Terminal Mode, ATX App Challenge OEM Control of Customers, HMI, Security
The arrival of Nokia’s Terminal Mode technology for smartphone integration and ATX Group’s downloadable application for Mercedes-Benz’s TeleAid telematics service has highlighted the intensifying battle between OEMs and third-parties over car owners and the in-vehicle experience. OEMs are being forced into the business of certifying applications for use in the car at the risk of losing control of both the customer and the user experience. And the encroachment of third-party apps is raising serious security concerns.
The introduction of the ATX downloadable app is perhaps the worst case scenario for an OEM given the existing relationship with Mercedes TeleAid subscribers. The application was neither created by Mercedes nor was it certified or approved by Mercedes. The result is the first instance in the industry of a service provider competing with an OEM for the OEM’s customers.
The clever application allows for the wireless transmission of destinations to Mercedes navigation systems equipped with TeleAid connections and also allows for remote door unlock among other features. The purpose of the application is to extend and maintain the existing ATX relationship with legacy TeleAid subscribers. But it is an intrusion most unwelcome at Mercedes headquarters.
Most of the functions offered by the ATX app were made available in a similar app launched by Mercedes last Fall as part of its mbrace telematics service launch. The difference between the two is that mbrace, launched on November 16, 2009, is part of Mercedes’ introduction of a new telematics service relationship with Hughes Telematics.
Aside from the relevance of the ATX announcement to the ongoing contretemps between Mercedes and its service provider (the two have yet to resolve their legal differences), the implications for the industry, telematics and the app store model are critical including:
Management of the telematics service
Ownership of the customer
Control of the telematics marketing message
Control of dealer marketing and incentives
Certification of vehicle related applications
Control of the in-vehicle user experience
But these issues are inherent in the app store model itself. For Mercedes, the mbrace app, for select iPhone and Blackberry smartphones, enables a similar feature set as the ATX app and also sets up the ability for Mercedes to create its own app store. The mbrace app was groundbreaking because it was the first from an OEM to enable remote functions from a handset – demonstrated but not delivered by others – while simultaneously changing the telematics service provider and call center phone numbers – effectively transferring existing TeleAid customers (now using ATX) to the mbrace service.
Mercedes even stated plans to introduce new applications periodically, the first of which are expected to arrive later this summer, propelling Mercedes to the front of the automotive app store class, where it is now joined by Ford (which seems to introduce new applications monthly). The ATX announcement, however, reveals the proverbial fly in the app store ointment. If ATX can divert Mercedes’ TeleAid customers, which OEM will be the next to see an app divert their customers?
ATX’s app allows the existing TeleAid subscribers, of which there are an estimated 400,000, to maintain their relationship with ATX and provides them with functionality similar to that offered by the new mbrace service. Since customers are paying ATX in total nearly $100M for the service, this is important. To help drive the message home, ATX is offering Mercedes dealer sales personnel $100 spiffs to communicate the message to existing Mercedes owners. (The only service being offered by dealers on new vehicles is the mbrace service.)
Meanwhile, Mercedes is offering a 20% commission – worth about $100 – to dealer F&I and sales executives to promote longer-term (18 month) initial mbrace subscriptions. (Customers already get six free months of the basic service and three free months of the Plus service which includes concierge support among other functions.) There is the potential for a mixed message here, although the ATX message is only for existing owners, while mbrace is targeted at both existing owners and purchasers of new Mercedes cars. (A recent visit to a Mercedes dealer revealed no visible onsite literature or POP materials for either TeleAid or embrace – ie. telematics is still not part of the core Mercedes message. To top of the lack of telematics enthusiasm at the dealership, the F&I exec said he didn’t see the need for telematic services since he owned an iPhone!)
Because of the terms of its now concluded agreement with ATX, Mercedes cannot promote, sell or install the mbrace service for any Mercedes vehicles purchased between Nov. 16, 2008 and Nov. 16, 2009 until after Nov. 16, 2010. It is also for this reason that Mercedes is hampered in its marketing and promotion of mbrace, although various Mercedes Websites make clear that the only service currently endorsed by the company is mbrace.
The irony in this battle for customer ownership between ATX and Mercedes is that the average Mercedes customer is likely not purchasing the vehicle for the telematics service. Little or no advertising activity is committed to conveying the telematics message. And, yet, with an estimated 400,000 subscribers paying upwards of $240 per year, the revenue stream is valuable to ATX, Hughes and Mercedes.
Although unique, the ATX-Mercedes situation is analogous to the emerging automotive app store proposition. Nearly every OEM is scrambling to demonstrate or introduce an app store strategy of some kind following the perceived success of Ford’s Sync model. But no one is pondering the potential for an application to commandeer an OEM’s marketing, sales and telematics strategy as well as the user experience in the vehicle.
Nokia’s Terminal Mode capability has raised similar questions of control of the user experience in the car. It is for this reason that Delphi introduced its own alternative to terminal mode which provides for a Delphi application certification process and OEM control of the HMI (http://bit.ly/94Mn1V). The broad industry perception of the Nokia solution, which reproduces the display of a mobile device into the vehicle and enables the use of on-board interfaces, is that it fundamentally alters the carefully crafted vehicle HMI.
There is no doubt that no single company – Nokia, Delphi, RealVNC, Airbiquity, Continental, Parrot, etc. – will control the critical smartphone interface. But what is clear is that it has become a critical battleground
Not surprisingly, Apple must be watching these developments and snickering. Apple’s iPhones have enabled a wide range of services, application and content delivery to drivers with marketing, revenue and HMI implications outside of the scope of the OEM’s plans. Customers enter dealer showrooms on a daily basis looking for cars with which their devices can connect – the classic case of the tale wagging the dog.
The Mercedes-ATX situation provides a glimpse of a brave new world where car makers are simple pawns in a chess match controlled by carriers, handset makers, application developers and service providers all seeking to extract revenue from car owners. The good news is there is opportunity for those companies able to offer a secure smarthone interface that enables an OEM’s brand definition.
OEMs have already taken steps to create certification procedures along with their own in-house development teams. Car makers will never have complete control over applications such as Internet radio or location-based services. But applications that tap into vehicle data and functions, such as remote door unlocking or vehicle starting, are areas that OEMs will demand control.
Mercedes’ new telematics partner, Hughes, was once the ultimate embodiment of the external third party seeking to implant a revenue-generating module in consumer vehicles. The automotive industry rejected the Hughes model – particularly its hardware platform – opting instead, as in the case of Mercedes, to leverage the Hughes back-end infrastructure.
What could help to make all parties play nicely together is revenue sharing. OEMs clearly want a cut from the stream of revenue flowing from off-board applications. The long-term winners will be those solution providers that provide for that OEM piece of the action and, most importantly, bullet-proof security.
Hughes had the right idea: to create a platform in the vehicle for accessing revenue-generating content, services and applications. Little did Hughes know at its inception that the smartphone would replace its embedded module. OEMs know now that they must take the steps today to create the connections and define the relationships that will allow for mobile device connectivity while keeping the OEM in a secure user experience/revenue producing loop.
Roger Lanctot has joined the automotive team at Strategy Analytics as of May 1, 2009. He will be director of business development for the Global Automotive Practice where he will leverage his 20 years of experience in the technology industry to build upon SA’s already formidable position in the automotive industry. Roger was most recently director of business development of iSuppli Corporation, which acquired Telematics Research Group in July of 2008. Roger also directed sales and business development for TRG for five years prior to the acquisition. Prior to TRG, Roger was director of business development for the NPD Group working with NPD’s largest clients to create and launch the company’s NPDTechWorld Internet portal and prior to that he was director of research for PC Data, which was acquired by NPD.