Automakers have a choice: Become data companies or become irrelevantMay 23, 2019
While Bezos amassed billions, Apple took over our culture, Google became ubiquitous and software ate the world, the automotive industry needed a bailout. Since then, they have more or less recovered, but they are no longer the undisputed titans of American industry. That title now belongs to companies that traffic in data, and the FAANGs of the world have their digital fingers on the pulse of what moves us.
However, not all hope is lost for the old auto titans. Cars are here to stay, whether they have drivers or not. Automakers can ensure their seat at the table by implementing strategies better suited for the digital age and making data a core part of their future business.
“Big data” is a tired phrase, but the data boom is in full swing. New mobility giants like Lyft and Uber are built on data. Existing data and technology-focused companies, like Samsung (acquiring Harman), Intel (acquiring Mobileye), Google (with Maps and Waymo) and Apple (with Maps and Titan), are building mobility products. This makes perfect sense given the scale of the transportation and mobility sector.
There are 1.2 billion vehicles in operation globally, and people travel more than 23 trillion (that is with a T) miles every year. By 2020, each person on Earth will create an estimated 1.7 MB of data per second. A 2016 report from AAA showed that Americans spend an average of 17,600 minutes driving every year. By those estimates, Americans will be generating 1.8 TB of data every year in their vehicles. Add additional sensors to a vehicle like cameras, radar and lidar, connect these vehicles to the cloud, and suddenly Intel’s claims that autonomous vehicles will produce 4 TB of data in one and a half hours of driving doesn’t look too crazy. McKinsey believes there could be as much as $750 billion of value in vehicle data by 2030. Both numbers are hand-wavy, but the message is clear: there exists a massive opportunity.
Who wants the data?
Not all data is created equal and different data customers are seeking different data points to augment and expand their existing services. Automakers themselves and dealerships want to track vehicles post-production to better understand how customers are using their products. They can use this data to improve their product, push customers to dealerships for maintenance and repair and ultimately retain customers to enhance lifetime value.
Telecommunication companies are seeking to provide in-vehicle Wi-Fi and data services and ultimately scaling 5G networks to connect vehicles to the internet. Repair shops want to have remote access to sensors and systems on the vehicle to diagnose and even predict maintenance and repair events. Urban planners, advertisers and hedge funds want to access location-based analytics to understand how and why we are moving to provide a complete picture of individual preferences.
Insurance companies want access to speed, acceleration and navigation data to provide more accurate premium estimates for individual users and usage-based insurance. Developers want access to vehicle data to build new products and services that we have yet to conceive. The list goes on and on.
Data customers have a more advanced vehicle data strategy than the automakers themselves, and they have partnered with many startups that are trying to collect and aggregate vehicle data. For example, many startups provide a piece of hardware that plugs into the onboard diagnostic (OBD) port of a vehicle in partnership with insurance companies or repair shops. However, the OBD provides only a small subset of the total vehicle data.
Who has it?
Despite these “hacks,” the richest data set for vehicle-specific data is recorded on the CANBUS, and the automakers have the easiest access that data. This puts automakers in the best position to decide who can utilize the data and how.
We’ve already seen that larger automakers like BMW do not want to cede control to large technology companies — so what are the other options? Data management and monetization are not core competencies of the automotive industry. Manufacturers and suppliers currently operate on seven-year product cycles, which give them complete control over a stable value chain at the expense of interaction with end customers and less than state-of-the-art digital capabilities. Privacy and security concerns are looming, particularly for luxury brands with century-long heritages. Key for automakers will be finding a way to gain access to data expertise without giving away their proprietary position in the market.
Smaller automakers may be okay ceding some position to technology companies that could provide ADAS, autonomy and data management solutions (e.g. Aurora, Waymo) as they would likely struggle to build on their own. Ceding this position would relegate those automakers down the automotive hierarchy, but perhaps bring them greater volume in the future. For example, Waymo is developing its technology stack on Chrysler and Jaguar vehicles.
Automakers overwhelmed by this prospect may want to consider an acquisition, as they did for self-driving technology with Argo AI and Cruise. For instance, Ford acquired TransLoc and Autonomic to develop internal capabilities. General Motors took a substantial stake in third-party data platform Wejo. Automakers could also attempt to build these capabilities on their own. Toyota is developing a $1 billion data center.
It is abundantly clear to us at Autotech Ventures that there is a lot of value to be captured from vehicle data. That value will only grow as more and more sensors are added to vehicles. Automakers are in prime position to capture a tremendous share of this value, but will need to move quickly and perhaps reorganize their priorities along the way. We are skeptical that they can do it on their own.
Whether automakers decide to engage tech companies, acquire startups to help them gain expertise or rely on a startup to supply their data management needs, we expect a lot of activity in the space soon.