Connected cars: Can telcos & OTTs flourish together?

Connected cars: Can telcos & OTTs flourish together?

The Delta Perspective

Authors: Saahil Malik and Manas Gupta

The connected car1 opportunity

The digital revolution is driving a revenue redistribution across the TMD value chain, with traditional telecom services shrinking in favour of digital services. Within digital services, connected things (e.g. cars, homes, buildings) and media (e.g. infotainment in cars) could represent ~30%2 of the digital pie by 2020. As seen in Figure 1, outside of homes and buildings, connected cars are expected to contribute a significant portion of the connections by 2020 (~22% of all cars globally) – representing a substantial opportunity up for grabs.

Figure 1: The connected car opportunity
 
Source: Goldman Sachs; CrunchBase; Delta Partners analysis
 

The ecosystem of connected car services

While the ecosystem is still relatively nascent, there are already many players trying to establish themselves in the connected car value chain. Examples include telcos (e.g. AT&T, Telefonica), OTTs (e.g. Google, Apple), platform providers (e.g. Jasper, Airbiquity), OEMs (e.g. BMW, Audi), integrators (Accenture, Tech Mahindra) and specific M2M vertical service providers (e.g. OnStar). These players are offering a range of services to both consumers and businesses including in-car and out-of-car services (Figure 2).

Figure 2: Connected car services

Source: Delta Partners analysis
 

Complimentary telco / OTT connected car services

For in-car services, OTTs are attempting to carve out a niche for themselves based on certain demand and supply factors. On the demand side, users show a strong desire for in-car technology including their existing smartphone OS to be in their car as well (Figure 3). On the supply side, OTTs have an existing and large app and developer network3. This network effect will make it challenging for other players (e.g. telcos) to offer the same quality and diversity of infotainment / apps as OTTs. In fact, OTTs are moving fast to capture this infotainment opportunity in connected cars. Apple and Google have already launched their connected car offerings called Android Auto and CarPlay and have tied up with more than 35 OEMs4 to push their products.

Figure 3: Demand side factors for in-car OTT services
 
1On a scale of 1 to 10, score the impact on your car purchase decision with 1 being driven by driving performance and 10 being driven by in-car technology 2On a scale of 1 to 5, how important is it for you to have the same OS in the car as your smart device;
Source: Accenture; Delta Partners analysis
 

However, telcos still have an opportunity in the connected car space to focus on out-of-car services. The key differentiator for telcos is the higher dependence on its core assets for these out-of-car services. For example, by leveraging their core connectivity assets, telcos can competitively offer communication and remote services. Similarly, their secure cloud solutions can enable safe and reliable out-of-car services. Lastly, telcos are uniquely positioned to provide telematics for a variety of industries / applications (e.g. insurance) particularly given their access to customer-to-customer (P2P), customer-to-machine (P2M) and machine-to–machine (M2M) communication insights. Depending on the type of service provided, the revenue / business model would vary. For example, on the consumer side, telcos can charge a monthly subscription fee for a basket of out-of-car services, while on the B2B side, the fee could be either fixed (access fee) or variable5.

In order to capture this opportunity, several telcos such as AT&T, Telefonica, Sprint, Deutsche Telekom and Verizon have already launched their offerings in the market and are well ahead of the curve with several key enablers in place (innovation facilities, OEM partnerships, etc.). However, even though the play of connected cars is global, telcos will need to adjust both the focus areas and go-to-market strategies based on the local market. For instance, developed markets will require more focus on remote monitoring solutions vis-a-vis telematics solutions in emerging markets, where telco analytics could play a more relevant role.

Lastly, in addition to the go-to-market approach, one other key area for consideration would be user data privacy. Data privacy has been a hot topic globally, with OTTs often being at loggerheads with data rights activists, and is an important decision parameter in the user’s mind6. Telcos will need to continue to proactively address this as they have done in the past through established processes to maintain privacy requirements (e.g. clear service agreements, exhaustive T&Cs, opt-in procedures, etc.).


1Connected cars for the scope of this blog refer to personal cars only (not professional / commercial vehicles)
2Delta Partners analysis
3Google’s Play Store has more than 1.7 million apps and ~500k developers. Source: https://www.appannie.com/search/?vertical=apps&market=google-play
5Based on the action or conversion generated from the data / analytics shared with the businesses
637% users believe connected cars do not offer enough privacy standards. Source: http://www.mckinsey.com/insights/manufacturing/whats_driving_the_connected_car

 

Authors' bios

Saahil Malik is a Manager at Delta Partners with focus on Digital, Media, and Telecom commercial areas. Saahil has over 10 years of consulting experience across North America, Middle East and Asia with a functional focus on strategy development, new market entries, new business development, business planning, and due diligence. Prior to joining Delta Partners, he worked as a consultant at L.E.K. Consulting, Duff & Phelps LLC (and its predecessor companies). Saahil has an MBA from Kellogg School of Management and a Bachelors of Arts Degree in Economics Honors from the University of Texas, Austin.

Manas Gupta is an Analyst with the Delta Partners’ Advisory division in Singapore. With topical focus on digital mediation, mobile financial services, digital value proposition definition and commercial strategy turnaround, Manas has project experience in South East Asia and Middle East regions. Prior to Delta Partners, Manas has interned with Morgan Stanley, Google and Accenture. Manas holds a double degree in Computer Engineering and Business Administration from the National University of Singapore.

Video

Customer Experience