3.7 - ITS: A New Economic Model

Version 4


    Intelligent Transport Systems - ITS are not only new technologies; they also lead to new business models and pricing systems as well as changing the automotive industry's value chain and value-sharing system.


    Some of the main changes underway are:

    In-car services


    Once the car becomes a "smartphone on wheels", as some manufacturers put it, the issue of pricing the interactive in-car services arises. In most cases, vehicle manufacturers offer free basic services which are included in the price of the car and "premium" services sold by subscription or as an option. For example, R-link, Renault's new interactive in-car platform, will be offered free for a limited period then a paid subscription will be required.


    Some experts have even mentioned the emergence of a business model developed on the razor model: cars are sold at a very attractive price (like most razors) but the manufacturer makes money from selling related services (blades to fit the razors).

    Value sharing


    Vehicle manufacturers are faced with a strategic choice: to create and develop proprietary interactive services so capturing most of the revenue but with the risk of having a limited number of users and therefore limited interest, or to open up their connected-services platform to telecoms operators, technology companies and content providers. The second option involves relinquishing some control of the on-board services and giving newcomers a share of the income from subscriptions or vehicle sales and it would seem that this is the one which is proving popular.


    This has resulted in a profusion of partnerships between "new economy" companies (Apple, Google, Orange, etc.) and vehicle manufacturers involving extensive negotiations concerning shares in the investment, costs and revenues.

    Customized insurance


    Once the connected car has the ability to inform insurance companies in near real time of the number of miles driven, driving style and habits, road layout and travel frequency, a customized and scalable policy can be set up. This is the principle behind usage-based and pay-as-you-drive policies, which is a rapidly growing segment of the insurance market.

    Example: In the United States, Progressive Insurance Company is offering on a trial basis an electronic device which plugs into the car and provides them with information about the average speed, distance traveled, braking and acceleration and when the car is usually used, etc. The insurer then offers a tailored policy based on the data collected, with reductions of up to 30 %.

    The breakthrough of car-sharing


    The more cars and infrastructures are able to communicate, the easier it is to develop motorists' social networks targeting one or more activities: exchanging tips, carpooling and sharing a fleet of vehicles, a garage or a vehicle. The economic models are still being worked out, with the options being completely free, on subscription or managed by a manufacturer, local authority or specialized service provider. In Marseilles, for instance, a consumer cooperative (Autopartage Provence) has been set up, giving subscribers (including Marseille Provence Métropole urban community) access to a fleet of vehicles at 20 locations. The organization is a member of France-Autopartage, which is a cooperative network operating in 50 towns and cities.

    Example: In the United States, General Motors now offers its 6 million drivers who subscribe to its interactive in-car services platform (OnStar) the option of making their car available to a car-sharing scheme, enabling them to earn up to several hundred dollars a month. Motorists use their smartphone to find out where vehicles are available and to unlock and lock the borrowed car doors.