McKinsey & Company: Unlocking the full life-cycle value from connected-car data

Car data can help mobility players along the entire value chain—but they need to act now

Connected cars provide a unique customer experience while simultaneously delivering cost and revenue benefits to mobility companies, including OEMs, suppliers, dealers, insurers, fleets, tech players, and beyond. To date, however, most players have overlooked opportunities to monetize data from these vehicles—a significant oversight, considering how companies in other industries are aggressively generating value from data. In fact, seven of the ten most valuable companies in the world already generate billions in profits from data-based services. These businesses include both new attackers and tech companies. Players in traditional industries are increasingly following the same path and transitioning from hardware to software-as-a-service (SaaS) and subscription businesses.

The automotive landscape may now be more amenable to using data from connected cars. To help mobility companies that want to pursue opportunities in this area, we assessed the potential market value of data-based services, investigated promising use cases, and identified levers that they can apply to improve their chances of success.

The potential for monetizing connected-car data

Consumers see tremendous value in connectivity, with McKinsey’s 2020 consumer survey on autonomous driving, connectivity, electrification, and shared mobility (ACES) demonstrating that 37 percent of respondents would switch car brands to achieve improvements in this area. In some countries, the percentage of consumers willing to switch brands for improved connectivity was even higher (56 percent in China, for instance). Similarly, 39 percent of consumers were interested in unlocking additional digital features after purchasing a vehicle—a figure that rises to 47 percent for customers of premium OEMs. Given connectivity’s increasing importance, OEMs that fail to meet the bar risk losing customers.

A few stakeholders have already acknowledged the importance of data and begun to take action. Some insurers have tailored insurance rates to driving styles, for instance, and certain cities use sensory data to identify potholes. A few media agencies have also increased their advertising reach through new touch points inside and outside of vehicles. For these players and others, car data provides valuable insights—often obtained from driver interactions with vehicle systems—that are unavailable from other sources.

Slow progress with connectivity and data monetization

Many OEMs have struggled with connectivity or related software developments, resulting in poor customer reviews and delayed start of production. Only a few get the software-defined car right, and even fewer fully monetize vehicle data. Those companies that do successfully differentiate themselves focus on three important activities:

  • providing end-to-end access to 1 to 2 terabytes of raw data per car each day to enable continuous product and service improvements
  • focusing on monetization throughout the vehicle life cycle through recurring revenues from monthly subscriptions, such as those for premium connectivity services, and paid over-the-air (OTA) upgrades, which may eventually include those related to full-self-driving capabilities
  • bringing services from the idea stage to vehicle integration in up to six weeks using dedicated end-to-end teams—a strategy that has helped some players, especially new OEMs specializing in electric vehicles (EVs), achieve record-high valuations, even though their sales are a fraction of the sales of their much larger peers

Most companies are much less successful than the leaders in profiting from connected cars and monetizing information. Few customers now buy OEM-connected services or sign up for insurance-player-connected offers, such as usage-based insurance. What’s more, OEMs and data marketplaces typically find few B2B customers today who are willing to purchase data, limiting their revenues. Monetization from car data has thus grown more slowly than we anticipated in our 2016 report on this topic, which was published at a time when the industry seemed to hold great promise.

Three factors explain why most companies have been unsuccessful in monetizing data so far:

Failing to generate customer interest and differentiate their services. Customers already receive many connectivity services—seemingly free but often paid for with their data—on their smartphones. OEMs may thus encounter difficulty when attempting to convince customers that car-connectivity services will deliver additional value, especially since they often involve complex onboarding and installation processes. These challenges, combined with poor execution of services and communication issues, now severely limit uptake in the consumer sector. Within the B2B sphere, many customers are also unaware of the potential benefits of car data. Very few actually use it, and some only leverage the limited information available through dongle solutions.

Not resetting the organization. Companies must reshape their organizations and processes to build capabilities that enable effective data monetization throughout the entire vehicle life cycle. To date, however, few players have created dedicated, cross-functional data-monetization units for this purpose. Instead, many functions still work in silos, with few connections between R&D and marketing and sales. OEMs have also struggled with talent acquisition and development, as well as with the creation of agile work processes and tools. In another complication, many companies maintain internal target systems and business cases that still focus on the point of sale, rather than on the entire vehicle life cycle. Their processes oftentimes result in too many variants and limited upgradability of features, hampering any monetization attempts.

Not establishing ecosystems for scaling. For automated charging payments, remote-vehicle monitoring and services, targeted advertising, and other areas, automakers should work with existing infrastructure, service, and data providers to achieve scale quickly and deliver sought-after benefits. Instead, too often they work in isolation to develop—or simply reinvent—hard-to-scale island solutions between an OEM and one other player (for instance, a single gas-station brand). Lacking dependable partners, they have little time to focus on core competencies and differentiators. This pattern is true even for standard elements, which partners could easily provide. OEMs are also less likely to form partnerships in the B2B sphere than their peers in other sectors, making it difficult to serve the huge number of potential customers and obtain full value. This situation is changing, however.

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SOURCE: McKinsey & Company