Connected cars: a business area with a future

Declining brand loyalty and new customer expectations are forcing car manufacturers and suppliers to act. Connected cars are providing the automotive industry with an opportunity to stand out from the competition and to develop long-term relationships with their customers by utilizing new digital services.

According to Gartner, by 2020, one in every five cars will be a connected car. These approximately 250 million vehicles will thus comprise a significant part of the Internet of Things (IoT). Whether it's with interfaces for mobile devices or high-quality infotainment systems, car manufacturers are already integrating more and more software components into their cars in order to better meet changing customer needs. On the one hand, the complexity of the car as a product and the demands being made on security are increasing together with this range of digital services. On the other hand, automotive engineering and digital services are becoming more and more intertwined.

For example, a digital, intelligent anti-theft protection service requires a combination of vehicle, IT back-end and internet components. Because only when all of these components work together optimally can the car independently lock itself in its next parking position and transmit its location to the police once a theft notification has been authorized.

Significant changes to the traditional value-added chain

Digital services like this are in demand in the connected car because the customer’s need for additional added value has become the focus of attention. Connected cars are thus changing the traditional value-added chain of car manufacturers and bringing competitors like Google and Apple into the arena. This development is fueled by customers’ declining brand loyalty. Accordingly, car manufacturers and suppliers need new business models in order to actively help shape this transformation. New sources of income are becoming more and more important, particularly for suppliers, as a range of common vehicle components will probably become obsolete, for example gears in the case of the electric car.

Connected car service licenses as a new business model

Connected cars are providing the automotive industry with an additional opportunity to reach drivers after car sales and to stay in contact with them. In future, new sources of income for car manufacturers could include service licenses. Temporarily rented horsepower could thus increase a motor’s performance – for example during a weekend away in the mountains. Or additional features such as Matrix lights for driving at night could also be purchased for a limited period of time if needed. The technology required for this is installed during car manufacturing and services are then activated by the manufacturer when a license is purchased. Additional sources of income after car sales are thus opening up for car manufacturers and providing drivers with the opportunity to utilize individual services – “functions on demand” – where needed.

Lufthansa Industry Solutions is assisting the automotive industry in the development of software for new digital connected car services and during the preparation of new security concepts, for example end-to-end encryption. In addition to this, in the field of connected car project and requirements management, we are helping car manufacturers to calculate the cost of connected car services and to develop accounting models for operating digital services.