On the Value of Connected VehiclesBrian Loomis, Enterprise Architect

Automotive industry trends

• China stable but not high growth (US market growing in short-term)• Russia and some emerging markets not growth areas

• Urbanization driving smaller vehicle size, lower lifetime mileage (or longer lifespan)• Very congested cities’ programs to trial smart highways, tolls – Lyon down 20%,

Beijing traffic alternating days• Cars are parked 94.8% of the time, new DL’s down 10% in 20 yrs. (WSJ, 21 Jan 16)

• Reduced emissions primarily through hybrid, EV, fuel cell or other powertrain improvements – CAFÉ to 40.5MPG (even given lower fuel pricing in short term)

• Lighter materials like aluminum and carbon fiber• Connected vehicle already here for some segments including infotainment, ADAS• Shared rides reducing overall fleet in suburban areas

• McKinsey predicts 2% growth in fleet through 2030• Multiple analysts predict 80% of cars are not needed

• Autonomous driving critical by some date – safety and security differentiate• Can this reduce the 2MM fatal and injury crashes in US each year?

• Personalization of vehicles increasing (>50% new models with voice activation today), privacy concerns, electronic component lifecycle << automotive components

• Warranty and liability increasing• Regulation for E-911, emissions caps (diesel anyone?)

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Value propositionsDo you want Cortana in your car?

Owner

• TDI, infotainment (news,

audiobooks) with BT

connectivity, traditional radio,

speakers, SiriusXM

• ADAS: collision avoidance;

sense where you are going (ML,

MirrorLink)

• Navigation improvements

(traffic, weather, InRix)

• Camera (rear-view, also

forward for MyTrip, surround

view); radar-guided cruise

• Driver assistance apps in vehicle

(search, Pandora, etc., voice-

activated, phone integration)

• HEV charging/scheduled

charge; vehicle efficiency

(CO2/trip) and “green” analysis;

biofuel usage; “green” routing

• Message center (read my texts,

calendar); voicemail follows me

• Driver proximity (seat settings,

heat adjustment, key-fob

replacement for remote start)

• Augmented reality, automatic

parallel parking, stability &

braking control, lane keeping

Business Passenger

• Autonomous driving

• Join work/home network;

social or team

collaboration (driving

awards)

• Coordination with other

products/services (not just

auto)

• Phone integration with

vehicle (integrated

address book, scheduling)

• Wireless charging for

peripherals

Dealership / service

center

• Predictive maintenance/

servicing/recalls (CRM)

• Dealership

preference/integration, knows

who you are as you drive up

Government

• E-911 / eCall / GLONASS

• V2V – unfunded mandate

across jurisdictions and

OEMs

• LoJack/car immobilization

• Accident trend

identification (NHTSA)

• Behavior-based insurance

rating

• Police interceptor camera,

police (laptop/phone as

2nd screen, or integrated)

• Specialty truck (fire, tow,

lifeguard, powerline,

dump)

• Catering truck inventory /

third-party logistics

(FedEx)

• Fleet maintenance

(government, farm,

construction); integrated

customer billing

• Integrated logistics (with

supply chain), traffic in-

plant

• Large truck efficiency

(loading, mileage)

• Geo-fencing and fleet

policy (map constraints,

valet mode, speed limit)

• Rented/shared vehicle

(taxi, Uber, urban mobility)

• Performance data recorder

(muscle cars)

• Personal dashboard

• FitBit-to-vehicle; imaging

Project Mobii

• Apps like GasBuddy

• My Trip – post to Facebook?

OEM

• Brand elevation

• Predictive maintenance for

R&D

• Warranty reduction

Value propositions per architecture patternTe

lem

atics

In-v

ehic

le

(auto

no

mo

us)

Vehic

le m

esh

Owner / operator

• TDI, infotainment; driver assistance

apps in vehicle (search, Pandora,

etc., voice-activated, phone

integration)

• Performance data recorder

• ADAS: collision avoidance; sense

where you are going, radar-

guided cruise, nav improvements

• Augmented reality, automatic

parking, stability & braking

control, lane keeping

• Autonomous driving

• Driver proximity (key-fob

replacement for remote start)

• HEV charging/scheduled charge;

vehicle efficiency (CO2/trip) and

“green” analysis; biofuel usage;

“green” routing

• Coordination with other

products/services (FitBit, home

network), personal dashboard;

social or team collaboration

(driving awards)

Business• Police interceptor

• Specialty truck (fire, tow,

lifeguard, powerline, dump)

• Catering truck inventory /

third-party logistics (FedEx)

• Fleet maintenance; Large truck

efficiency (loading, mileage)

• Geo-fencing and fleet policy

(map constraints, valet mode,

speed limit)

• Rented/shared vehicle (taxi,

Uber, urban mobility)

• integrated customer billing

• Integrated logistics (with supply

chain), traffic in-plant

Dealership

• Predictive maintenance/

servicing/recalls (CRM)

• Dealership

preference/integration, knows

who you are as you drive up

Government

• Accident trend identification

(NHTSA)

• Behavior-based insurance

rating

• E-911 / eCall / GLONASS

• LoJack/car immobilization

• V2V – unfunded mandate

across jurisdictions and OEMs

• V2I

Each OEM is at a different point on the track

OEM

Competitive analysis

• GM – “build it myself”

• OnStar services include voice, ads into car

• LTE by AT&T

• Chevrolet AppShop (J2EE stack) includes vehicle health app

• RemoteLink phone app for remote start

• Cadillac CUE

• Planned V2V collision, wireless charging

• Low monetization, high cost

• Mercedes, BMW– “Innovate on apps”

• BMW: Nippon Seiki HUD

• BMW i8 SurroundView

• Mercedes – CarPlay (Volvo, Honda as well)

• Toyota/Lexus – Destination Assist

• 12.3” display plus HUD

• Disconnected collision sensing

• Remote start via Azure

• Voice activation

• Backup camera

• Rear entertainment system

• Wireless charging

• Bing, audible.com

• Tesla – “vertical integration” of UX, Halo

• Driver settings/profile

• Chrysler Uconnect

• Rear-seat infotainment

• Wireless charging of devices, phone pairing

• Touchscreen display

• Vehicle as hotspot (Mopar)

• Qoros, Volvo – “partner/acquire”

Path from ADAS to autonomous

• Simplest, cheapest, most extensible model is IoT / Connected Vehicle• OTA updates do not solve the hardware obsolescence problem; car is

not a disposable device like a phone b/c it is so expensive• Cheapest to layer on services like Uber and ridesharing

• Long-term we know we need compute in vehicle, but the business model not settled• How will Google bring autonomous to market? Will Tesla, will an older

OEM? (First Mover Advantage)• Regulatory, but also production capability… (can GM face the Inventor’s

Dilemma?)• How close is autopilot/lane detection to real autonomy?• How do we do OTA updates for all these CPU’s? How do we upgrade

the stack after the first N years?• Embedded protocols can be made resilient, but can they be made

secure (see Chrysler Jeep takeover)• V2X requires standards and government investment/incentives

“My 2005 Lexus has a tape deck, modified with a jack to accept phone speaker output, no

microphone (or HUD for that matter), and my power jack is a lighter.” Brian Loomis

Path from ADAS to autonomous

• Simplest, cheapest, most extensible model is IoT / Connected Vehicle• OTA updates do not solve the hardware obsolescence problem; car is

not a disposable device like a phone b/c it is so expensive• Cheapest to layer on services like Uber and ridesharing

• Long-term we know we need compute in vehicle, but the business model not settled• How will Google bring autonomous to market? Will Tesla, will an older

OEM? (First Mover Advantage)• Regulatory, but also production capability… (can GM face the Inventor’s

Dilemma?)• How close is autopilot/lane detection to real autonomy?• How do we do OTA updates for all these CPU’s? How do we upgrade

the stack after the first N years?• Embedded protocols can be made resilient, but can they be made

secure (see Chrysler Jeep takeover)• V2X requires standards and government investment/incentives

Customer segments define addressable market

The journey to a mass market involves either extending an existing market for new feature (e.g., using phone in vehicle for TDI), cannibalizing an existing market (red ocean, above), or creating a new market (blue ocean). The latter is not defined in terms of a feature set or core value proposition but might offer a first mover advantage. For the red ocean strategy, approximately 90MM light vehicles (cars) were produced WW last year.

Typical customer segments might include:

• Owner

• Operator/driver – child of

parent (young driver),

business employee

• Shared operator – often a

personal vehicle, too

• Dealer/service operation

• Insurer

• Government (city, state/local)

• (other OEMs or partners)

Segmentation by likely customer, matters

• Luxury in US is about 750K vehicles out of 5.3M (14%), high margin for discretionary features

• Hybrid/EV/hydrogen less than 3% of all vehicles, often tax subsidies; fuel economy features

• Ridesharing* (new segment)• Drives down overall fleet size –

• Special-purpose vehicles (work usage)

• Autonomous (either POV or business)• Unlicensed at this point

• Undefined segments – V2V and V2I

Revenue streams

• Manufacturing the product (vehicle) has margins < 10%• Raw materials costs

• High legacy labor rates (even with automation)

• Capital-intensive plants (leading to high debt and high days of unsold inventory/carrying costs)

• R&D not very focused on breakthroughs… low market win rate

• Tiered sales structure (generally low dealership profit margin)• Lifetime value of customer measured in terms of initial transaction plus

maintenance/parts; $480K for family of 4

• Regulatory restrictions increasing (warranty, country subsidies, lemon laws, E911, safety testing, insurance), license to sell and are barriers to entry for some feature sets

Bootstrapping is critical: Value to owner = value received minus cost• Subscriptions historically have not generated broad replacement revenue• Need to identify segment early which will pay for the solution development

• Some solution providers will reduce price to near zero as free parking

Channels

• OEM sale – big scale, big investment• Transactional – capability built into car, warranty but no upgrades,

Connected is “free parking”

• Minor subscription channel – OnStar, USB or dealership upgrades typically, $120 USD/year for insurance policy services

• Traditional aftermarket – low scale, medium investment• Subscription – hardware fixed, software OTA

• Non-subscription (transactional) – DIY market

• Technology sale – transfer pricing, small investment• Can blend with traditional aftermarket – needs network

connectivity, access point to vehicle (CAN), usually subscription• Can be telco (M2M), hi-tech (Google)

Could be free parking for something else like ads, app builders, etc.

Not all channels are accessible by all interested parties –OEM’s, suppliers, tech companies

Business model questions (partnering)

• What is the core competency of automotive manufacturing OEM’s -- integrators or just

assemblers? How does this reinforce brand recognition/ add to conquest customers?

Do I just buy a startup?

• OEM has pricing power, do they have ability to execute? I can’t be the hardware maker

for Google (who would get the relationship value)! What is the new moat?

• How do I scale connected up to a bigger fleet than traditional segments? Tesla is eating

my luxury segment!

• What about warranty and proactive service notifications? Should the dealership pay for

some of this?

• My main value is performance data & brand, not an incremental subscription – can I sell

the data and maintain privacy?

Automotive OEM

• What do Lyft/Uber look like as service partners to

OEMs? Do I have to buy vehicles to get placement?

• What if my service becomes commoditized like

infotainment? Or swappable aftermarket with a cell

phone?

• Can I stay in business long enough to be a good

partner?

• Do we have to mandate standards for V2V/V2I? Is this like

CAN standardization? Or objective criteria like rollover

testing?

• How do we invest in this, if it truly is a benefit to society –

safety, congestion/health, etc.?

• Could an automotive supplier provide a single unit that works for all OEMs – is this the only way for V2V/V2I/V2X to work? How to get around transfer pricing?

• How can we keep the fixed hardware stack useful when product it is embedded in lasts much longer? Do we have to have a model that spans initial sale plus aftermarket upgrades?

• Can we switch business model to subscription for effectively a capital purchase? Will the owner pay for this, or do we need funding from elsewhere in the business model?

Automotive supplier

State / local governmentHi-tech provider

Business model questions (partnering)

• What is the core competency of automotive manufacturing OEM’s -- integrators or just

assemblers? How does this reinforce brand recognition/ add to conquest customers?

Do I just buy a startup?

• OEM has pricing power, do they have ability to execute? I can’t be the hardware maker

for Google (who would get the relationship value)! What is the new moat?

• How do I scale connected up to a bigger fleet than traditional segments? Tesla is eating

my luxury segment!

• What about warranty and proactive service notifications? Should the dealership pay for

some of this?

• My main value is performance data & brand, not an incremental subscription – can I sell

the data and maintain privacy?

Automotive OEM

• What do Lyft/Uber look like as service partners to

OEMs? Do I have to buy vehicles to get placement?

• What if my service becomes commoditized like

infotainment? Or swappable aftermarket with a cell

phone?

• Can I stay in business long enough to be a good

partner?

• Do we have to mandate standards for V2V/V2I? Is this like

CAN standardization? Or objective criteria like rollover

testing?

• How do we invest in this, if it truly is a benefit to society –

safety, congestion/health, etc.?

• Could an automotive supplier provide a single unit that works for all OEMs – is this the only way for V2V/V2I/V2X to work? How to get around transfer pricing?

• How can we keep the fixed hardware stack useful when product it is embedded in lasts much longer? Do we have to have a model that spans initial sale plus aftermarket upgrades?

• Can we switch business model to subscription for effectively a capital purchase? Will the owner pay for this, or do we need funding from elsewhere in the business model?

Automotive supplier

State / local governmentHi-tech provider

“Everybody is going to come up with their

own solution. Everybody will have their

own software. And capital will continue to

be wasted.” Marchionne (NAIS 2016)

"What is important for us is that the brain of the car, the operating

system, is not iOS or Android or someone else but it’s our brain,”

Dieter Zetsche, the chief executive of Daimler, the maker of Mercedes

vehicles, told reporters at the car show. IOS is Apple’s operating

system for mobile devices. "We do not plan to become the Foxconn

of Apple,” Mr. Zetsche said, referring to the Chinese company that

manufactures iPhones.“

Information Exchange Patterns (partial)

Telemetry

Information flowing from

a device to other systems

for conveying status of

device and environment

Inquiries

Requests from devices

looking to gather

required information or

asking to initiate activities

Commands

Commands from other

systems to a device or a

group of devices to

perform specific activities

Notifications

Information flowing from

other systems to a device

(-group) for conveying

status changes in the rest

of the worldhttp://blogs.msdn.com/b/clemensv/archive/2014/02/10/service-assisted-communication-for-connected-devices.aspx

Feature sets determine the architecture

Model 1

IoT message passing

Infotainment

Telematics

Police/fire/delivery

Insurance

Feature sets determine the architecture

Model 1

IoT message passing

Model 2

In-vehicle (real-time, feedback)

ADAS

Autonomous driving

Car immobilization

Geo-fencing

Infotainment

Telematics

Police/fire/delivery

Insurance

Feature sets determine the architecture

Model 1

IoT message passing

Model 2

In-vehicle (real-time, feedback)

Shared ride

V2X

E-911

Tolls

Coordination

beyond auto

Model 3

Coordinated transport (V2X,

reliable message-passing)

ADAS

Autonomous driving

Car immobilization

Geo-fencing

Infotainment

Telematics

Police/fire/delivery

Insurance

Azure Connected Vehicle architecture

Azure Connected Vehicle architecture

Simple-sounding features

like OTA updates depend on

hundreds of variables – like

SCCM, but vehicle

configuration BOM-based;

do we test hacks/injection

attacks? What happens if

vehicle is not patched for a

while?

Azure Connected Vehicle architecture

Simple-sounding features

like OTA updates depend on

hundreds of variables – like

SCCM, but vehicle

configuration BOM-based;

do we test hacks/injection

attacks? What happens if

vehicle is not patched for a

while?

OBD II connection to CAN

bus allows BYO phone to

bypass the need for a 3G/4G

modem in-vehicle – allows

new players to enter

aftermarket.

AWS Connected Vehicle architecture (equivalent)

In-vehicle reference architecture (1)

In-vehicle reference architecture (1)

In-vehicle reference architecture (1)

In-vehicle reference architecture (2)

Non-functional requirements matter

• Performance SLA• Protocol choice (AMQP, NNTP, MQTT, etc.)• Message throughput• Traceability / debug

• Safety• Few standards exist in connected vehicle

• Security (and legal T&C)

• Reliability (redundancy, ulti-path), Availability, Recoverability

• Data privacy and integrity

• Manageability for global systems

• Cost & billing

• Liability – a new “–ility”

2/22/2016 30

Key takeaways

1. Value depends on where you sit; different systems within connected vehicle initiatives will move at different rates

2. Connected vehicle value propositions are still looking for a viable business model, even obvious ones like predictive maintenance

3. Three main architecture “patterns” fall out of these value propositions with very different costs, schedules, and technical requirements

4. OEM strategy is often a follower model with limited risk exposure through an active experiments program

2/22/2016 32

Thank you!

About the speaker

Brian is an IT enterprise architect and owner of LCG, a niche consulting firm specializing in advising customers

on solutions to critical business-technology challenges. Personally, he provides leadership and hands-on

consulting experience to a wide variety of customers in multiple industry segments, centered around

understanding business value in the context of organizational goals, building team-centric organizations, and

aligning innovative technology to business problems. He directly advises CIO's, CFO's and senior IT staff at

both Fortune 50 and startup organizations with the belief that data-driven analysis and a well-prepared team

can achieve high-value transformations through software strategies. He has held management and individual

contributor positions in software design, program management, architecture (EA, SA and BA), test &

operations, as well as marketing & new opportunity development.

Brian presents regularly within the architecture communities of CEB and IASA, and at industry conferences such

as Hannover Messe, ACM SuperComputing and International Telemetry. His industry specialties comprise

global manufacturing (chemicals, oil & gas, automotive/discrete, and high-tech), state government, higher

education, and healthcare. Brian has advised customers including: Dow Chemical, JD Edwards / Oracle, Delphi,

Ford, Amway, Blue Cross, Intel, GM, Volvo, BASF, AstraZeneca, State of Colorado, Qwest, CH2MHILL, Quantum,

Lyondell-Basell, DSM, TeamShare, Hilton, Kaiser and multiple universities.

His interests include business alignment of IT, IoT, business process integration via the cloud, Industry 4.0,

mergers/acquisition execution, collaboration, and software development processes. Prior to joining Microsoft,

Brian served as an officer in the United States Air Force and holds a Master’s degree in Computer Science and

a Bachelor’s degree from Princeton University.

References

Business analysis• Crash statistics -

http://asirt.org/initiatives/informing-road-users/road-safety-facts/road-crash-statistics & http://www.nhtsa.gov/NCSA

• Market segmentation – AutoWeek, McKinsey Automotive

• Research and governmental – CAR, Michigan Smart Corridor, NHTSA, • Universities – Stanford, V-REP, Audi

Driving Cup, MIT, MITRI/MCity

Suppliers & vendors• OEMs – Tesla, GM (OnStar), Ford (with

GetAround, AppLink), Fiat-Chrysler (UConnect), Toyota (Entune)

• Suppliers – QNX, Nvidia, Panasonic, Continental, Magna (security with Argus), Delphi, elektrobit, Bosch, NXP, Infineon, Harman Kardon, TE, Visteon (Nissan), Audiovox

• Shared rides – Uber, Lyft, GetAround, Car2Go (Daimler)

• Technology - AT&T, GE, IBM automated car toolkit, Amazon (IoT), Google (Android Auto, John Krafcik/autonomous program, with Mercedes), Microsoft (Azure IoT Hub), Apple (Titan, CarPlay, Siri in Mercedes DriveKit), Mojio, OVMS, Qualnetics, Valeo Park 4U (self-parking), Automatic, Zubie, Vyncs (Sprint)

News recap

• GM + Lyft = https://www.yahoo.com/autos/general-motors-invests-500m-lyft-133349836.html

• Ford updating SyncMyRide with connected arscenario, opens Silicon Valley campus, partners with Google - https://www.yahoo.com/autos/google-pairs-with-ford-to-1326344237400118.html

• Delphi Drive - http://www.delphi.com/delphi-drive

• BMW buying HERE -http://www.wsj.com/articles/bmw-daimler-audi-agree-to-buy-nokias-here-maps-business-1438580698

• Stanford Revs lab -http://revs.stanford.edu/blog/735