OEMs at the Crossroads Part 3 | Are Cars the New Smartphones?

Written by Jason Craker on 31 Jul, 2023

From an OEM’s perspective, the dominant revenue model in today’s automotive industry focuses almost entirely on a single transaction. Dealers and customers come together, consummate the deal and then… well, not much. Some warranty service revenue, some aftersales (both already being eroded by low-maintenance EVs) but crucially, little or no effort invested in building long-term relationships. We can – must – do better.  

This is the third in a short series of articles exploring what I believe is the biggest challenge currently facing the automotive retail industry – the need to transition from its current short-term transactional model to the holy grail of lasting relationships and multiple value exchanges. I believe those who successfully manage this transition will thrive, whilst those who don’t will risk becoming a footnote. In my opinion, service-driven revenue is a vital building block for this more engaging relationship-focused future.  

To date, OEMs have barely started exploring the potential for new revenue streams unlocked by connected car technology. They’re paddling in the rock pools when there’s an ocean of opportunity out there. Today’s vehicles can provide us with an impressive range of environmental and situational data points including where they are, their mechanical state of health, how they’re being driven, and even the conditions of the road they’re driving on. All this data could support revenue-generating services.

• Location data, for example, could support a service for finding, booking, and paying for either parking or EV charging, or for automatically paying a congestion charge.  
• Data on driver behaviour could feed algorithm-based car insurance offering lower premiums for low-mileage and less aggressive motorists. It could also build trust by making the claims process more efficient and might even reduce carbon emissions by encouraging a more environmentally friendly driving style.
• Consolidated telematics data from suspension and shock absorbers could be sold to local councils as a way of identifying the worst potholes on their most used roads.  

Created through collaborative partnerships, these services could deliver highly personalised services based on individual consumer demands, markets, and government initiatives.

Vehicle functions could become pay-per-use, rather than purchased through a one-off payment, giving customers the flexibility and convenience of only paying for something when they need it rather than buying an expensive feature they rarely use. With today’s engine management systems, we could even increase horsepower for a customer’s caravan-towing holiday or decrease it to ensure their 18-year-old’s time as a provisional driver is uneventful. Another way of providing value could be to monitor which optional extras customers have bought yet rarely use (or have even switched off), then proactively inform them how those features could make their lives easier or safer - lane control springs to mind. OEMs have had the technical capability to do this for at least a decade, but for some reason haven’t gone beyond the occasional proof of concept.

Mercedes and some ISPs are using blockchain technology to turn the car into a wallet. It’s early days but eventually, Mercedes pay+ will allow drivers to pay for fuel and parking digitally and use an online store to access features, such as remote parking assist, on demand – all directly from their car.

Unfortunately, no transformation is risk-free. There’ll be mistakes - and casualties. When BMW offered features like heated front seats as a subscription service, it triggered a vitriolic Twitterstorm. The company responded by saying the new approach was “helpful for owners who changed their mind [about wanting a feature] after purchase” and gave second-hand car buyers “the opportunity to add features the original owner did not choose”. They also pointed out it allowed customers to “experiment with a feature by purchasing a short-term trial before committing to a purchase”. All good arguments but perhaps these benefits should have been better promoted beforehand. All these service opportunities must be driven by consumer demand, even if we need to create that demand (think iPod and iPhone…)

Ultimately, the goal is software-defined vehicles which are highly personalised. With all functions being capable of being switched on and off on demand and updates to functionality being delivered over the air so the latest version is always available (just as happens with the software on your laptop today or the new movies being available to buy on our streaming service). This way OEMs will be able to sell new functionality to anyone who owns one of their cars, not just new car buyers.

Vehicle data, once touted as “the new oil”, is no more a sure-fire route to revenue than anything else, as illustrated by the recent drastic reversal in the fortunes of Wejo and Otonomo, once considered two of the leading connected data monetisation platforms. Founders and investors seem to have OD’d on Kool-Aid, resulting in levels of optimism which didn’t survive contact with market reality. However, I believe the underlying business concept is sound - last year Meta (Facebook as was) turned user data into a $23.1 billion net profit and that wasn’t even a particularly good year in their books. I’d argue Wejo and Otonomo were visionaries who identified numerous use cases and brought viable PoCs to life, the problem was more one of timing.

In November last year, we ran an event for 50 thought leaders from across the mobility sector. Two insights from that day seem particularly relevant here. Firstly, the industry must become less technology-led and focus more on customer needs. As one forum member put it, “Ideas are ten a penny. The hard bit is the commitment to continuous discovery and building insight of user needs, coupled with the ability to rapidly prototype and test.” Secondly, we must “develop services that engage our customers emotionally”. We called this the power of “Wow!”, connecting with customers’ hearts as much as their heads.

Value is in the eye of the beholder, whether you’re selling heated seats to consumers or data sets to councils. Understanding how to tap into your customers’ desires for flexibility, convenience, and safety is key to developing services they’ll find indispensable.

In the past, OEMs have only done things which generate immediate revenue. I believe they must urgently reprioritise and create value exchanges which generate customer loyalty first and then long-term revenue streams. Eventually, the car might become a means to an end - a platform for creating and supporting value exchanges in the same way a smartphone is today. Step one is understanding the customer. Step two is designing services that capture their hearts and their imaginations, and quickly become indispensable. Step three will be to quickly adapt to evolving consumer needs as we further explore and develop these services. 

Catch up with the full series...

Part 1 | Customer Intimacy and the Rise of the Agency Model

Part 2 | Who Wants to Own a Car?

Part 4 | Surfing or drowning?

Part 5 | How to Thrive in the New Normal

Let’s connect 

Stay up-to-date with our OEMs at the Crossroads Series on LinkedIn.