Automotive

Monetizing digital services in automotive

March 20, 2023 5-MINUTE READ

RESEARCH REPORT

In brief

Automakers have high expectations for generating revenue and profit through digital services but are struggling to follow through.
They must decide whether to develop their own digital services or integrate a third-party digital platform into their vehicles.
Developing compelling services requires leveraging data to learn more about consumers’ driving habits and preferences.
Creating value through digital experiences also requires both cultural and process changes—which begin with a strong digital core.

A wake-up call for automakers

The transition toward vehicles that are defined by their digital services—including safety, comfort, operational and entertainment features—promises to bring significant new revenue pools to the automotive industry. Within the next two decades, digital services could generate as much as US$3.5 trillion in additional revenue for the industry globally.¹

Yet while automakers are investing billions of dollars in digital services, these services only generate about 3% of automakers’ revenues globally today—not nearly enough to cover the huge investments.

To monetize digital services, automakers need to overcome two major challenges. First, despite efforts to digitally transform parts of their organizations, most are not yet truly tech-savvy. To keep up, companies will need a strong digital core that gathers and provides relevant information, offering accurate insights into rapidly evolving customer preferences. In fact, we believe that the winners will be those that develop and leverage the digital core to its full potential—where it enables constant renewal. (See our thought leadership on Total Enterprise Reinvention to learn more.)

Second, most automotive executives lack a clear plan for monetizing digital services. They need to address several key questions: Do they build the services themselves or buy them from third parties? Which services will resonate with existing and new customers? Which will align best with the brand? And how do they price the services—should they be sold through subscriptions, in bundles, or perhaps individually? This report examines the different paths to monetizing digital services successfully.

Meeting the challenge

To create value through digital experiences, most automakers will need both cultural and process changes. This begins with a strong digital core, which enables companies to extract more timely, relevant information from consumers and turn that information into a competitive advantage.

To enable the kind of collaboration that can propel an automaker to a leadership position, team members from the C-suite to frontline staff will need to develop new capabilities in software, design and innovation. This includes breaking down siloes and supporting cross-functional roles to spark new innovative connections.

Automakers must also decide whether to develop their own digital services—which require significant financial investments into technology and other capabilities—or integrate a third-party digital platform into their vehicles. Each option has its benefits and its challenges. Whatever option they choose, a well-thought-out monetization model is critical to increasing consumers’ willingness to pay for digital services.

We have identified five major criteria that can provide direction for automakers in the process of defining their monetization approach:

Consumer price sensitivity: How price-sensitive are the relevant consumer segments?

Control over the end-to-end experience: Today’s car experiences are no longer limited to the vehicle but can extend to include interfaces to external infrastructure and ecosystems.

Competitive intensity: Consumers will determine whether a digital service is attractive based on other available options.

Size of user base: Companies with large customer bases are better able to negotiate preferential deals with third parties, as they provide greater profit potential.

Attractiveness of hardware: Negotiation power increases when automakers offer third-party firms an attractive environment for their digital services.

The race to capture value is on

The new digital automotive world is upon us, and with it comes the opportunity for vast new revenue pools. But the engines are revving, and it’s no time to sit at the starting line. If automakers can’t transform software into a profitable business, they risk losing the race against new players—from tech giants to new automotive players that use their core competencies as software companies to aggressively target this space. Automakers need to act quickly to decide where and how they will play in the digital services arena—or risk being left behind.

¹Accenture Research (2022)