Connected cars: The race for the car of the future
Over the past 10 years, the automotive industry has gone through a period of immense upheaval. Traditional business models, supply chains and incumbent market players are all being challenged by a wave of new entrants that are shaking up the market.
"The fully connected car will be made up of an ecosystem of connected technologies which will enable it to transfer and process large amounts of data while travelling at high-speed”
This upheaval has been caused by several trends affecting the industry, including the emergence of autonomous vehicles, growth in shared mobility and the electrification of the vehicle network. While each of these has played a major role in unsettling the market, the greatest disruption can probably be attributed to another trend: connective technology. Whether fully or semi-autonomous, hybrid or electric, shared or personal, connectivity is expected to be the defining feature of ‘the car of the future’.
The fully connected car will be made up of an ecosystem of connected technologies which will enable it to transfer and process large amounts of data while travelling at high-speed. The ability to communicate a substantial volume of information bi-directionally is necessary to support the two main pillars of connectivity: infotainment and infrastructure.
Connectivity technology: Infotainment
Infotainment comprises a combination of systems that deliver in-car entertainment and information to the driver and passengers. This is carried out via audio and video interfaces controlled by touch screen displays and voice commands.
"Infotainment services provide a valuable opportunity to develop customer loyalty through personalised in-car experiences. They are also expected to be one of the major sources of additional revenue for the automotive industry”
Infotainment services provide a valuable opportunity to develop customer loyalty through personalised in-car experiences. They are also expected to be one of the major sources of additional revenue for the automotive industry, granting automotive manufacturers – known as original equipment manufacturers (OEMs) – access to swathes of new data that can be monetised through innovative advertisement opportunities. For example, the inclusion of the Internet of Things (IoT) connected technology in vehicles creates an opening for businesses to send targeted adverts to vehicles travelling within the vicinity. Adverts can also be personalised for each person in the vehicle, allowing, for example, restaurants at a service station or shops on a high street to send targeted offers to each person in a nearby vehicle based on their personalised consumer profile.
Research carried out by the consultancy group McKinsey & Company(1) has identified a sliding scale of infotainment capabilities. At the lower end, vehicles will be able to use a driver’s personal profile to access services on external digital platforms, such as Android Auto and Apple CarPlay. At the opposite end of the spectrum, McKinsey envisages the user experience shifting from reactive to “intelligent and predictive” through the use of “cognitive artificial intelligence systems”. Such systems would be able to perform “highly complex communication and coordination tasks”, creating a seamless user experience whereby passengers and drivers (of fully autonomous vehicles) can utilise travel time to watch personalised entertainment services, fulfil tasks across devices or to conduct business meetings.
Connectivity technology: Infrastructure
Infrastructure connectivity can be broadly thought of as the ability of a vehicle to communicate with its surroundings, including vehicle-to-vehicle (V2V), vehicle-to-pedestrian (V2P) and vehicle-to-infrastructure (V2I) communications. Infrastructure connectivity will be fundamental to the safe and efficient use of future transport systems. While it already plays a major role in facilitating shared mobility and the use of electric vehicles, it is a cornerstone of autonomous vehicle technology.
"Infrastructure connectivity will be fundamental to the safe and efficient use of future transport systems. While it already plays a major role in facilitating shared mobility and the use of electric vehicles, it is a cornerstone of autonomous vehicle technology”
V2V connectivity enables vehicles on the road to communicate with each other in order to share information relating to speed, road conditions and traffic. For example, autonomous vehicles may use V2V communications to adjust travel speeds based on information obtained from nearby vehicles, subsequently increasing road safety. V2I connectivity utilises sensors to capture infrastructure data to provide travellers with real-time information on road conditions, traffic congestion, accidents, road-works zones and parking availability, amongst many other aspects of travel.
It is anticipated that a transport system comprised of fully autonomous vehicles will rely on a centralised traffic management system that utilises telematic data gathered by V2I, V2V and V2P connectivity to effectively manage road users. This will help to reduce road accidents, increase fuel economy and to facilitate the steady flow of traffic.
Infrastructure connectivity may be facilitated by network-based systems, such as cellular (3G, 4G or 5G), cloud and Wi-Fi, especially on a larger scale. However, it will also include direct V2V, V2I and V2P communications via short-range communications that do not rely on network infrastructure. These direct communications will help to facilitate local coordination between vehicles and may even allow vehicles to be used as ‘boosters’ to rebroadcast information sent from the network in areas with poor connectivity, such as tunnels.
Standard essential patents and interoperability
For vehicles to communicate with one another reliably and efficiently, there needs to be a high level of interoperability across the various connected technologies and devices. A common way to overcome this is through the adoption of agreed technological standards. These standards establish the technological requirements for products, practices and operations in a given field to ensure that devices from competing manufacturers will work with each other.
The technology which underpins these standards is protected by patents, which collectively are known as standard essential patents (SEPs). It is impossible to manufacture standard-compliant products – whether that be a smartphone or a vehicle using cellular connectivity – without using technologies covered by one or more SEPs. OEMs are, therefore, required to obtain a licence from the relevant SEP owner(s) to permit use of the technology or risk receiving an injunction that would prevent them from manufacturing or selling the vehicle in question.
"The incorporation of cellular connectivity into vehicles has resulted in a sharp increase in complex, multi-jurisdictional patent litigation between OEMs and SEP owners, where these parties cannot agree what the licensing terms should be”
The incorporation of cellular connectivity into vehicles has resulted in a sharp increase in complex, multi-jurisdictional patent litigation between OEMs and SEP owners, where these parties cannot agree what the licensing terms should be. An area that has given rise to particular complexity is at what stage of the supply chain should the licence be given. OEMs argue that SEP licensing should take place at the component level – thereby imposing the intellectual property royalty burden onto the chipset makers and/or manufacturers of telematics systems. However, SEP owners argue that OEMs should be required to take a licence, as they are the party at the end of the supply chain who gain the most value from the technology.
One solution put forward to help alleviate some of the licensing issues is for OEMs to obtain a licence from a patent pool. Patent pools aggregate the SEP portfolios owned by a wide variety of companies that agree to license their patents relating to a particular technology on standard terms. Agreeing to license from a patent pool therefore grants the licensee access to patents owned by all of the SEP owners that have signed up to the pool, taking away the need to enter into costly licensing negotiations with individual SEP owners. Patent pools are generally transparent about their royalty rates, meaning that OEMs will have visibility on what their commercial rivals are also paying. The Avanci pool for autonomous vehicles has been particularly successful, with the likes of Audi, Bentley and BMW having signed up as licensees.
New entrants
As the vehicle has evolved from a means of getting from A to B into what can be seen as effectively a smartphone on wheels, traditional OEMs have found that they do not have all the expertise or know-how to develop and implement all of the necessary technologies themselves. This has opened up what was a relatively closed market to a wave of new entrants.
"The industry is now made up of a diverse group of players, including start-ups, industry stalwarts and telecommunication companies. However, the greatest threat to the incumbents is probably that posed by the tech giants”
The industry is now made up of a diverse group of players, including start-ups, industry stalwarts and telecommunication companies. However, the greatest threat to the incumbents is probably that posed by the tech giants, such as Apple, Alphabet (through its subsidiary company Waymo) and Microsoft, each of which are investing aggressively in automotive innovation. These companies have the resources, brand reputation and knowhow necessary to shake up an industry – just ask the leading telecoms companies from the 90s.
A common method to track innovation is through the assessment of patent filings. Of the top 10 AV-related patent applicants between 2010 and 2019, only five could be considered to be ‘traditional’ vehicle manufacturers. Non-traditional entrants, such as Baidu and Alphabet, have consistently built their patent portfolios as a result of their huge investment in this field.
Waymo and Apple, who each initially set out with full-blown vehicle development in mind, have each reportedly scaled back their ambition to focus on developing software and connectivity technologies. This would seem to be a smart move, allowing them to avoid incurring the substantial costs of setting up global manufacturing, supply and logistical chains and, instead, to focus on their core technical competencies in hardware, software and connective technologies. This approach also allows them to develop products that are agnostic to vehicle type, meaning that they may be able to imbed their technologies across a broad range of vehicles.
The range of technologies involved in modern vehicles has also resulted in a shift in geographical trends. Somewhat remarkably, locations with no history in the automotive sector, such as Singapore and Israel, have become innovator hubs for technology, particularly in relation to autonomous vehicles. Several industry leaders – such as BMW, Ford and Daimler – have all made investments in Israel, as well as opening up innovator hubs in the region.
Looking to the future
As a result of all of these developments, connective technology has been something of a Trojan horse for tech companies, granting some of the world’s biggest companies access to a market that, until now, had been effectively closed to new entrants. What started as the inclusion of basic entertainment services is evolving rapidly into a ubiquitous requirement to ensure that vehicles, as well as their users, can stay connected wherever they travel.
Whether the tech giants will be able to convert their technological innovation into commercial success remains unclear. However, one thing is certain: the automotive landscape will never be the same again.
(1) References
https://www.mckinsey.com/industries/automotive-and-assembly/our-insights/setting-the-framework-for-car-connectivity-and-user-experience