How Connected Car Applications Dictate Form Factors and Business Models in the Aftermarket

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By Maite Bezerra | 1Q 2021 | IN-6033

The automotive connected aftermarket can be divided into three major applications with unique hardware requirements and business models. For instance, consumer aftermarket infotainment solutions are often offered in the form of On-Board Diagnostics (OBD) devices that feature 4G LTE cellular connections and Wi-Fi hotspots and rely heavily on Mobile Network Operators’ (MNOs’) brick-and-mortar retailers. On the other hand, Stolen Vehicle Tracking (SVT) applications usually use black boxes with Low-Power Wide-Area Networks (LPWAN) commercialized via direct consumer distribution channels, dealers, or even insurers. The selection of adequate form factors and development of regional strategies that address different markets’ dynamics is paramount for success in the aftermarket.

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Automotive Connected Aftermarket

NEWS


The automotive connected aftermarket can be divided into three major applications with unique hardware requirements and business models. For instance, consumer aftermarket infotainment solutions are often offered in the form of On-Board Diagnostics (OBD) devices that feature 4G LTE cellular connections and Wi-Fi hotspots and rely heavily on Mobile Network Operators’ (MNOs’) brick-and-mortar retailers. On the other hand, Stolen Vehicle Tracking (SVT) applications usually use black boxes with Low-Power Wide-Area Networks (LPWAN) commercialized via direct consumer distribution channels, dealers, or even insurers. The selection of adequate form factors and development of regional strategies that address different markets’ dynamics is paramount for success in the aftermarket.

Hardware Specifications and Business Models

IMPACT


Usage-Based Insurance (UBI): UBI can be deployed through black boxes, cellular and Bluetooth plug-and-play OBD-II, windscreen beacons, 12V connectors, or purely via smartphones. Each device has different operational costs, collects data with varying completeness and value, and has a distinct purpose. OBD devices and smartphone-based policies are extremely popular in the United States as insurers are strongly focused on customer acquisition and invest in data collection hardware with minimal installation efforts to achieve faster adoption. Black boxes are the most used technology in the traditional European markets, especially in Italy and the United Kingdom because of legislation and crash-and-claim services to young drivers. Nevertheless, Austria and Germany prefer 12V adapters due to resistance to installing automotive hardware or prefer to use devices that connect to the vehicle's diagnostics port. Telematics service providers use insurers as the main Business-to-Consumer (B2C) path.

SVT: Vehicle wireless tracking is possibly the most successful aftermarket telematics application. The end consumer can quickly identify value for money, especially in high vehicle-theft areas and in places where vehicles are people's more valuable asset. Most vendors do not consider using OBD devices because of the high tampering risk, especially in emerging markets, as it is too easy to remove the device and to interfere with the system. Therefore, most solutions use black boxes for data collection. To decrease hardware costs, black boxes often feature critically low-cost LPWAN connections for single applications such as vehicle tracking only. Direct B2C is the most used sales channel in emerging markets, and monthly subscriptions are the standard business model. However, the United States has a unique preference for a one-off purchase model, widely sold through dealers. Nevertheless, the dependence on dealerships as sales channels can be problematic as dealers’ salespersons do not have extensive knowledge about telematics and have little motivation to sell STV devices or plans that do not add much to their commission.

Consumer Infotainment Aftermarket: Consumer infotainment hardware is more expensive than the hardware used for UBI and SVT because the hardware features a 3G or 4G LTE cellular connection to provide Wi-Fi hotspots at high speeds; convenience features are the central focus of these offers. These devices offer telematics functionalities, such vehicle diagnosis, geofencing, and roadside assistance. Monthly subscriptions are also higher than their counterparts due to high data consumption, and MNOs are the main B2C path.

Growth Opportunities

RECOMMENDATIONS


SVT solutions have the highest adoption rate among all aftermarket-connected car applications and are perfectly suited for countries with a unique combination of a growing economy and high theft rates, such as Brazil. Thus, to secure revenues in a moment when aftermarket shipments are declining due to the higher availability of embedded systems in wealthier countries, vendors should tap into opportunities in emerging economies where drivers cannot afford a policy but could acquire a theft-only coverage, preferably with a subscription model based on low-cost LPWAN-based black boxes. Meanwhile, partnership with MNOs and content providers can boost competitiveness in traditional markets where drivers value convenience features that resemble embedded systems.

The UBI market has yet to achieve maturity, with insurers struggling to define value propositions that increase customer engagement and loyalty and consequently justify the return on investment. Focusing on customer-attraction-only strategies, such as the U.S.’s rollover model, and neglecting engagement have created skepticism concerning the industry's sustainability and may ultimately jeopardize UBI’s potential for consumer vehicles. Insurers need incentives to transform collected driver data into actionable knowledge that delivers value to the final consumer or increases profit, such as data-driving cross-selling.

Consumer infotainment device shipments are in decline due to the increase in smartphone apps and embedded systems. Thus, differentiation through enhanced convenience features such as voice assistants and hardware consolidation is required. Overall, the merger of entertainment, telematics, and even safety (e.g., informational advanced driver assistance systems) applications in a single hardware with a single subscription would deliver better value propositions.

 

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