Connected Technologies: Open Up Trillion Dollar Revenue Streams for Automotive Companies

TechnologiesThe future of the automotive industry and cars will be starkly different from today. In ways, we cannot even imagine right now. Without an engine and powered by noiseless electricity, advanced levels of autonomous technologies mean it may not even have a driver. Added to that high-tech connected features would turn a car into a virtual office or a living room. This in turn would throw up billions of gigabytes of data that could be more valuable to a manufacturer than the car itself. Data, after all, is widely recognized as the new oil.

“There is no car manufacturer on the planet today that doesn’t realize the potential of digitalization and connectivity in relation to their products. Those that don’t will disappear very soon,” says Ivo Ivanov, CEO, DE-CIX global. “Companies like Daimler Mercedes Benz, Porsche, or MAN (the truck manufacturer), have already taken the initiative and connected to platforms like DE-CIX like ours, for better infrastructure, internet, and cloud connectivity needs. It is very important for a car manufacturer to control the data journey because without that they will not be able to monetize or utilize it properly. There are four components to it–performance, security, flexibility, and compliance. Without control, they will not be able to manage these four crucial elements which is critical if they want to be a stakeholder in this trillion-dollar business opportunity.”

Ivanov’s DE-CIX is one of the companies that are helping automakers adapt and become more like software firms of the future. DE-CIX’s DirectCLOUD service provides secure high-performance access to more than 50 cloud providers. It is a private direct connection that bypasses the internet (important for markets like India) minimizing downtime and guaranteeing the continuous connection to the chosen cloud service providers. Ivanov stresses the need for zero-latency as a key performance aspect in the future.

“Infrastructure remains fundamental for digital performance. If the latency is too high or the security of the connection is not a given, the best software would not help. This is why I say latency is the new currency, every single millisecond counts. This is valid for the connected and digital cars today and even more in the future,” he says. “Especially in luxury cars, where the customer has paid a substantial amount and the infotainment system doesn’t work properly, and for instance, a team’s call cannot be done because the video or audio doesn’t work properly, he will not think it is a problem with Microsoft. He will think Mercedes, BMW or Ford, have not built that car properly. So it’s about reputation and about differentiation on the market and getting a competitive advantage. The consumer of the future will pay more attention to the digital performance of a car more than the engine performance. Therefore, using interconnection infrastructure directly as automotive companies start to connect to platforms like ours, and get involved in their own setups in data centers around the globe, will be crucial for the end-user experience and the performance of the digital car.”

Automotive majors vs software firms

The opportunity is massive. As the one place, people spend most of their time in a day after their home and office, and as the infotainment screen replaces the smartphone inside the vehicle, the car becomes a major source of data. According to McKinsey, the automotive revenue pool will significantly increase and diversify towards on-demand mobility services and data-driven services creating up to $1.5 trillion—or 30 percent more—in additional revenue potential by 2030. The key would be ownership of data which potentially pits major automobile companies at odds with software firms.

“We’ll definitely see competition to a certain degree, but we’ll also see partnerships. The control wars and I don’t use the word war in a negative sense, will drive innovation,” Ivanov says. “The fight will be over the ownership of the entire ecosystem which consists of the application or software layer and the physical environment in the car where the user drives and sits. Does he sit in a car and use software built by somebody else? That will be a very sensitive area of potential collaboration and/or leadership.”

“We will see examples on the market, where players will create a dominating position by owning both. Like Apple which has the software as well as hardware in phones and tablets where they can be used. We will see similar models coming out of the automotive sector and it is one of the most exciting developments in the future,” he says.

Does that put a global automaker in a collision course with a software major? Or does it make more sense to avoid duplication for the two to join hands and arrive at a consensus on how the data and its usage can be managed and shared?

“There is no one answer to that. We will see good examples of success in both directions. Some car manufacturers will become just a platform for well-established software and application providers. Others will become the next platforms for certifications and for content,” he says. “I’m pretty sure that market leaders in the automotive sector have the capabilities to become software market leaders in their sector for their needs. Some are already doing it and have the economic power to get there. There are different ways to get there–build or buy or a mix of both. The data which can be produced and analyzed by a car is part of a trillion-dollar market, which will be highly valuable to a cross-section of industry segments, from the marketing industry to the government and municipal bodies, insurance firms, and so on.”

Trade your data for a car?
The one major potential stumbling block in this trillion-dollar opportunity from becoming a reality is the fight over data privacy. A strong legislative push back from major markets or a significant chunk of customers not wanting to share their data while inside a car can upset all calculations and put investments at risk.

“It is one of the most important challenges in the development of this sector as it relates to the absolute core of our privacy. The more innovative technology becomes, the higher is the chance to produce data, which is extremely sensitive. If we treat the car as a kind of a second living room, then all of the data which can be collected is very private and sensitive,” he says. “It will be extremely important to set the right level of protection–mandatory and consent driven. If this is not done, I do see a huge problem–a reputation and a security problem.”

The one thing Ivanov wants the world to be wary of is for data to be treated as capital. In such a scenario it becomes so lucrative for manufacturers to acquire data that they would be willing to heavily subsidize the car or in some cases give it away for free if the consumer is willing to share all his/her data.

“We certainly do not want to get into a world where the data will become money in the sense that someone will be forced to open his entire private life just to enjoy better services. So data should not turn to an extreme degree into a currency. I think this would be very dangerous,” he adds. “In simple words. If we think down the path without any restrictions, we will see very soon packages for driving luxury cars for almost free if the driver is ready to entirely allow the usage of data disregarding what type of data this is. So, in other words, to buy the car with his or her privacy. This is a very interesting discussion that we all will see.”

While it is still essentially a global evolving concept, India with its prominent position as a software hub is playing a significant role in this. Ivanov’s DE-CIX for example has operations in the four metropolitan cities where it has set up data center neutral internet exchange points and is looking to rapidly scaling up into other parts of the country.

“There is incredible motivation in the market for catching up to using the benefits of innovation of digitalization. And I have seen a huge growth in infrastructure over a timeframe that is very rapid. In Mumbai, we have the largest interconnection platform in Asia. It is already bigger than Singapore,” he says. “Of course, there are gaps. In some areas, there is a need to act faster. But with more collaboration between operators, more investments on the data center side, on the backbone infrastructure, and last-mile access to digital services in underserved areas, India will become a very powerful market for digital services and innovation. Our own plan is to dramatically increase the number of interconnection ecosystems in the country.”

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