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Time for the ZeroDollar Car?

Time for the ZeroDollar Car?
by Roger C. Lanctot on 07-06-2016 at 7:00 am came out with a report last week raising questions regarding new car pricing with a city-by-city breakdown of affordability. Bankrate’s key finding: a median-income household can not afford the average price of a new vehicle in any of the 50 largest cities in the U.S.

New Cars Are Too Expensive for the Typical Family, Study Finds

Find your city on this chart showing where a new car is most and least affordable

Despite these findings, new vehicle sales continued on a near-17M-unit annualized pace in June in the U.S.

Some people – John Ellis of John Ellis & Associates, in particular – think the average new car buyer shouldn’t have to pay a cent for the privilege of owning a new car given the value of the data gathered and generated by the vehicle and driver in every day use. One need look no further than the car radio to discover $17B in advertising revenue which only hints at the monetization potential of the car.

John shared his perspective in a talk titled “The ZeroDollar Car” at the recent Mentor Graphics IESF event in which he made his case that the average driver represents an economic entity whose value lies in his or her behavior and decision-making. Even the car itself is a data collection tool of interest to traffic management professionals, weather forecasters, and maybe law enforcement – all of which are willing to pay to play.

Ellis draws this conclusion after considering the billions of dollars in advertising and data analytics value extracted by Google and other search engine providers from desktop and handheld device browsing data. Google, Bing and Yahoo customers pay handsomely for the privilege of accessing that data and targeting those browsers.

The funny thing is that broadcasters have long understood this calculus – recognizing and emphasizing that the radio represents the last opportunity to convert a shopper (or voter) to a customer as they listen, belted in, in their car. The radio leverages its location awareness and relevance – delivering local weather, news, sports and traffic information – and content with a regional vibe.

Ellis points out in his presentation that Apple and Google are deeply and solely interested in capturing this captive audience. Apple’s CarPlay and Google’s Android Auto are connected smartphone solutions directly targeted at enabling the in-car browsing experience such that they can capitalize on the resulting data trove with targeted offers and promotions.
There are just two problems.

The first
: That there have yet to be any standards set for visual or audio in-dash advertising – aside from that provided by the car radio.

The second: In the words of the Internet Advertising Bureau: “No standards exist for how to count or measure or report media delivered in the car.”

We don’t know what a new contextualized advertising experience in the car will be and we have no means and no history of measuring in-car listening behavior. The latter is a potentially fatal flaw. You have to measure your audience if you hope to monetize (sell advertising against) it.

The $17B of radio advertising lies tantalizingly out of reach of technology companies such as Google and Apple even as they seek to recreate the contextual experience already being delivered by broadcasters – while hoping to replace those broadcasts with a personalized experience integrating the user’s social graph and enhanced with interactivity. Car makers recognize this single-minded effort to commandeer the customer relationship and have done their best to limit the amount of data shared with the Google’s and Apple’s of the world.

Ellis may slightly overstate his case, but it is a compelling argument. You can find video of John’s presentation here:

And SlideShare here:

The most creative element of Ellis’ vision is the suggestion that dealers will “sell” different sensor opt-in packages that will confer substantial discounts in the purchase price of the car. Think of it as usage-based insurance on steroids.

My interest is in the radio and it is my belief that the vast majority of radio listening or at least an increasing proportion is occurring in cars. I am not discounting the progress that has been made in adding radio reception to smartphones (Sprint, AT&T, T-Mobile – how about it, Verizon?), but car radio listening has been, remains and is increasingly the dominant listening environment.
The car radio is local and local advertising is big business.

Radio has an 11% share of local advertising, according to BIA/Kelsey, and is holding its own against digital incursions which are largely impacting print media. Direct mail remains the largest segment.
But the car radio is changing with the onset of larger displays in the car. Digital and analog signals are delivering more meta data to the dashboard and enhancing the appeal of the radio – though also introducing some usability issues.

They key takeaway, though, is that efforts are underway within the industry:

  • To improve media measurement in the car – Drive Time Metrics
  • To set standards for in-car advertising – Internet Advertising Bureau
  • To enhance in-car meta data – DTS
  • To resolve usability issues – DTS, RadioDNS, Radioplayer and too many other companies to name them all

Broadcast radio remains the most direct source of billions of dollars of connected car monetization. Telematics subscriptions are a distant second followed by SiriusXM’s $5B in subscription revenue and, lastly, usage-based insurance bringing up the rear. There is much work to be done, but the prospect or even just the vision of a ZeroDollar car will go a long way in helping to justify and mitigate the cost of expensive embedded wireless connections. Google and Apple clearly understand this.
All that remains to be seen is who will be first to bring the ZeroDollar car to market? Google? Apple? Uber? Lyft? Chrysler? Stay tuned.

Roger C. Lanctot is Associate Director in the Global Automotive Practice at Strategy Analytics. More details about Strategy Analytics can be found here:…e#.VuGdXfkrKUk

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