Telematics still being in its infancy will mature over time, but in our view the market as we know it today and the vendors operating it will consolidate, fail or be acquired throughout their evolution, in the market.
We have observed that the focus today for most Telematics Service Providers (TSP’s) is to install devices into vehicles or use mobile phones to collect data which is primarily used by the providers’ customers for analytical purposes. Some TSP’s retain the right to store and use anonymous data and are able to sell gathered data and the results of the analysis, while other TSP’s do not retain any rights to the data. Those that do not retain data in any form, in most circumstances, are likely not of interest to us now or in the future.
The mainstream TSP business model today is based on sales of OBD (on board diagnostic) devices and monthly or annual fees to keep these devices connected. In the future, this model may become unattractive, to investors, as vehicle manufacturers will continue to cut out the middle man (the TSP) and collect the data themselves. In our opinion this will not happen over-night but it’s happening today and at an accelerating pace. An example of TSP’s countering the threat from vehicle manufactures are their offerings in the insurance sector to allow data to be collected via mobile phone, either for pre-qualification or as a substitute for an OBD or vehicle manufacturer collected data once the policy is in force. This reduces the cost to both the insurer and the customer but the data is much more inconsistently collected, unreliable and lacking in detail, making said data set less valuable.
The market is crowded with TSP’s all offering small variances in their respective offers to retail customers, insurance providers and fleet operators. The automobile fleet which lacks built-in connected devices is aging year by year and being replaced with vehicles that have built-in functionality to transmit comprehensive data to the vehicle manufacturer or a specific nominee of the manufacturer. Our view is the use of mobile phones is a short-term quick fix to deal with the adverse cost of running an OBD program, as well as the consumers’ reluctance to put an OBD device in their vehicles.
It is very likely that some TSP’s will be successful in teaming up with vehicle manufactures that do not have “big data” experience. These TSP’s will derive new sources of revenue, eliminating the barriers of installing an OBD device and the associated cost, but they become entirely reliant on the manufacturer continuing to find benefit in the partnership. The advantage to the use of the mobile phone is that a consumer can be tracked both in and out of the vehicle allowing interesting revenue opportunities to emerge in the future.
Our conclusion is that vehicle manufacturers, given no other attractive proposition, will attempt to monetize the data leaving other organizations interested in using the data with the problem of having to deal with multiple vehicle manufactures as well as TSP’s to obtain a comprehensive data set. We believe there is an interesting investment opportunity here as companies with a complete data set have the opportunity to become much more valuable.
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