Key Players and Business Models in Connected

EXECUTIVE SUMMARY Key Players and Business Models in the Connected Car

Lead Analyst: Josh Kern, Analyst

Contributors: Katrina Westerhof, Research Director

Christopher Robinson, Senior Analyst

1 Executive Summary

• The connected car consists of a complex ecosystem of different players working at different levels of the value chain, including cellular connectivity, cloud management, data marketplaces, and data analytics. • These players are testing out many different business models at each level of the value chain, many of which involve a nonmonetary exchange – data for analytics, data access for ads, etc. • With so much diversity in the business models and value propositions possible in the connected car, partnerships and customer relationships need to be analyzed on a case- by-case basis. • Looking ahead, connected car use cases will be increasingly centered around autonomous driving and cater more toward businesses than consumers.

2 The connected car is a large market opportunity

The global market for connectivity technologies inside the car (processors, software, etc.) will grow to $12.7 billion by 2030. Related technologies outside the car, such as cloud computing and connected infrastructure, will bring that number even higher. Y-axis: Summary of trends in patents, papers, funding, & The Lux Tech Signal indicates a large amount of more.

patents, papers, and funding around the topic of the

“Innovation“Innovation Interest” connected car in the past few years, meaning that Interest” commercialization of the technology is happening now.

Those technologies include 5G, vehicle-to-everything (V2X) communication, and autonomous vehicles, all of which are creating more use cases for the connected car.

3 Cloud connectivity is crucial for today’s connected services EXAMPLES Entertainment Training Autonomous Vehicles (AV) Applications like Spotify and Pandora are offered as Companies developing technology for AVs need to native apps in some vehicles or via a driver’s mobile upload datasets from sensors and precision maps. phone, which can mirror on the car’s head unit using Updated maps and machine learning models can applications like Android Auto and Apple CarPlay. then be downloaded by other cars in the fleet.

Diagnostics and Predictive Maintenance Location-Based Services Services that use onboard sensors, diagnostic codes, Applications that make use of GPS and map data to or analysis of vibration, noise, and harshness allow provide suggestions on places to eat and refuel, as users like drivers, OEMs, or service centers to analyze well as real-time traffic updates for navigation. mechanical issues with a vehicle.

Usage-Based Insurance Over-the-Air (OTA) Updates Applications that analyze driver behavior like The process of wirelessly updating the software aggressiveness or distraction based on sensors in a embedded on vehicles. Advanced vehicles can update vehicle or mobile phone. The driver score generated core safety features or advanced driver assistance is a factor in determining insurance premium rates. systems (ADAS) in addition to infotainment features.

4 Tech and telecom companies are finding new ways to get involved in the connected car

PLAYER EXAMPLES ROLE IN THE CONNECTED CAR These companies develop apps for drivers, municipalities, fleets, and Application OEMs for the benefit of convenience, safety, or cost savings. Developers Application developers also include data marketplaces and analytics, which feed into other applications. Cloud services companies handle the vehicle-to-cloud communication Cloud Services by offering services like over-the-air updates. They also can offer APIs for application developers that don’t want to deal with the complexities of vehicle hardware and systems. Mobile network operators provide network access to vehicles with Mobile Network embedded or aftermarket modems. They will enable distributed Operators computing for autonomous vehicles with 5G infrastructure.

5 On the following slides, we examine four levels of the connected car technology stack

We interviewed players in the connected car Connected Car Technology Stack ecosystem to understand how they engage with other types of players in the space. From those conversations, along with secondary research, we Data Analytics categorized four important levels of the connected car ecosystem. Although these levels are not exhaustive, they represent a large amount of the Data Access connected car activity we see today. Cloud Management For each level, one or more potential business models are explored and evaluated through a series of case studies in the full report. In each case study, Cellular Connectivity we look at which players are involved, what the value proposition is, and what the business model is and conclude with a Lux Take on the overall strategy of the company of focus.

6 CELLULAR CONNECTIVITY Network Money Access Example: Tesla Driver Services Money

Value Proposition Like GM, Tesla offers free and paid connectivity plans. The free plan gives drivers basic navigation and OTA updates over Wi-Fi. Its premium connectivity option adds capabilities like music streaming, an internet browser, live traffic updates, and the ability to perform OTA updates over cellular. Business Model Tesla entered a multiyear exclusive agreement with AT&T to connect its current and future vehicles to AT&T’s cellular network. Vehicles purchased before June 30, 2018 get premium connectivity for free, a rare option intended to increase demand as the company brought its first products to market. Newer owners pay $100 per year for premium connectivity.

LUX TAKE Tesla offers most features for free, only charging for the most data-intensive applications. Still, it could innovate its business model further by selling data or advertisements in exchange for giving those features to drivers for free. As a company aggressively pursuing self-driving capabilities, it may find itself needing to give all drivers OTA updates over cellular in situations where it finds a flaw with its self-driving software. 7 CLOUD MANAGEMENT Remote management of software deployed in vehicles along with the data generated by the vehicle

Platform Cloud Access Overview: Services App Cloud Services Money OEM A new type of Tier 1 supplier – cloud services providers – 1 Developers Money Company are helping OEMs by not only storing the massive amount of data generated by modern vehicles, but also helping to Money manage software updates. Many of these companies Platform Cloud specialize in the automotive industry, but top technology Access Services companies like Amazon and Microsoft are also starting to App Cloud Services 2 Money OEM Money offer basic cloud services for automotive. This is still a very Developers Company young use case, but three business models we see are: APIs 1. The cloud services company provides basic data management and software updates. OEM 2. The cloud services company provides the same services as (1), along with APIs that allow app developers to 3 easily create in-vehicle apps. App Cloud Developers Services 3. The OEM develops its own applications and handles its own cloud management (through either acquisitions or in-house development). 8 Connected car services will target players other than drivers

We are increasingly seeing new connected car use cases for players like OEMs, fleets, and insurance companies. Many of Examples of connected car services those have to do with utilizing data and data analytics to improve for improving operations or R&D operations or gain insight into how to improve R&D. While drivers can be a source of revenue for those offering connected car services, the total addressable market of revenue coming directly from drivers can only be so large. Just as smartphone app developers learned to use advertisements to supplement revenue Smartphone analytics to provide from app users, connected car services will also need to insurers with driver behavior scores find revenue streams other than drivers.

Much of future connectivity will revolve around safety and autonomous driving. Because those services will be most Wirelessly collects temperature and valued by governments and insurance companies, we pressure data from deployed tires expect those players to spend more on connected car to improve future products services.

9 Autonomous vehicles will require mobile edge computing

Autonomous vehicles will generate 4 TB of data each day. Most of that data will be pre-processed on the vehicle, but the physical limitations of onboard computers will require much of that data to be offloaded. While Cloud cloud computing suffices today for many connected car applications, tomorrow’s applications will require lower-latency communication due to the large amount of data being exchanged. One solution is mobile edge computing, which utilizes 5G to transfer data at low latency to data processing sites located near the vehicle. Mobile Vehicles within a close range will offload some of the autonomy Edge computation, such as updates of HD maps, to these base stations. 5G V2X Mobile edge computing creates an opportunity for MNOs, IT equipment providers, and developers of V2X roadside units, which may Connected communicate with data processing sites. It will also create an Car opportunity for application developers that run their applications on the mobile edge instead of the cloud or the vehicle.

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