Automotive: The industry seeks its share of the connected car market

**Automakers and equipment suppliers hope to generate significant new revenue streams from the development of connected cars, but they will have to contend with other players—particularly from the tech industry—equally determined to claim their slice of the pie.**

The IAA Frankfurt motor show, which opens its doors this Thursday—initially to industry professionals—provides an opportunity for them to showcase their latest innovations.

The French automotive supplier Valeo is offering a system that allows drivers to unlock and start their cars using a smartphone, effectively replacing the ignition key. This technology could make its market debut within the next few years.

Germany’s Opel and America’s Ford have announced enhancements to their “hands-free” features, allowing drivers to interact with their vehicles using voice commands. For instance, there is no longer a need to manually type a destination into the GPS; you simply need to say it aloud.

Automakers have often partnered with IT companies to develop their in-car infotainment platforms. Through an onboard screen, these systems enable passengers to make phone calls, use navigation services, stream radio, and access various services during their journey, all powered by an integrated SIM card providing 3G network connectivity.

Their goal is to “generate regular revenue” from this offering, explains Samuel Ropert, a consultant for the telecom-specialized institute Idate. However, according to him, it is uncertain whether customers who already pay a monthly subscription for their smartphones are willing to shell out extra money, especially since these systems are not interoperable.

To address this issue, Daimler, General Motors, Honda, Hyundai, PSA Peugeot Citroën, Toyota, and Volkswagen collaborated with smartphone manufacturers (HTC, LG Electronics, Nokia, Panasonic, and Samsung) to develop a common standard, Mirrorlink, to connect smartphones to vehicles.

The German supplier Bosch is also betting on an open system, where the vehicle is connected to the driver’s phone, allowing certain mobile applications to be accessed directly on the dashboard.

Who will oversee the data?

Traditional players in the automotive sector are not, however, the only ones eyeing this emerging market, which could represent 135 million vehicles by 2018, according to a study by Forrester Research. Internet giants such as Google, telecom equipment providers like Cisco, and tech groups like Apple, among others, are also vying for a share of this market.

Apple has just launched its latest operating system, iOS7, which allows an iPhone 5 to connect to a vehicle’s navigation system, enabling users to listen to music, make calls, or access various apps without taking their hands off the wheel.

“It is a sprint,” believes Patrick Pélata, head of the connected car program at the Californian software manufacturer Salesforce, noting that the pace is set to accelerate even further with the arrival of 4G standards.

The outcome of the battle remains uncertain, explains Renault’s former number two, but “within two or three years, the die will be cast,” as the key issue lies in determining who will control the customer data that will enable the billing of new services.

According to Christoph Stürmer, automotive expert at the IHS consulting firm, “the question is who is going to make money from it,” as the exact form this new business model will take remains unclear.

This data can enable an automotive group to better understand vehicle usage patterns and, for instance, offer tailored maintenance services, as well as insurance contracts, music, restaurant or hotel recommendations, and a wide array of other customized, a la carte services.

For manufacturers and equipment suppliers, the key will be “to position themselves effectively in the areas where they possess the greatest expertise,” such as vehicle safety, fleet management, and mobility services, if they want to avoid missing the boat, warns Rémy Cornubert, partner at Oliver Wyman.