Issue: Dec 2013

The connected car: who pays and how?

The connected car: who pays and how?

by Matt Hatton

As Machina Research prepares to publish its annual view on the connected car market, it is clear that the issue of who pays for connected car services and how is far from resolved. For aftermarket devices such as connected navigation devices there is a simple set of models for payment based around up-front costs and monthly subscriptions.

However, for applications and services that use the built-in vehicle platforms, such as GM’s OnStar or BMW’s ConnectedDrive, the dynamics are not so clear. The tried-and-tested model for payment for cars is as a one-off payment. However, this will not really fly for ongoing connectivity.

There are a range of different options:

• Up-front – The cost of the connected service is bundled in with the purchase price of the vehicle. This happens in many cases, although typically only for a limited introductory period of one to three years.

• Subscription with the auto OEM – The user pays the automotive OEM for the services and the OEM contracts with the mobile operator for the connectivity, or a wider range of services as is the case with Sprint’s Velocity solution.

• Subscription with the MNO – The user pays the mobile network operator directly for connectivity. This can be achieved through handset tethering, split charging or a separate subscription.

• Per event/application pricing – Users are charged on a per-download basis, e.g. for applications or for using a particular application. Renault, for instance, charges 590 Euro upfront for its R-Link service, and then there are charges for the additional applications, with connectivity pricing built in.

• Advertising-funded (or similar) – New emerging models of pricing may see users paying for per-event services through ad-funding. An example might be a restaurant chain paying for subscribers to locate and navigate to one of its restaurants. The applicability (or otherwise) of these options for paying for Vehicle Platform-based applications will be determined by the type of services that are being used.

Some, such as remote unlocking, are simple additional features and are likely to be bundled as part of a portfolio of services. Other premium low-bandwidth services such as navigation or stolen vehicle recovery are likely to be charged on a monthly fee basis. However, as applications start consuming more bandwidth the issue of how they are paid for becomes more complex.

The main challenge is associated with the ‘rolling hotspot’ model, as launched by the likes of Audi, whereby the car provides a broadband data connection over which multiple devices (e.g. tablets) connect. The issue here is one of risk. Auto OEMs will be wary of bundling this service for fear of ultra-high usage, which would result in a hefty bill from the mobile network operator, and thus a less profitable customer. However, if OEMs pitch the price too high and there will be less user adoption. The only viable solution is for the driver to pay for what they use in the same manner as they would do for a handset or mobile broadband plan.

With regard to high bandwidth services requiring a separate subscription, there are really three options:

• Smartphone tethering, whereby the usage would automatically go to the driver’s bill

• Dedicated car connection, with data usage billed to the user’s phone bill. GM has set out its plans to allow users more flexibility to do just this.

• Allow users to bring in their own SIM card for the car connectivity, which might be billed separately, or to a phone bill.

In Europe both Audi and Volvo permit the user to bring in their own SIM. The main challenge with pricing of these services is that there is very little experience of selling such services to end users. As such it is not yet clear how, and how much, users are prepared to pay.

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