Wireless Wheels and Software-Defined Roads

Connected services will unlock new economic growth and public benefit. The Government’s proposed new ‘Smart Data Schemes’ could be a way to accelerate the market’s development 

In the July 2024’s King’s speech, HM Government pledged to enhance data services through the introduction of a Digital Information and Smart Data Bill. The bill seeks to ‘harness the power of data for economic growth, to support a modern digital government, and to improve people’s lives’.

Enabling innovative uses of data to be safely developed and deployed was the key area of focus at a recent roundtable hosted by Deloitte (held under the Chatham House Rule) as part of our 'Future of Transport: Roads' series, Deloitte explored connected services and their role in making travelling on roads safer, cleaner, economical and user centric.

Experts, business and industry leaders from across automotive, highways, technology and service sectors explored the challenge of matching who benefits with who pays and how wider market alignment, business models and collaborative initiatives could deliver on the promise of connected vehicles services and data.

Through the conversations, critical challenges, barriers, opportunities and need for action were identified. Recognising that cross-industry solutions would need to be chartered to achieve the full potential of this new technology, the questions to industries are identified below as prompts for wider discourse.

Automotive and highways sectors are rapidly evolving all at once

Software, not hardware, now differentiate top Original Equipment Manufacturers (OEMs) in the market. Automakers are developing deep digital expertise to turn vehicles into platforms for services and features which are updated “over the air”. So called Software-Defined Vehicles (SDVs). New propositions range from digital wallets by turning “cars into cards”, streaming entertainment, tailored insurance policies and self-driving or driver assistance add-ons. 

At the end of this digital transition, OEMs see significant new revenue opportunities as connected services redefine what can be offered to customers and the concept of drivers sharing their data with interested parties opens up new realms of possibilities. Volkswagen believes subscriptions and other mobility offerings could hit €1.2trn by 2030 (around 20% of revenue).

However, Deloitte’s 2024 Global Automotive Consumer Study found that the willingness to pay extra for connected technologies remains comparatively low in developed markets. Though across these developed markets, consumers in India, China and Southeast Asia were slightly more willing to pay for connected vehicle services compared to those in US, Japan, and Germany.

Along with early approaches by OEMs to monetize connected services, a multitude of third-party ‘value creators’ and service providers, underpinned by new digital and data-driven business models, have emerged, and are seeking to transform data generated by vehicles into valuable information.

While the private sector seeks commercial gains, the public sector is looking to operate the road network at lower costs. Highways authorities see significant cost efficiencies through replacing physical roadside assets with a wide array of connected vehicle data services. 

This may lead to a similar model to SDVs - potential “Software-Defined Roads” - being adopted in highways, with opportunities to develop a common computing architecture/operating platform. However, across Europe, national and local road infrastructure owner/operators are taking divergent strategies on operational technology for vehicle-to-infrastructure connectivity.

Each of these changes - digital technology, organisational capability, and business models - represent significant industry-wide shocks in their own right. Together they potentially amount to existential risks for organisations in sectors typically characterised by a lack of nimbleness. 

Do connected services suffer from market failure? 
 

Despite the speculated potential of connected services, the difficulties of current data business models and data marketplaces was highlighted. These have struggled to adequately handle, at commercial scale, the unique data characteristics (e.g., privacy, mixed vehicle fleet, mobile connectivity, market coverage) and specific industry dynamics (e.g. data ownership, driver data sharing consent, revenue sharing, adoption by consumers).

The key structural challenges identified by our roundtable included the exclusive access to and control of connected vehicle data by OEMs, lack of understanding of road users/customers in how their data was being used, and reluctance of customers to pay for benefits directly. 

In recent years, connected services data marketplaces/aggregators have emerged, such as Caruso Dataplace, Otonomo, Wejo and My Auto Data. These aim to act as neutral intermediaries to enable OEMs to sell multi-brand car data to independent service providers.

However, in 2023 the connected vehicle data market saw the exit and a bankruptcy of two of the industry's largest players. Wejo declared bankruptcy and Otonomo was acquired by roadside and mobility SaaS provider Urgent.ly in a reverse merger for $270m¹. Other marketplaces are still to achieve widespread or mainstream adoption.

Though these high-level upsets brought the viability of connected services into question, it was also highlighted during discussions that others continue to see substantial opportunity in the market’s development.

For example, several competitors remain or have emerged in the space including HERE Technologies, TomTom NV, Viaduct, Aisin Mobility, StreetLight Data (acquired by Jacobs for $209m in 2022²), INRIX, and AirSage, though all place different reliance on the use of connected vehicle data across their product portfolios.

In addition, Cubic Telecom - who developed a platform that supports delivery of connected car services across multiple countries, and which already claims to manage over 17 million vehicle connections - had a majority stake acquired in it by Softbank for €473m in December 2023. While in early 2022, Vodafone launched its ‘Safer Transport for Europe Platform’ (STEP), a unified vehicle message brokering platform/data exchange for V2X³. 

How to enable more openly available connected services data for public good and private benefit
 

In the Government’s background briefing notes for the King’s speech, it cites Open Banking as the only example of a ‘Smart Data Scheme’. 

Industry leaders at the roundtable also noted the Open Banking approach as a potential way to gain market-driven momentum to grow connected vehicle services without necessarily relying on fully public funded models. For wider, alternative approaches to building connected services, our roundtable drew out other instances which sought to solve industry-scale ‘chicken and egg’ problems.

Banking sector 

Open Banking saw an Open Banking Implementation Entity (OBIE; Open Banking Ltd) build and deliver the required market architecture and technology such as Application Programming Interfaces (APIs), data structures, back-end infrastructure and security architectures used to provide open banking based on an industry roadmap.

The OBIE is a private body created by the Consumer and Markets Authority (CMA) with its governance, composition and budget determined by the CMA. It is funded by the UK’s nine largest current account providers and overseen by the CMA, the Financial Conduct Authority, and the Treasury.

Though the UK’s open banking is considered world-leading in its approach and outcomes (e.g. over 10m customers now benefiting from open banking technology), recent lessons learned reviews have highlighted non-trivial challenges in establishing a new industry entity, governance issues and uncertainty around important areas such as funding, technology solutions and roles/responsibilities.

Energy sector

One area of focus for Great British Energy (GBE), publicly owned but independent of the Department for Energy Security & Net Zero, will be taking on the burden of early development work to speed up the deployment of mature and new technologies.

More recently, the Electricity System Operator (ESO) set out proposals for the role of an independent ‘Digitalisation Orchestrator' to tackle the issue of systems integration and interoperability of energy data. 

Aviation sector

While over in aviation, in 2017 Airbus launched Skywise. This open data platform connects and aggregates information from Airbus, suppliers and over 10,000 aircraft. By exposing data that would have sat in individual corporate data lakes, this has provided benefits to Airbus by enabling them to better understand their ‘products’. At the same time by sharing part of their data, airlines benefit through access to analytics to identify opportunities for improvement.

Automotive sector

Automotive industry level cooperation though rare isn’t unheard of. The Eclipse Foundation, an umbrella organisation for carmakers as well as tech firms, provides open, vendor-neutral governance framework for players in the automotive ecosystem who wish to collaborate to solve their technology needs. The Eclipse Automotive ecosystem includes 6 of the 20 leading OEMs and 3 of the largest Tier 1 and Tier 2 suppliers. 

One size won’t fit all

Our industry leaders highlighted that recent research had identified six ways that connected services might be funded, for example commercial add-ons to public services that end users pay for indirectly (e.g. via advertising). It was further noted that it was most likely a blend of different approaches would be needed to get us to ubiquity in connected services.

Commercial scale is the single most important factor - achieving this for connected services needs a ‘flywheel’
 

Exploration of potential industry incentivisation to respond to any market failure, identified strong alignment for connected services in drastically improving road safety. Industry leaders identified potentially significant mutual benefits and success through leveraging different insurance models enabled by connected services (e.g. driving safely → reduced incidents on the network/reduced demand on emergency services → premium rebates for road users → lower claims for insurance companies).

The powerful concept of creating self-reinforcing cycles of success – a flywheel – describes, unlike a traditional linear model, how gaining momentum over time, leads to compounding returns/gains. Key aspects of the model include interconnected components that feed into each other; building momentum gradually, then accelerating; and aligning with core business models and strategy. 

For connected services, a well-designed ‘flywheel’ would turn strategic advantages into a virtuous cycle. For example, Amazon’s ‘flywheel’ leverages low prices to drive volume, enabling further cost reductions. 

For connected services, assuming the automotive industry’s preferred subscription model, this more closely resembles Netflix’s ‘flywheel’

• More and better use cases → Improved UX, value and engagement → more subscribers → more revenue/public benefit 
• More subscribers → more data → improved UX, value and engagement 
• More revenue/public benefit → more ecosystem participants → attract more subscribers

But the billion, potentially trillion-dollar question is how to overcome the inertia to get the ‘flywheel’ to spin in the first place, especially with different parts of the sector on vastly different investment cycles.

Here, our industry leaders highlighted how a ‘smart data scheme’ may chose to focus on the logistics & freight sector as a potential pathfinder. Or that the erosion of the Treasury’s circa £25-35bn annual take in fuel duty due to electric vehicles might act as an ecosystem-wide trigger for introduction of road user charging facilitated through connected services.

Connected services is one of many fundamental and disruptive pressures - it needs a bold strategy
 

Just as regulation before it helped pave the way for the introduction of seat belts, improved fuel efficiency, removal of lead from petrol and more rapid transition to electric vehicles (i.e., Zero Emission Vehicle mandate, internal combustion engine sale ban), many see government involvement as crucial to getting the connected services future on the road.

Certainly a significant role in helping previously siloed, vertically integrated sectors (e.g. automotive, highways and connectivity/telecoms) map out the adjacent landscape as well as translate, understand and coordinate between each other is rapidly emerging. 

If all manner of vehicles, from cars to cargo-bikes, are to be connected then new commercial models, anchor companies and supporting digital infrastructure need to fully be worked out or built. And this doesn't necessarily need to be expensive. Driven by the huge upsides from savings driven by the removal of physical assets, or commercialisation of data.

For now, the promise of a connected services future appears more real and closer with the emergence of ever cheaper compute, network slicing, edge computing and the rise of the software-defined vehicle concept. However, automotive, highways and service providers are already widely acknowledged to be struggling to handle another seismic transition in the shift from ICE to electric vehicles.

So if connected services are to unlock new economic growth, value and public benefit only a narrow window of opportunity exists for the government and industry to get together to get it right.