How Big a Revenue Stream Will Connected Cars Generate for Mobile Service Providers?

There’s an obvious reason why the “Internet of Things” and “machine-to-machine” services get so much attention from mobile service providers: once the industry has sold at least one mobile phone connection to just about every person, “line growth” has to shift to other “connectable devices,” especially those performing best with a full-time, dedicated connection.

Tablets, personal hotspots and game players are among the logical candidates for additional connections after the phone.

But vehicles are interesting for any number of reasons. For starters, vehicles always have been important media consumption platforms (radio, satellite radio). But with navigation and vehicle diagnostics assuming higher profiles, there are additional reasons for people to want Internet communications and content in their vehicles: cars are an excellent platform for mobile Internet and apps.

By some estimates, by about 2018 there could be 60 million connected cars globally using connected car services. In a mobile communications business with billions of users, that might not sound like much.

But those connected vehicles might create a new business collectively representing perhaps $51 billion in annual revenue.

Research firm SBD estimates the overall connected car market will be three times larger in 2018 than it was in 2012.

About 61 percent of projected 2018 global revenue will be generated from in-vehicle services, such as traffic information, call center support and web-based entertainment. In other words, apps and services will generate the majority of global revenue.

Hardware will generate about 17 percent of global revenue. Some 11 percent will be earned by providers of telematics services, such as customer relationship management, SBD predicts.

Connectivity will represent about 10 percent of total global connected car revenue of $40 billion to $50 billion.

Vehicle Internet connections alone then might be $4 billion to $5 billion by 2018. And the unknowable question is how much other revenue mobile service providers might be able to generate if they participate as equity owners in the apps and services that actually will generate most of the revenue.

The other angle is that in some instances, the mobile handset will be docked to the vehicle, becoming the access and application processor. That means there is potential indirect revenue to be earned, as well as account stickiness features, if the user finds the mobile handset also powers in-vehicle apps and communications, even when an additional “line” is not sold.

Such tethering is in many ways the faster way to gain market share (either for the vehicle manufacturer or access provider), since many of the details of negotiating operating agreements and adding new vehicle electronics are minimized.

Embedding offers integration advantages, but costs more, and will take time.