Connected cars: Life in the smart lane
White Papers | October, 2016
For this whitepaper, we interviewed some of the leading voices in the connected car industry to uncover some of the trends influencing the market, and what it might mean for the future of any business seeking to capitalize on this radical change in how we live and move. We examine how these changes are fundamentally altering the talent landscape in the industry, heralding the arrival of a new breed of executives to fill an evolving talent gap in the mobility sector; created by the convergence of the traditional automotive sector and a myriad of outside influences.
The way we connect with the world around us is dramatically changing. The proliferation of mobile devices and connectivity has reached unprecedented levels which has led to a wholesale change in digitally connected human behavior. If the last ten years were the decade of digital, the next ten will be defined by integrated user experiences led by reach, interactivity and connectivity.
The mobility industry is ushering in a new era of partnerships, one where brands and organizations that previously had little do with one another are now forging new relationships and building new technology as a result. This is a whole new breed of co-operation, one driven by the need to operate in a newly connected world, and to serve a new kind of connected consumer. Manufacturers and OEMs who were previously termed “Automotive” companies are now racing to become the world’s leading technology companies, fueled by data rather than petrol or gas.
The potential of the connected car to be at the center of data collection and analysis represents a unique opportunity to be able to harvest, analyze and communicate human and mechanical behaviors across multiple industries, revolutionizing the way consumers are marketed and sold to. But is this all?
For traditional automotive companies it’s a brave new world, but one that is moving at such speed that to ignore the need to take risks and innovate is to ignore the far greater risk of being left behind.
So how will traditional OEMs and upcoming innovators capture the interest and loyalty of younger, connected generations? What kinds of partnerships will be the key to success? How will revenue models shift in an increasingly shared economy?
The questions are many and the answers are still in development but with the number of young people applying for driving licenses declining annually (in the U.S. and spreading globally) the changing trend is undeniable. This paper is the first in a series of articles in which we will be exploring the constantly evolving developments of the connected car. We welcome your thoughts on the debate.
CAN A CAR EVER TRULY BE SAFE?
If you build it, they will hack it. So goes the thinking in security circles long used to playing a cat-and-mouse game with a fleet-footed criminal fraternity that has found a new and very natural home in our digitized world. Connected cars, being always connected and “always-on”, represent a very real security risk to both users and the wider network of partners and devices that they increasingly host. If unauthorized access can be gained to a vehicle, the dangers to the wider network – not to mention human safety – are vast.
Hackers have already demonstrated how they could hack a Jeep Cherokee and remotely kill the engine, while researchers have shown how easy it is to crack the Wi-Fi in a Mitsubishi Outlander. So what is the answer? According to Monique Argus, Marketing Director, Argus Cyber Security, it lies in not using off-the-shelf solutions. “Ultimately, connectivity will bring a heightened risk of cyber-attacks. You need to build cyber security solutions for the mobility industry from the ground up. We’re already working with the largest OEMs to embed cyber security into every stage of production by providing them with both technologies and services.”
Rafay Khan, Chief Revenue Officer, Inrix agrees:
"SECURITY IS AN ISSUE THAT THE CONNECTED CAR INDUSTRY IS DEALING WITH - FOR INSTANCE, WE’RE TALKING TO OUR AUTOMAKER CUSTOMERS ON AN ALMOST DAILY BASIS ABOUT WAYS IN WHICH TO CONTINUE TO BUILD SECURITY INTO THE ECOSYSTEM. ON THE ONE HAND WE WANT TO GET AS MUCH ANONYMIZED DATA OUT OF THE VEHICLE AS POSSIBLE, AND THEN USE THAT COMPLEX DATA TO HELP THE CAR PREDICT WHAT MIGHT HAPPEN NEXT. FOR EXAMPLE, WE CAN COMBINE HYDRAULIC BRAKE DATA WITH WINDSCREEN WIPER INFORMATION TO DETERMINE ICY ROAD CONDITIONS AND USE THIS TO WARN DRIVERS. THIS IS A HUGE SAFETY BENEFIT, BUT WE ARE ALSO COGNISANT THAT WE NEED TO KEEP THAT DATA SECURE."
WHO OWNS WHAT?
The security of connected vehicles is inexorably linked to user privacy, and at the centre of that lies data. Connected cars, and the network they are part of, are generating enormous amounts of data that has to be collected and stored securely. Some estimates suggest just one vehicle will upload 25 gigabytes of data to the cloud every hour. But in such a complex web of players, identifying who should have access to what is quickly becoming the industry’s biggest headache. “Probably the biggest challenge facing OEMs at the moment is consent – how do we manage consumer rights and security in such a vast, complicated smart grid of players?” agrees Gene Claxton, Director of Automotive Sales, IoT platforms and solutions, Ericsson. “Who has access to what? What is the data being used for? Is there a record stored of all the data generated, and if so who controls it?
Who oversees the flow of data, and provides the balanced governance structure to the overseers? These are the questions the industry is trying to work through right now.” As knowledge about data ownership and concerns around privacy increase, consumers are already becoming savvier about how their information is collected and used. But their opinions are sometimes already at odds with that of OEMs and partner networks. For example, a survey by the International Federation of Car Clubs recently found that the overwhelming majority (90%) of drivers felt that data is owned by the car owner or user, not the manufacturer. Three-quarters believed that data should be accessed for only a limited time, or even on a per-ride basis.
Clearly, there is much more ground to be covered before widely accepted standards are in place, but once they are it opens the door to an exciting future, as Edouard Zuber, Chief Digital Officer, AXA China Region, explains. “There is so much data sharing happening already, it’s a very exciting space in the mobility industry. A lot of our current discussions centre around connected health, for example, and how that links us with the data you generate and safely share with your insurer from your vehicle, home, workplace etc. In five years, I think we’ll see the emergence of a new normal, one centred around a marketplace where the end user is in control of his data, and is monetizing it on their own terms.”
THE AGONY OF CHOICE
Security and data may be two of the biggest areas of discussion in the industry currently, but both are underpinned by a global uncertainty of how to be managed going forward. Historically, the mobility industry has been one of the safest and most regulated areas of manufacturing. But it has also benefited from steady progress, as opposed to the spectacular advances and innovation typically seen in the modern tech world. Yet as we stand on the brink of a very near future filled with electric, autonomous vehicles, OEMs are beginning to innovate faster than regulation can keep up, as Monique Argus explains, “Regulators, insurance companies and all the various partners and stakeholders have a lot of things to grapple with at the moment. First of all they have to imagine and model every single scenario that could happen. Then they have to formulate the regulations and guidelines that will help prevent incidents, and also establish what happens when there is an incident. It’s incredibly complex, but also very interesting and extremely progressive.”
Part of the barriers are the differing regulations and standards in each market around the world. As the pace of innovation increases, it’s likely that the industry will see nuanced standards emerging as bodies, governments and OEMs all compete to establish the leading standard. But while this will ultimately benefit the industry, it is also an enormous drain on resources as Jim Pisz, previously Executive for North American Planning, Toyota explains. “Imagine having to create different systems to satisfy different standards in every country you operate in. For an OEM that is an enormous drain on resources. I think the industry will naturally start to self-regulate and find the path of least resistance. For example, there’s an enormous car-tocar communications pilot taking place in Ann Arbor currently with several major manufacturers using 2,000 vehicles, and they’ve decided to all use the same in-car technology. So self-regulation will come naturally I think.” Bob Kruse, Chief Technology Officer, Qoros Auto, disagrees, pointing to the lack of international cooperation between the world’s largest markets as the main hindrance to achieving consensus on connected car standards.
"AS THE LARGEST MARKET, CHINA IS DRIVING A LOT OF THE REGULATORY DEVELOPMENT AT THE MOMENT. THE PROBLEM IS THAT IT HAS A VERY CLEAR IDEA ABOUT HOW IT WANTS THIS TO PLAY OUT, AS DOES EUROPE, AND AS DOES THE US. EVERYONE HAS DIFFERENT INFRASTRUCTURE, DIFFERENT CITIES, DIFFERENT CHALLENGES AND DIFFERENT GOALS. SO UNFORTUNATELY I DON’T THINK YOU’RE GOING TO SEE A UNIFIED GLOBAL STANDARD ANYTIME SOON. MAYBE IN 15 YEARS, BUT NOT TOMORROW." - BOB KRUSE, CHIEF TECHNOLOGY OFFICER, QOROS AUTO
WE NEED TO TALK
While much of the current discussion is focused on defining how the connected car itself will operate and be secured, its role at the centre of connected cities should not be overlooked. “The connected car isn’t only about hardware, software, upselling, or data. It’s about the movement of people and things around smart cities and solving urban mobility challenges,” according to Rafay Khan, Chief Revenue Officer, Inrix. How connected vehicles communicate with the infrastructure around them (V2I), and with each other (V2V) is still being designed. Indeed, smart cities themselves are still an emerging trend as governments experiment with the installation of technology in everything from traffic lights to buildings. Barcelona is often held up as the best example of the modern smart city, with sensors in trash cans alerting municipal services when they need to be emptied and hard-drives in lamp posts measuring noise, traffic, and pollution. For the connected car to be a true success, it will need to seamlessly integrate with each and every one of these networks and systems.
Monique Argus agrees, pointing out that the connected car will be “part of a much wider and more complex Internet of Things.” But if this is the case, if the future is one built on a vast network of nodes, connections, and networks, a new generation of security will need to be developed to secure this urban web. “At this stage, part of our multi-layered approach is securing the communications between the car and your cloud, the OEM’s applications and clouds. In future, however, anything that talks to the car will need to be secured, whether that is another vehicle, a traffic light, or building. As the technology develops, we’ll also need to develop even stronger layers of security.” For Rafay Khan, though, a smart world isn’t about putting more Wi-Fi routers on the streets, or more sensors in the buildings. “It’s about what knowledge can be created, interpreted and used in these connected environments. Smart cities ultimately need to be liveable, they need to be lean and free of unnecessary technological clutter, and they need to be learning – all the time.”
"THERE IS GOING TO BE A TSUNAMI OF ANONYMIZED DATA COMING FROM SMART VEHICLES AND INTO THE INFRASTRUCTURE CLOUD FOR SERVICES THAT WILL BENEFIT DRIVERS AND CITIES AS A WHOLE," SAYS RAFAY KHAN."BUT WHAT IS THE MOST VALUABLE DATA? I THINK THE VALUE IN THIS INTERACTION WILL BE ABOUT TELLING THE VEHICLE WHERE THE INFRASTRUCTURE IS AND HELPING THE CAR UNDERSTAND HOW TO DEAL WITH EACH BUILDING, RAILING, LAMP POST, KERB AND SO ON. PROXIMITY IS PROBABLY THE MOST IMPORTANT PIECE OF THE AUTONOMOUS STORY, AND EVERYONE TAKES IT FOR GRANTED."
A NEW BREED OF TALENT
If the connected car industry is one currently shaped as much by the unknowns than the knowns, then the architects of its future will be pivotal. Partnerships and cooperation will form the backbone of this emerging space, helping drive new innovations in everything from security to smart urban environments. Part of this will require organizations to seek out new peers in industries that they may not have previous experience in. Security firms may start to build relationships with ad agencies. Big data providers may link up with sensor manufacturers. And at the centre of it are OEMs themselves, who will need to navigate this new world with a host of new connections. If the connected car is bringing together industries and creating new relationships, it stands to reason that it will need people to guide that process, often from outside of their traditional catchment area. We’re going to see a rise in the number of new positions such as “Director of Partnerships & Innovation”, bringing industry experts from diverse backgrounds into non-traditional industries to drive new partnerships with everyone from retailers to insurance providers. And this is already happening in key markets.
“Korea is known as a hotbed of innovation, and in particular for companies like LG and Samsung which have traditionally built phones and semiconductors,” says Philippe Tirault, Managing Partner, Korea, at DHR International. “But both are now building divisions dedicated to car related technology. They’ve each made enormous investment in this area as they are convinced that connectivity is the future as far as the car is concerned. Both organizations are actively recruiting local and foreign talents into new teams to design new products specifically for the car industry.”
"THE FUTURE IS ONE NOT ONLY DOMINATED BY CAR MANUFACTURERS, BUT ALSO BY SUPPLIERS WHO ARE INNOVATING, RESEARCHING, AND DESIGNING THE FUTURE. WE WILL SEE COMPANIES WITH NOTHING TO DO WITH AUTOMOTIVE MOVING INTO THE CAR SPACE TO WORK WITH OEMS IN A VAST NEW ARENA. CAR MANUFACTURERS ARE GOING TO HAVE TO GET USED TO DEALING WITH NEWCOMERS WHO DON’T PLAY BY THE USUAL CAR RULES. IT’S A BRAVE, EXCITING NEW FUTURE FOR EVERYONE INVOLVED." - PHILIPPE TIRAULT, MANAGING PARTNER, KOREA, AT DHR INTERNATIONAL.
TWO BLIND SPOTS
AUTONOMY GOES IT ALONE
If connectivity in vehicles is the father a mass-market future, autonomy is the disruptive child prodigy threatening to overshadow the whole show. That connected cars will be a dominant force on the road is now inevitable. But quite how the future treats a society where our transportation needs are controlled by AI is yet to become clear. Elon Musk, CEO of Tesla and the biggest proponent of an autonomous future, recently said that all future Tesla vehicles would have “the hardware necessary to be fully self-driving with fail-operational capability, meaning that any given system in the car could break and your car will still drive itself safely.”
But this already begins to the blur the lines between passenger and driver. If the AI is driving the car, who is at fault in an accident? “While autonomy is undeniably a huge and welcome advancement for the car industry, it also presents a wealth of moral and ethical dilemmas,” agrees Jim Pisz. “For example, if someone is driving along and has to make a split second decision to either drive off a cliff, or swerve and hit a child, what would they do? It’s an incredibly complex problem. And someone somewhere is going to have to program an algorithm to make that decision. Does that make them guilty of premeditated murder? Sensors can be developed, lasers invented, and complex software written. But there will always be situations that defy logic.” For insurers, the problem is even more complex. Do you still insure the driver in a future where they are no more than a passenger, or do you insure the car?
As Edouard Zuber puts it:
"AUTONOMOUS VEHICLES ALSO PRESENT A NEW ALMOST PHILOSOPHICAL DILEMMA FOR INSURERS – WHO DO WE INSURE? IS IT THE VEHICLE, THE DRIVER OR THE MANUFACTURER? DRIVERS WILL ESSENTIALLY BECOME PASSENGERS, SO HOW ARE THEY LIABLE? IS GOOGLE, WHO CREATED THE SELF-DRIVING ALGORITHM ULTIMATELY AT FAULT, OR IS IT FORD WHO MADE THE VEHICLES? IT’S A VERY COMPLEX SPACE, AND ONE THAT THE ENTIRE INDUSTRY IS FOCUSED ON RIGHT NOW."
THE NEW SHARING ECONOMY
With autonomy comes the prospect of shared vehicle ownership. If cars can, for all intents and purposes, look after themselves, the entire notion of ownership needs to be redefined. Imagine this scenario, as proposed by Jim Pisz:
"I SEE A SITUATION IN THE NEAR FUTURE WHEN AN INDIVIDUAL GETS UP IN THE MORNING AND ASKS A CAR TO TAKE THEM TO WORK. DURING THAT COMMUTE THEY ARE WRITING EMAILS AND WATCHING THE NEWS. THE CAR DROPS THEM OFF AT WORK, AND THEN LEAVES TO RECHARGE ITSELF ON THE GRID, BEFORE HEADING OUT TO BE USED BY ANOTHER MEMBER OF THE FAMILY, A COLLEAGUE, OR EVEN A PAYING STRANGER. IT THEN RETURNS READY AND FUELLED TO PICK THE INDIVIDUAL UP AGAIN AT THE END OF THE DAY AND TAKE THEM HOME."
In this future, ownership in the classic sense is deconstructed to the extent that each vehicle could have multiple owners. Alternatively, in Elon Musk’s future, Tesla owners will be able to send their vehicles to the “shared fleet” at the tap of a button when they aren’t using it, “generating income for you while you’re at work or on vacation, significantly offsetting and at times potentially exceeding the monthly loan or lease cost.” This kind of flexible model will disrupt some of the most fundamental aspects of the car industry, not least finance and insurance. There’s already a significant rise in alternative insurance policies like pay-as-you-drive and pay-how-you-drive, and it isn’t a stretch to see a time when two-year premiums are a thing of the past.
But perhaps the biggest disruption of shared ownership is to our society – and spaces – themselves. It is the nexus of the share economy, one driven today by the likes of AirBnB and TaskRabbit, but likely to be enabled tomorrow by Tesla and other OEMs. According to Gene Claxton, this could be world-changing.
"I DON’T THINK WE SHOULD UNDERESTIMATE THE IMPACT THAT A FUTURE WITH AUTONOMOUS VEHICLES WILL HAVE ON US, OUR CITIES, AND OUR SOCIETY AS A WHOLE. THIS IS SO MUCH MORE THAN JUST SELF-DRIVING CARS; THIS IS UNLOCKING UNTAPPED POTENTIAL AND RESOURCE IN PEOPLE. THIS WILL BE FUNDAMENTAL TO PROGRESSING SOCIETY TO THE NEXT STAGE. IT WILL HERALD A NEW GENERATION OF DEVELOPMENTS, DISCOVERIES, AND BREAKTHROUGHS. AND AT THE CENTRE OF IT ALL – PEOPLE. WE’RE ON THE BRINK OF MOVING FROM A PRODUCT-ORIENTATED WORLD TO A PEOPLE-CENTRIC FUTURE."
SHIFTING GEARS IN CHINA
As the world’s second largest economy, China is a vital player in the connected car movement. More than 25 million vehicles will be sold in 2016 to a burgeoning population of middle class consumers with more disposable income than ever before. And despite its historical reputation for ignoring environmental strategies in favour of rapid development, the country has emerged as something of a poster child for progressive policies. The government has committed to reducing greenhouse gas emissions by 65% from 2005 levels, and is seeking to increase use of fossil fuels by 20% by 2030. Such is the progress, in fact, that one recent study from the London School of Economics suggested that carbon dioxide levels are likely to peak in 2025 at the latest – and may well have already done so.
One of the by-products of this scheme is a dramatic refocusing of the automobile industry. The Chinese government are providing a host of financial breaks and support to boost the electric car industry domestically. The result, according to some reports, is more than 200 Chinese companies building 4,000 new electric car models. Most recently, Fisker Automotive – once the electric car darling of Silicon Valley – re-emerged as Karma Automotive under new Chinese owners, and announced plans to open a new electric car factory in Hangzhou. Alternative mobility solutions like electric cars are likely to be a major growth area for the industry in China, and look set to introduce a wealth of new opportunities for partnerships and cooperation, both domestic and globally. As automotive consultant Bill Russo commented in a recent interview with Forbes, new players will inevitably join this emerging landscape of competition. “Alliances are being formed among new and traditional players seeking to access complementary strengths and seize a competitive advantage. The battle will likely be won by those who understand the true potential of connected mobility services and thereby deliver value to the user in the most personalized, convenient, comfortable, and cost-effective manner. It is a battle where profits will be won by offering differentiated mobility-related services through a hardware platform that is most suited to the lifestyle of its end user.”
SUCCESS WILL ACCRUE TO THOSE COMPANIES THAT ARE BEST ABLE TO REIMAGINE MOBILITY IN THE CONTEXT OF A PLACE LIKE CHINA: WHERE MOBILITY NEEDS ARE UNIQUELY CHALLENGING, WHERE INNOVATIVE MOBILITY EXPERIMENTS ARE BEING DRIVEN BY ENTREPRENEURIAL ACTIVITY, AND WHERE DREAMS OF EXPONENTIAL BUSINESS GROWTH BECOME REALITY.
ANTICIPATING OTHER TRAFFIC
The connected car industry is in its infancy by automotive standards, but is already heralding a revolution that will extend far beyond the traditional OEMs. But are industries outside of car manufacturing seriously overlooking connectivity as part of their growth strategy in Asia? The host of supplementary opportunities that connectivity offers organizations a rare chance to diversify their business. Some estimates put the value of the connected car industry at some $300 million within the next five years, almost six times what it was in 2015. From infotainment and intelligent navigation to whole suits of apps, diagnostics and monitoring, there is a new digital ecosystem evolving designed to serve consumers.
For organizations, this brings a brand new dimension to business. New innovation developments call for a renovation of skillsets in order to fully embrace new opportunities and future-proof growth. Cooperation and collaboration will define this new world, with organizations establishing a whole new kind of industry, one that thrives as much on partnerships as it does competition. And at the centre of this revolution will be a new breed of talent, one that understands the complex nuances of building lasting relationships across different industries, and ultimately driving success domestically and abroad.
Within Automotive we have seen the evolution of the car from a luxurious product (for some this is still the case) to a product of transportation, from the ‘Taxi’ to the ‘Uber’. We are at a crossroads with digital advancement, creating new industries and eco-systems, where existing automotive companies are investing at unprecedented levels in Silicon Valley and who are ultimately becoming the technology leaders of tomorrow.
"DEFINING THE KEY COMPETENCIES OF AN EXECUTIVE IS MORE IMPORTANT THAN WHAT INDUSTRY THEY MAY COME FROM, WHO REMEMBERS WHEN BILL FORD ASKED ALAN MULLALI TO BECOME THE NEW CEO OF FORD?" - FRANK SMEEKES, MANAGING PARTNER & GLOBAL AUTOMOTIVE EXPERT, DHR INTERNATIONAL