Auto Applications Store is Coming

The Auto Application Store is Coming !!! By Dave McNamara, Autotechinsider.com

March 2010

Information provided is for internal use only and not for publication. Autotechinsider LLC

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“Hand-held Revolution”: Smartphone Connectivity driving New App Software Today, only about 20% of the population has powerful phones. Smartphone owners are those of us that can afford monthly data plans for constant Internet connections and the capability to download applications to their phone.1 These are the people who are participating in the “hand-‐held revolution” that is also increasingly capturing the imagination of the driving public. As an owner of a Droid2 on a Verizon 3G data plan, getting a new application for my phone creates the same excitement as going into a record store in the 1960-‐70’s to obtain the latest new release. There is a sense of excitement and discovery. More importantly downloading applications is easy, quick and affordable, that is once you’ve bought into the expense of the smart phone and its data plan. A whole new world has opened up – applications to inform you (e.g. Fox News widget), entertainment you (e.g. YouTube), provide a useful tool (e. g. Bubble/plumb level) and delight you (e.g. BumpTM to swap content/info.). Many have devices such as the Kindle and iPad have built in connectivity -‐ 3G cellular, Wi-‐Fi and ever present Bluetooth. The automotive manufacturers, notably Ford with SYNC, have announced the launch of their apps store with Pandora (Internet) Radio, Facebook and Twitter as the cornerstone apps. A key infotainment auto supplier, Continental, has embraced the Android platform and is presently launching AutolinqTM as their approach to an open platform to develop and make available apps3. We are to expect smart phone penetration to reach about 40-‐50% in 2012, which will drive the creation of automotive focused apps stores. Recognizing this growing trend several questions come to mind:

• Will Auto Application Stores (AAS) emerge as important revenue and customer satisfaction initiatives? What is exactly the business model?

• What automotive applications will emerge and how will they be developed? What will be the partnership model between the vehicle OEMs, auto elecs. Suppliers and new third part software developers from the Consumer Electronics (CE) community.

• Will applications be created by the vehicle manufacturers or third parties will they originate from a thriving developer community??

• Will Android or Apple emerge as the software platform or will a new automotive software platform such as GENIVI4, Microsoft or QNX Car5 emerge.

1 Altman Vilandrie data www.altvil.com 2 A recommended site for Android users, www.droidforums.net/forum/ 3 www.conti-‐online.com/generator/www/de/en/continental/automotive/themes/passenger_cars/interior/connectivity/autolinq/pi_autolinq_en.html 4 www.genivi.org/ 5 www.qnx.com/products/qnxcar/


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Look to the Apple App Store for Answers Phone-‐based applications have been with us for several years now. We need to look to Apple to understand and see how the automotive application store might evolve. The first $500 iPhone was launched in June 2007 to a somewhat skeptical world. Initial only a few select applications, about eleven, were available integrated as part of iPhone software. These early basic apps were quickly followed in a few months by an application store, as we know it today. The rest is history! Today, applications purchase is a big business:

• 30 new applications created each month, • over 1 million are available , • with a revenue of about $200 million a month.

The Apple apps store has set the tone for other stores. Most Apple apps are being priced at less than a dollar, the cost range being $.99 to $4.99. Entertainment apps cost more and the most popular. According to Gravity Tank, users spend about $60-‐65 a year.6 Recent research conducted by Autotechinsider LLC through the Linkedin (www.linkedin.com) polling application is that most of us (over 138 responded) want free apps but are willing to consider paying:

• 46% of respondents ONLY obtain FREE apps for their smart phone • 15% of respondents PURCHASE apps, the vast majority paying less than $5 per

month, only 1% willing to pay more than $5. • $18% of the respondents are intrigued by the concept of an AUTOMOTVE APPS

Store The Automotive Application Store Business Model(s) A key question is how will the AAS work exactly? How will automotive applications be encouraged, submitted, verified and lastly how will payment be made? There is a balance between helping developers get to market quickly with a viable revenue stream and overall customer satisfaction. Customers obviously prefer that applications are free. Our research at Autotechinsider.com research has verified that most smart phone user are paying less than $5 month for applications and are predominately obtaining free applications, but considering paying for premium apps. We expect that the two business models to emerge will be supported by the vehicle manufacturers, that is one that is advertizing or marketing based and the other largely user funded. I expect the initial model adopted by the vehicle manufacturers will be marketing based, that is the initial focus will be on providing an applications store as primarily a tool to increase customer satisfaction. The app store in the marketing business model is an important tool to improve customer satisfaction amongst the growing smart phone demographic and to create a fast-‐to-‐market environment for new features. As Ford SYNC has indicated the smart phone generation is exactly the new customer the auto OEM wants to attract! Potentially AAS sponsored by OEMs will have the additional benefit lower

6 Gravity Tank is an innovation consulting company www.gravitytank.com


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software development costs. Premium applications that require user fees will follow, most likely as enhancements to basic free applications. Applications that require on-‐going subscription costs due to hosting costs are a possibility, but this author envisions that most likely these applications could be advertising funded. Ford has set the tone by providing Traffic, Directions and Information (TDI) for the first three years with out a monthly fee.7 Even though Ford has teamed with MapQuest and Google Inc. to bring street directions and other information to SYNC owners, other valuable data base, such as weather data and Points-‐of-‐Interest data for niche applications -‐ sight seeing, etc. In summary, it is difficult to project a large market of paying customers for premium apps. As several people who we surveyed stated, “my requirements are largely met by free apps”. What Applications will we find on the Auto App Store? A key questions is what are the applications that most interest the automotive customer. At the 2009 Consumer Electronics Show (CES), Ford announced the suite of new off-‐board navigation and information base applications working through a voice portal. At the 2010 CES, the concept of an application store with addition Internet radio based applications, news services, Twitter and Facebook were added -‐ stream Pandora and tweet hands-‐free. More importantly, Ford announced support for third-‐party applications and will provide a SDK to developer. At CES there was a line of potential developers at the Ford both in North Hall asking for the SDK. 8 As we detailed in our 2010 CES Report (see www.autotechinsider.com for report availability and pricing), Ford has created an intriguing new developer community and alliance. The engagement with the University of Michigan, as led by Ford Researchers has evaluated the 100,000 or so iPhone applications to determine what should be a “short list” for introduction on SYNC. A new project called “American Journey 2.0” is underway9. As expected social networking, navigation and mobility information are important to the new generation of highly connected drivers. The following are a few new applications being considered.10

7 http://media.ford.com/article_display.cfm?article_id=30444 8 http://articles.latimes.com/2010/jan/08/business/la-‐fi-‐ces-‐ford8-‐2010jan08 9 www.autoevolution.com/news/ford-‐to-‐upgrade-‐sync-‐with-‐american-‐journey-‐20-‐project-‐12709.html, http://media.ford.com/article_display.cfm?article_id=31285 10 www.gearlog.com/2009/12/ford_announces_app_store_for_s.php


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What are the new, or rather not yet announced, applications that we should expect to be targeted towards the automotive customers.

• The majority of applications will be enhancements to existing mobile applications: o created for the smart phone by the consumer electronics development

community that are “enhanced” adapted to work in the vehicle in a safe and effective manner, i.e. automotive user interface creation.

o Ford SYNC in providing an SDK (API) allows developers to map cell phone (buttons) to the Ford Instrument panel controls (hard buttons and voice interface)

• Other applications will be cell phone based portals, using voice technology as a significant new user interface. An example is Aha Radio.11

o 3G/4G connectivity enables the phone to become a useful portal with powerful search capabilities to:

home, office and other cars Traffic, weather and location based services

o a remote control device to home, office and vehicle for customization, security, energy efficiency, etc.

New home connectivity standards emerging Machine-‐to-‐Machine interfaces (M2M), new applications that will be

context aware and able to configure your vehicle and home accordingly

• More entertainment apps - new video and mobile TV applications with new search applications. We have seen at CES the introduction of powerful new widgets that streamline search and integrate new Internet applications with video (e.g. my sport scores, my news, etc.). Companies such as Gracenote are working on enabling these new entertainment apps by providing technology that allows powerful search capabilities.

The Automotive Apps Store Must be Better The AAS will be different than smart phone focused app stores – more robust apps and a focus on ease of use. As a recent CNET article indicates we should remember “the next time your PC crashes, consider yourself lucky that the same flaky PC operating system is not controlling your car.”12 For example, new middleware from QNX, called QNX car and the GENIVI Infotainment referenced platform (www.genivi.org/) based on Linux were designed with these competing and challenging objectives in mind. Automotive infotainment needs to sync with the clock speed of the PC or consumer electronics world– the ability to quickly upgrade and experience new applications, but not the “flaky” part. The vehicle’s instrument panel and infotainment system increasingly have more and more in common with a PC and our smart phone, the ability to quickly add compelling new

11 www.ahamobile.com see www.youtube.com/watch?v=fOcf78Vd2TQ 12 http://news.cnet.com/8301-‐13924_3-‐1045)4331-‐64.html


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applications, but in a safe and non distracting manner. I would suggest that the majority of apps will reside on your smart phone, but that there will be several auto focused apps that will reside solely on your infotainment system that takes advantage of the car’s built-‐in user interface. QNX articulates this vision well. In conclusion, what is in it for the vehicle manufacturers to create and maintain AAS? We doubt it is the revenue stream from selling applications alone, but rather a marketing business model targeted at improving overall customer satisfaction. In contrast, the goals of Google and Apple are clear. Google wants users to be web based through a browser connected to a Google server. The more we use the Web, the more Google's generates revenue. In a similar manner, Apple wants to get users to be customers of iTunes and its App Store that requires us to purchase hardware like Macs, iPhone and now the iPad. Vehicle manufactures will want us to visit their apps stores for reasons more similar to Apple. We will be more likely to buy the vehicles that are platforms to safely and quickly obtain compelling new apps. Our Linkedin survey provided us with insights into the concerns and questions of current and potential auto apps store users, excerpts modified to protect the responder’s identity are listed below:

“I have many free apps now and used to it…I MAY pay for auto apps through my smart phone..” Note: several comments about “free apps only” “I would like to just walk into a store and have someone just show me how these applications work… I learned more from testing the product “ “New apps are researched then I download …”.

“The cost of a smart phone data plan for my family approaches a car payment”

“GPS works well, but I would like to have elevation, waypoints, compass, trails, coastal markers in addition to street directions and maps” “.. the premium apps I’m interested are around LBS, like weather… another auto app is to allow customization of my vehicle , such as displays for easier use…” “A car will require a different set of apps that are safe and easy to use” “ Auto apps need to be non-‐distracting, since auto manufacturers need to be concerned about litigation.”

One important take away is that those who are not participating in this important new convergence of consumer electronics technology with automotive electronics will be left behind – to participate means to learn and guide the direction of the business model. This comment applies to the vehicle manufacturers, suppliers and consumers – join the “hand-‐held revolution”!!


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About Autotechinsider.com “The automobile industry is profoundly affected by adjacent industries that produce the technologies that are involved, directly or indirectly, in the production of a vehicle. Since the percentage of a given vehicle's cost related to elecs, software, networking solutions, and related services continues to grow, we are most interested in these technology areas. Based own our extensive experience in the automotive industry, we cover major events and produce insightful reports on the technologies, the companies, and the trends that we believe will have a significant impact in the near future”. Disclaimers All information gathering was done in compliance with the ethical standards of the Society of Competitive Intelligence Professionals and within the provisions of the US Economic Espionage Act of 1996.

Documents

Auto Applications Store is Coming