Manufacturers shouldn’t ignore the revenue opportunities offered by subscription services that use cloud communications and the Internet of Things (IoT). From on-board telematics in cars to subscriptions for on-demand mobility services, companies whose sole mission was once to produce hard goods are seeing new possibilities in aftermarket products.
IoT opens the door to new revenue streams
Business school cases are filled with examples of organizations so stuck in their own world that they didn’t notice the out-of-the-box competitor creeping up on them until it was too late. In the U.S., E.U. and China, the market for shared on-demand vehicles, or Mobility as a Service (MaaS), will be worth $1.4 trillion by 2030 because of companies like Uber and Lyft, up from $87 billion in 2017. These services, as well as autonomous cars, are quietly cutting into car sales.
PwC predicts that automakers’ profit from car sales, supplier businesses and aftermarket products will drop to 41 percent from 71 percent by that same year. “Therefore, OEMs must be ambidextrous,” PwC stresses. “On the one hand, today’s players will still be highly-efficient designers and producers of cars, and on the other, they must become flexible, agile digital services providers.”
Increasingly, consumers want the same conveniences from their cars that they get from their smartphones. By leveraging communications-enabled IoT, mobile networks and satellite connectivity, car manufacturers today can use embedded telematics (devices that communicate information directly from the vehicle), tethered devices (external modems or handsets) and software that integrates with smartphones (e.g., Apple Car Play).
According to Berg Insight, the number of telematics subscribers using embedded systems will grow at a compound annual growth rate of 39.9 percent, to 153.4 million, by 2020. It also forecasts that the number of active subscribers using at least one additional premium telematics service will grow to about 110 million worldwide by the end of that year.
Most of us are familiar with subscription as a service (SaaS), even if we don’t recognize the acronym. Software and content can reside in the cloud and be accessed as desired. For example, Sirius, the radio subscription service available to many car owners, provides an extensive library of content for an annual fee.
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Many automakers now offer SaaS products using cellular technology to connect the vehicle – via embedded telematic devices – to a wide range of options. Examples of this are roadside assistance, navigation and infotainment, stolen vehicle tracking and automatic software updates. OnStar, a subscription service offered by General Motors since 1996, connects motorists to a human operator who can assist in both emergency and non-emergency situations. The E.U. now requires all new cars to be equipped with a similar system, eCall, that communicates location and other information to a call center if the car is involved in an accident.
But many more opportunities exist. Auto manufacturers are just beginning to sell telematics data to third-party service providers who, for example, could offer in-vehicle commerce platforms. Other SaaS products could include electronic toll collection, usage-based insurance and leasing and rental fleet management.
While many of these services are now the purvey of aftermarket providers, the auto industry could grab more of the market share. The challenge is whether they can act quickly. Product cycles in SaaS are faster, which puts more pressure on IT and requires new technology involving cloud communications and IoT.
IoT sparks innovation in manufacturing
Manufacturers in other sectors already use the SaaS model to provide parts, repair, maintenance, digital and advisory services for the equipment they make. For example, a building automation system and equipment manufacturer created an energy-benchmarking platform. Now, in addition to producing the equipment, the company offers energy management services using smart meters and its customers’ energy consumption information. Its services include equipment performance assessments, quarterly and on-demand performance insights and advice on future energy consumption based on industry benchmarks.
Another example: Sanmina, a contract manufacturer of electronic parts, developed proprietary software to run its own production operations. It worked so well that the company decided to sell the platform as SaaS to other manufacturers, a great example of expanding intellectual property from the manufacturing side to create new revenue.
Manufacturers have exciting opportunities for new aftermarket business thanks to the cloud and mobile communications. Creative use of communications-enabled IoT and the SaaS model will enable them to expand their offerings, even while market share shrinks for hard goods.