Connected Cars: A Multibillion-Dollar Opportunity

A lot has been said recently about autonomous vehicles. But before we see fully autonomous vehicles on the road at scale, there is another important revolution that is already happening across all vehicles, both autonomous and non-autonomous — the connected car revolution. A connected car is simply a car that has an embedded wireless connection, which allows it to connect to other devices within and outside of the car. This means connecting to other vehicles on the road, to external devices such as electronic traffic signs or toll roads, or to any other service provided over the internet.

The percentage of new cars shipped with Internet connectivity is growing rapidly. It is expected to rise from 13% in 2015 to 75% in 2020, according to BI Intelligence. This is driven not only by car manufacturers (aka OEMs) but also by regulation. A recent EU law mandates that starting in 2018 all new cars sold in the EU must have a modem so the car can automatically dial an emergency number in the event of a serious accident. The US is also working on similar regulation which is expected to take effect relatively soon.

75% of new cars will have Internet connectivity by 2020.

Cars generate a lot of valuable data such as their condition, location, how they are used, the preferences of the driver, the Infotainment system usage, etc. Today, this data mostly resides unutilized within the car, but with the increase of real-time car connectivity, this data will enable many new services. Such services include usage-based insurance (which becomes even more important as we move towards shared mobility), targeted advertising and promotions, seamless toll payments, and multiple other services that will improve the driving experience. In addition, car data will be used to increase safety and security through predictive maintenance, vehicle tracking and theft protection, automatic emergency call services, etc. Car connectivity will also provide tremendous value for OEMs by enabling things like over the air updates (similar to what Tesla does today), ongoing touch points with their customers, analyzing real car data, etc. To put this in perspective, McKinsey estimates that the overall revenue pool from car data monetization can add up to $450-$750 billion by 2030.

Many players in and around the automotive space are eyeing this big prize. These players include the OEMs, tier-1s (automotive suppliers), tech giants such as Google, Tesla, and Apple, and new startups that are entering the connected car space. Although car OEMs are still the “gatekeepers” of car data access, they understand that new services, including those developed internally, will need easy access to data that doesn’t compromise driver privacy and security or cause the OEM to fall afoul of government regulation. Also, OEM’s are looking for new services to improve their value proposition to customers, and as a means of generating new sources of high-margin, recurring revenue. OEMs are worried that the new tech giants will find ways to take over their car data either through in-car infotainment platforms and operating systems or by building their own cars in the future. There is no doubt that the tech players will provide additional services over the top or directly to their customers and OEMs realize they have to compete.

But OEMs are also worried about a new array of services that are based on hardware dongles that plug into the vehicle’s on-board diagnostics (OBD) port. These dongles are sold by startups or other vendors directly to the consumer, who is then tasked with attaching it to the vehicle (an act which can violate a car’s warranty). The OBD port presents a new security threat as it provides a new attack surface to cut off the brakes, disable the transmission or even lock the inside of the car. Moreover, when many of these dongles are used, OEMs are kept out of the loop and can’t control the usage or monetize their own data.

Despite the rapid growth of connected cars and OEMs desire to provide new services, it is still extremely difficult to build a connected car service. Doing so requires commercial agreements and an integration with each OEM separately. Then, the data needs to be normalized since it is kept in different formats across OEMs and across different regions. In addition, there is a large set of required functionality such as anonymization, policies, auditing, billing, and management which make such projects almost impossible. Building a connected car service today is much more difficult than providing applications before the smartphone days. The solution to this will either be a common car operating system (which is unlikely given the OEMs fear of the tech giants), or a 3rd party platform that simplifies launching connected car services. This is exactly the problem that our new portfolio company, otonomo, is aiming to solve.

Today, we are excited to announce our series A investment in otonomo. otonomo’s technology offers a cloud-based solution that seamlessly and reliably connects millions of cars to hundreds of services and apps, enabling a new ecosystem of car data.

otonomo’s platform collects car data from multiple OEMs and harmonizes, categorizes and anonymizes car and driver data to expose it to service providers. In so doing, otonomo radically simplifies what it takes to build a connected car service. The company works directly with OEMs, enabling data exchange in a secured and managed way which enables full control and visibility into where and how data is consumed. This allows OEMs to provide new types of services to their customers in a secure way without getting bypassed.

Otonomo was founded exactly a year ago and has made incredible progress ever since. We have been particularly impressed by the rapid traction the company has achieved with OEMs and other players in the space. This rapid progress was possible not only because of the immense need for such a platform but also due to otonomo’s extremely driven and experienced management team. The company is headed by Ben Volkow, the former CEO and founder of Traffix Systems, which Bessemer backed in 2012. Ben successfully led Traffix to an acquisition by F5 Networks for $135M. The company also attracted some of the world’s top experts in this space to its board and as advisors. Andy Geisse, former CEO of AT&T Business Solutions, Steve Girsky, former Vice Chairman at GM, and Mary Chan who was the former GM of OnStar, provide incredible air cover and support.

We are always excited to support an entrepreneur we know and respect. But even more when he or she is targeting such a huge and disruptive space. Connected cars are truly a billion-dollar opportunity. If you are a founder in this space, we would love to hear more about what you are working on.