This article has been developed by the McKinsey Center for Future Mobility.
Capturing value from vehicle data will require players in the automotive ecosystem to approach the issue strategically and to overcome the three main challenges that 60-plus executives identified in our proprietary survey and industry roundtables.
Car connectivity over the past few years has evolved from theoretical concept to reality. As a market, connectivity may reach $450 billion to $750 billion worldwide by 2030. But doing so will depend on the ability of market players to use the data generated by cars, drivers, and mobility systems to develop products that create revenue, reduce costs, and enhance safety and security. While the potential is significant, monetizing this car data at scale remains a major challenge.
To take stock of complex developments in this arena, we conducted a year-long research effort that involved both end users and industry insiders from around the world. In addition to surveying 3,000 customers in China, Germany, and the United States, we convened roundtables and interviewed more than 60 automotive-industry leaders to explore the sector’s attitudes on car data monetization in general and the status of different players’ programs in particular. Our new report, From buzz to bucks—automotive players on the highway to car data monetization, summarizes this research. The rest of this article, based on the report, presents a few of our key findings.
Opportunities and challenges in monetizing car data
Several factors contribute to the growing amounts of available car data. An increasing number of sensors—present in vehicles and integrated into mobility infrastructure—allow the capture of information on nearly every way a driver uses a car, how that car functions (or malfunctions), and everywhere it goes. Organizations that leverage this connected technology to develop new, in-vehicle experiences for drivers and passengers could create a significant competitive advantage. This market comprises more than 30 car data-enabled use cases, focusing on providing customers new features and services ranging from connected infotainment to remote vehicle diagnostics, from emergency breakdown automated calling to tailored advertising in the car. For industry players, three value creation models underlie these use cases: revenue generation, cost reduction, and enhancement of safety and security.
While the economic potential is clear, players in the car data space—OEMs, suppliers, technology and infrastructure players, service providers, and dealers—have yet to capture fully the value (in revenue, safety, and savings) of this data onslaught. Our research highlighted how industry executive identify three specific challenges that cause the “car data monetization gap”—the space between car data’s value potential and the revenue or savings that mobility players actually generate from it (exhibit).
- Communicating the value proposition. No matter which features car data can make possible, capturing value from them is not feasible if consumers do not see the benefit. Of the executives surveyed, 84 percent reported this as being a highly relevant challenge for car data monetization, but only 50 percent believed their organizations were prepared to address it. Executives mentioned explicitly that their current “connected service” strategy is often not defined starting from a clear vision of the end-state customer needs they want to fulfill, but rather that it evolves incrementally on the basis of hardware and software evolution. In addition to understanding how these features might make their lives easier, customers must trust that the data they share will be held and used responsibly. They must also be convinced that the exchange—whether via advertising or a direct fee—is worthwhile relative to the feature’s value.
- Redefining the organization model. A total of 77 percent of the executives surveyed agreed that managing a diverse set and vast amount of data in ways that lead to the development of new connected services will require companies to take a different organizational approach. We mapped five “organizational archetypes” around connected services, each with pros and cons, and the surveyed executives showed largely diverging perspectives on the preferred future model. The fact that 69 percent of the executives surveyed felt that their companies would need to evolve to a different organizational model in the long term, while still not having a clear view of what the ideal structure could be, underscores the difficulty of this challenge. What executives clearly agreed upon is that their companies will need to embark on a challenging transformation that moves them away from rigid, “siloed” operations. Specifically, companies will need to become agile to adapt continuously to a quickly evolving market. They will also need to commit to a higher degree of cross-functional collaboration to bring the benefits of digital transformation to the entire organization.
- Establishing partnerships. The development of car data-enabled features requires skills and resources that stretch beyond any single player. To span this gap, collaboration will be key. Survey results show that players report a widely varying degree of readiness for establishing partnerships (ranging from 43 to 85 percent), which does not create an atmosphere conducive to collaboration. Interestingly, executives overwhelmingly identified OEMs and large organizations as the hardest players to partner with, instead of start-ups or tech players. Nonetheless, those in the car data monetization space will have to develop digital ecosystems along the value chain, the shape of which will vary by whether they aspire to expand their reach across technologies or across business models.
How different players can capture value from vehicle data
While the hurdles are applicable to the industry as a whole, they vary for different types of players. Consequently, all companies might target value creation through car data monetization, but the exact path they take depends on where they sit in the value chain. Some player-specific challenges are:
- OEMs. A hurdle for OEMs is the need to move from product-forward to market-back development; 58 percent of the OEM executives surveyed indicated that they did not have a clear understanding of the benefits customers were looking for, which underscores the need to first define a vision for the connected customer experience and only then develop the hardware and back-end solution to fulfill that vision.
- Suppliers. Suppliers need to balance the benefits and tensions of partnerships with OEMs by defining a mutually beneficial value proposition to get access to vehicle data and build new capabilities, which 92 percent of the supplier executives surveyed identified as prerequisites for success.
- Technology and infrastructure players. Key challenges for these players include resolving their lack of readiness to form partnerships, as reported by 42 percent of the executives surveyed. It will also be critical to address OEMs’ fear of the “tech unknown,” closely working to allay concerns that technology and infrastructure companies’ unfamiliar business models and their ability to access customers directly through other digital touchpoints could undercut OEMs.
- Service providers. For service providers, it is important to highlight brand visibility and relevance in the car, redesign services and experiences to fit connected-car interfaces best, and overcome the challenge of communicating benefits to the consumer, which 90 percent of service-provider respondents flagged as being highly relevant.
- Dealers. These players need to focus on communicating connectivity’s consumer benefits in an engaging way while opening a direct dialogue with OEMs on their future role as customers’ contact points in the connected cars era, redefining the customer journey and future customer contact policies.
Companies in the car data space should take an objective look at where they stand today with respect to the benefit communications, organizational considerations, and partnership challenges that lie ahead. After assessing their starting points, it will be important to quantify the value at stake and devote adequate management capacity and resources to go from buzz to bucks on the highway to data monetization.
Download From buzz to bucks—automotive players on the highway to car data monetization, the full report on which this article is based.
Michele Bertoncello is a partner in McKinsey’s Milan office, Gianluca Camplone is a senior partner in the Chicago office, Asad Husain is an associate partner in the Toronto office, and Timo Möller is a senior expert in the Cologne office. The authors are members of the McKinsey Center for Future Mobility.
The authors wish to thank Salil Aggarwal, Saral Chauhan, Gourav Ganguly, Neeraj Huddar, and Tobias Schneiderbauer for their contributions to this article