The 2015 Cadillac ATS comes standard with OnStar 4G LTE, which means passengers can stay connected on tablets and other devices on the go. Source: General Motors.
How much would you pay for your car to know what information you wanted before you asked for it? What if on the drive home from work your car automatically knew to search the Internet for videos with recaps of the important events in the stock market or the evening news? Or perhaps your vehicle could encourage you to speed up two miles per hour to narrowly edge out the train that would have caused you to sit idly for 10 minutes? Maybe in an emergency medical situation your car could contact the hospital during the drive and send vital information to the doctors ahead of arrival. Would that service be worth $10 a month? How about $50 a month?
The connected automobile
A few years ago those scenarios above would have merely been scenes out of a science fiction film. Fast-forward to today and those dreamed up situations are much more of a reality, especially considering General Motors' (GM 1.50%) recent announcement that it would add 4G connectivity service to its Chevrolet Malibu beginning next month. The 4G connection service will be offered on more than 30 vehicles in General Motors' lineup for the 2015 model year.
Obviously the potential is far-reaching, though, like any technology, it will take time to develop valuable uses beyond what a typical smartphone can already provide. Drivers purchasing a GM vehicle with the 4G service, which essentially creates a rolling Wi-Fi hot spot, will initially receive a trial period for up to three gigabytes or three months of use, whichever comes first. After that three-month trial period users can pay for a specific data plan.
According to General Motors, the data options will be one gigabyte for $15 per month if users were already subscribing to OnStar, and $20 if they were not. Three-gigabyte and five-gigabyte plans will be offered at respective monthly rates of $30 and $50. To put that in perspective, the one-gigabyte plan allows enough data to stream about 30 hours of music or browse the Internet for 65 hours.
In this day, an ever-increasing number of people want full digital integration in their lives, even when they're shopping or driving. But will consumers spend more money for in-car connectivity? If so, what does this mean for investors?
OnStar with 4G LTE is standard on the 2015 Buick Regal, allowing customers to pair up to seven devices to a built-in Wi-Fi hot spot. Source: General Motors.
Money, money, money!
Former General Motors CEO Dan Akerson negotiated a deal with AT&T in which the automaker receives $20 for every vehicle owner who activates the service and a percentage of the fees paid to the wireless provider. This could be a big deal for the automaker for a couple of reasons.
First, General Motors' four brands will be the first to the market with such a broad scale of 4G in-car connectivity. It could be a big differentiating factor for consumers choosing between purchasing a GM vehicle or a competitor's, because technology is a key part of the purchasing decision for younger buyers -- especially millennials.
Second, this is an entirely new, and potentially revolutionary, revenue stream for automakers. General Motors' 4G in-car service offers completely incremental revenue generation, as well as an opportunity to boost the low margins typically associated with the automotive industry.
In fact, Machina Research predicts that by 2020 up to 20% of a vehicle's value will be attributed to "connected life." The number of connected cars on the road is expected to balloon soon: ABI Research previously noted that the installed base of connected car systems is expected to grow from 45 million at the end of 2011 to nearly 210 million by 2016.
It would appear that in-car connectivity is just another step toward greater integration of technology in our everyday activities. The risk for GM seems low, while the reward of a successful service could be a huge boon for the automaker's revenues and profit.
General Motors is, at least initially, a step ahead of competitors in the automotive industry in its plans to introduce and, more importantly, monetize in-car connectivity.
