline in the value of Auto Insurance, which in the UK is forecast to drop by 20%-40% over the next 20 years, according to the Bank of England.
But getting this right presents a significant opportunity for value creation. Spend on IoT Auto services is expected grow from c.$76bn today to $800bn by 2025, according to Machina.
Much of this value will be generated by the current IoT infrastructure build-out. This includes road-side fibre, low-latency 4G/5G wireless networks connecting new generations of cars that are embedded with new sensors, chipsets and platforms and APIs to allow data-capture, processing and sharing.
Telecoms operators, service providers, vendors and investors are all busy trying to capture their share of this critical building block. The flurry of activity continues – Mobile Network Operators (MNOs) adding low-power wide area networks (LPWANs) to mesh with new 5G networks; connectivity management providers aggregating services across borders (maybe with ‘soft’ programmable or embedded SIMs), or moves to secure new end-points. IoT infrastructure is coming, bringing with it opportunities for both network and Over-The-Top (OTT) providers.
The space to create and integrate IoT connectivity, data-capture and application platforms is also contested, with brands from Industrial and Internet heritages jostling for position. Perhaps the need for multi-city, regional and country scale means success will favour those able to invest.
Yet it is the service and application sphere that offers real scope for new businesses and investors to deliver innovative, personalised services that exploit this emerging IoT infrastructure. Some of the most venerable Auto industry brands may live or die navigating the play board.
To build and capture value, businesses - old and new – must devise strategies to play across a complex, fragmented and changing IoT value chain. So how is this done?
More companies are pursuing M&A strategies to build their IoT capability
Many telecoms operators foresaw the IoT opportunity early, while others are catching up. Recognising the need to augment their core connectivity skills, MNOs have employed targeted M&A to access new IoT capabilities in lucrative verticals: Vodafone’s 2014 acquisition of Cobra Telematics was a landmark case of how to align IoT capabilities across hardware, software, and services.
Since then, the number and size of investments has grown: think SoftBanks’s £24bn acquisition of Arm to access chipset expertise, and Cisco’s acquisition of Jasper to gain platform skills. The fate of Telit’s Auto division, reported to be subject to disposal, is another likely chapter to this M&A story.
Looking more widely, industrial IoT players such as Software AG and SAP have also made IoT platform acquisitions (acquiring Cumulocity and PLAT.ONE in 2016 respectively).
Room for organic service development and new propositions
Other players are thinking through how best to leverage their assets and capabilities in an IoT world.
For instance, our event co-hosts, Williams Group, are successfully applying their technology and know-how across IoT. Knowing which sensor data to collect, how many sensors to deploy, how to extend and balance battery performance, and process data are all important to delivering successful new services within Auto and beyond.
IoT-generated data has huge scope to improve the usefulness and efficiency of managing cars within smart cities and infrastructure, and can improve services. The AAs’ Car Genie, for instance, uses data-sets to predict future fleet / vehicle breakdown – increasing first time fixes, lowering patrol costs, and improving customer outcomes for fleets and car owners.
HERE Technologies’ open platform utilises its location data from in-car and other sensors to improve traffic and asset flows. Understanding when and where vehicles move offers potential to create to user propositions, supporting the personalisation of emerging Mobility or Car-as-Services. Likewise, tapping new direct-to-consumer models opens new revenue streams for car OEMs and fleet operators.
With wider IoT and small-cell/wireless infrastructure builds, new products can be innovated further – rather than annual insurance policies, users could benefit from ‘variabilisation’ of motoring costs – paying pence per mile, which varies by time of day, geography/terrain, and other risk factors.
Investment across the value chain is needed to drive development of IoT Auto services
Ensuring survival in the Auto services industry, and any other industry vertical, requires an industry-specific understanding of today’s and tomorrow’s IoT hardware, software and services landscape. Understanding how technologies across the value chains work, and how policy makers and regulations might impact core business, is paramount.
The threat of disruption for established players is significant. But so too are opportunities for new data-enabled and personalised services and revenue, improved customer experience, and lower operating costs. There are also opportunities to see real business value that hits the P&L for companies in this business planning round, and not least for those investors seeking to exit their Auto Services assets. If existing Auto players and investors don’t plan, react and invest, the Internet giants will quickly fill the void.