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Will Lynk & Co Succeed Where Other OEM’s Have Failed?

November 16, 2020in Thought Leadership

by Greg Ross, Connected Vehicles Practice Lead, motormindz

Lynk & Co is a new sub-branded line of cars, formed as a subsidiary company of China-based Geely Auto Group, and launching with a hero vehicle based closely on the Volvo XC40 SUV. The brand launched in China in 2018 using a traditional dealer-based distribution system, but Lynk & Co proposes to use an all new business model when it launches in early 2021 in Europe, and later in North America. According to interviews with Lynk & Co’s CEO, Alain Visser, the brand hopes to tap into three major trends that are especially popular among urban Millenials: The Sharing Economy, Subscription Models, and Connectivity. Several OEM’s have experimented with various forms of car-sharing and subscription models, but none have been a breakout success. Is Lynk & Co on track to arrive at a different destination?

Can Lynk & Co do “Sharing” like Airbnb?

The first issue Lynk & Co must address in its planned launch in (slated for early 2021) is the issue that we are all still currently dealing with  the global COVID-19 pandemic. With this as backdrop, some prospective customers will shy away from sharing cars with strangers until the risks are firmly in the past. Still, Lynk & Co have taken some interesting steps to build sharing into their offering and their business model. The first step is to design vehicles to be easily shared through software. Owners of a Lynk & Co vehicle can indicate that a car is available though an in-vehicle application or through a mobile app. Owners set their own rates, and Lynk & Co manages all transactions at no charge.  Lynk & Co provides connectivity to each vehicle so that it can be located by a renter.  A mobile app can be used to gain access to a rented vehicle, to start it, and to pull down cloud-based personal vehicle settings from the user’s profile. To take further friction out of sharing, Lynk & Co vehicle pricing plans include insurance for both owners and any other users with whom the car is shared. In fact, owners are encouraged by Lynk & Co to make cars available for sharing as a way to offset vehicle costs.  Overall, Lynk & Co’s sharing features appear to be some of the more innovative parts of their offering.

Lynk & Co’s sharing features are a great illustration of the potential for some key Connected Car technologies.  The mobile app that unlocks and enables the vehicle, plus the built-in connection that monitors vehicle usage both provide a way for Lynk & Co to identify and learn about each individual user.  This will give Lynk & Co unique insight into usage patterns and behavior.  Lynk & Co also indicates that there will be an ability to deliver unique services and information to displays inside the vehicle, and that it will be possible to update vehicles with new software-based features.  Together, these technologies will create the potential to create new services and revenue streams for Lynk & Co, for its customers, and for prospective platform partners.

Can Lynk & Co do “Subscriptions” like Spotify or Netflix?

Lynk & Co’s CEO has emphasized in several interviews that his intention is to challenge the traditional automotive business model, and focus firmly on a subscription approach. He points to the ways that companies like Netflix or Spotify have disrupted the video or music industries by giving customers a huge range of choices for a reasonable price.  These companies have then observed their customers’ usage closely and delivered improved content and features over time.  Lynk & Co hopes to do the same, using connected technologies and analytics.  Lynk & Co also hopes to model subscription-oriented companies with a focus on developing and maintaining close subscriber engagement.  One way to do this is to replace traditional showrooms with “Clubs,” like the one recently opened in Amsterdam.   Clubs are places to hang out, enjoy a coffee, see unique entertainment, and so on. There is a vehicle on display, but it is not the center of attention. Vehicles that need maintenance or repair are taken to a remote site.

Three levels of subscription are available.  The basic level is free, where subscribers download the app, have access to vehicles to share (rent), and get access to Lynk & Co “clubs” and events. The next level costs 500 Euro per month, and includes a vehicle, maintenance, and insurance. Owners can offer their vehicles for sharing at any time through the Lynk & Co app. Subscribers to this monthly plan can cancel at any time with only one months’ notice.  Finally, it is also possible to purchase a Lynk & Co vehicle outright for 39,000 Euro, and also make it available for sharing on the Lynk & Co app. The 500 Euro/month program does appear to be more of a true “subscription,” in that it can be easily cancelled.  Over time, analysis of subscriber behavior and usage should provide Lynk & Co with insights that it can use to adjust and target subscription offerings and prices.  In-app and in-car display capabilities should also provide Lynk & Co with opportunities, over time, to generate new revenue through targeted features, based on its growing understanding of its subscribers.

Starting out, Lynk & Co will only offer one vehicle, the “01,” in two color choices and two hybrid powertrains.  It makes sense to start simply, with a popular vehicle configuration and limited variations.  This maintains the focus on developing an engaging subscription service that meets the needs of a core group of users.  To be a truly successful subscription service like Netflix over time, Lynk & Co will need to then show that it can engage closely with its subscribers, analyze their usage, and respond quickly to deliver on un-met needs.  This may come in the form of new software-based services, or in new vehicle or powertrain configurations drawn from the global Geely/Volvo portfolio.

Can Lynk & Co Lead in Connectivity?

In an interview at Lynk & Co’s new Amsterdam club, Alain Visser was quoted as saying, “It may sound strange, but in the car industry today, the biggest challenge is not the mechanical parts, it’s the software.” Visser was describing the software required to enable Lynk & Co’s extensive sharing model, and the extra time that was required to do the coding. Earlier interviews indicated that Lynk & Co intends to have extensive connectivity. This would include Over-The-Air (OTA) delivery of software repairs and features, as Tesla does. It would also include a Developer Platform to enable third parties to create new software-based features for Lynk & Co subscribers.  Lynk & Co is on the right track with its focus on software to continually upgrade and update the vehicle and the user experience.  Visser is also right to observe that this has not been a strength of the traditional OEM’s.  To really succeed, Lynk & Co will need to make sure that its vehicle systems are well-designed for updating, and that it is ready to engage with a robust developer community.

As Lynk & Co kicks off its launch in early 2021, it will be exciting to watch their progress and the adjustments that they make as they engage with their first subscribers.  As the most successful subscription companies have shown, it is not essential to launch with the perfect product.  It is absolutely essential though, to listen closely, learn quickly, and move fast.

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Automatic Bites the Dust

Automatic, a leading aftermarket provider of Connected Car services, informed its customers on May 1 that all services would end, effective May 28, 2020.  Automatic cited the COVID-19 pandemic as the immediate reason for cancellation of the service, due to reduced vehicle sales.  While slow auto sales could certainly be a factor, it is more likely that Automatic’s corporate owner, SiriusXM, has concluded that Automatic is not worth further investment.  This is a striking turnaround, considering that SiriusXM purchased Automatic only three years ago, in April of 2017, for over $100M.  As recently as February 13 of 2020, SiriusXM issued a joint press release with AutoNation to call attention to their expanded distribution plans within the AutoNation network of dealerships.  So what happened?

Automatic was an Early Star

Automatic was not the only service provider using an Onboard Diagnostic (OBD 2) “dongle” to collect and process vehicle data.  But it was one of the best known and best regarded.  Automatic was founded in 2011, and earned early recognition  for the quality of its user interface .  Automatic also received a strong distribution boost through partnerships with Best Buy, Target, and Apple.  Since it was seen as a market leader, Automatic was also able to successfully develop and support a developer platform. Developers brought forth a good range of  individual applications and user-created services enabled by IFTTT.  Automatic’s leading position led them to be acquired by SiriusXM in April of 2017 for over $100M. 

Failing  to Meet Expectations

SiriusXM presumably hoped to build a large and profitable user base around Automatic’s services.  In this, it would have aspired to reach volume and scale similar to SiriusXM’s other businesses.  SiriusXM Satellite radio, for instance, had nearly 35M subscribers at the end of 2019.  SiriusXM’s Pandora had 66M Monthly Active Users in the same period.  SiriusXM also offers white-labelled Connected Car services for several leading automotive manufacturers representing several million vehicles. SiriusXM does not break out OEM Connected Car Services volumes in its public reports.  SiriusXM also does not break out volumes for Automatic, but I suspect that it has never reached volumes that are comparable to SiriusXM’s other lines of business. 

Difficult to Scale an Aftermarket Product

Several OBD-based players have reached reasonable volumes through targeted partnerships.  Insurance companies have distributed OBD dongles as a part of Usage-Based Insurance programs, such as  Progressive’s Snapshot or Allstate’s Drivewise.  Fleet Telematics companies, such as Geotab, have used OBD devices to enable fleet management services for large business customers.  But Automatic and SiriusXM aimed to reach retail-scale volumes to tap into the tens of millions of un-connected vehicles owned by retail consumers.  Automatic found that it could not reach that scale through retail distribution at Best Buy or through on-line sales.  OnStar had a similar experience with it’s “FMV” aftermarket product, distributed in a similar way.  Despite having a well-known brand and several million loyal customers, OnStar was also unable to reach large-scale volume with an aftermarket product.

Dealership Distribution

SiriusXM apparently hoped to reach large scale volumes by distributing Automatic through auto dealerships.  After purchasing Automatic, SiriusXM introduced a dealership program and announced a partnership with AutoNation, which is a large dealership chain.  In a February 13 2020 press release, SiriusXM and AutoNation reported that the partnership was expanding.  AutoNation reported that 97% of customers who took delivery of a vehicle equipped with an Automatic device remained “engaged” with the service one month after delivery.  AutoNation also reported higher maintenance and service retention for Automatic-equipped customers.  Despite this apparent progress, SiriusXM seems to have concluded that the effort to recruit a large number of dealerships to distribute Automatic in high volumes was going to take too long and be too great an effort.  The COVID-19 auto sales slowdown must have contributed to that conclusion. 

Takeaways

There was nothing wrong with Automatic’s service.  Over 9 years of operation, Automatic accumulated many loyal, satisfied customers.  Reading the Twitter responses to the shut-down announcement, it is clear that Automatic will be missed, and that many current customers will be seeking out alternative service providers.  But if the goal is to reach installations in the millions, it is not clear that an aftermarket installation will be the way to get there.  Over time, built-in OEM platforms will provide a large installed base of connected cars.  Most OEM’s are installing built-in telematics hardware today, and nearly all have announced plans to do so.  In the meantime, smartphones provide a partial substitute for some (though not all) of the services enabled by OBD2 devices.  And, of course, smartphones provide the widest possible distribution platform.  Until OEM platforms are more widely available, it seems that the best use of aftermarket devices will be for targeted applications.

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Ford’s Connected Insurance Offer is Incomplete

Ford Partnership with Nationwide Insurance

Ford announced this week that it would partner with Nationwide Insurance to offer Ford Insure and Lincoln Motor Company Insure to Ford #Connectedcar customers. This is a very good use of the connected car technology that Ford is rapidly rolling out to all of its cars and trucks. The service features easy enrollment via the FordPass or Lincoln Way apps, and provides the prospect of saving customers up to 40% on their insurance by demonstrating their safe driving. But Ford will likely find that the solution falls short for its customers in several ways.

Customer Experience Gaps

Following are some gaps in the offering that Ford will likely hear about from its customers:

Limits on Customer Choice

Nationwide is a leading insurance provider with a very strong brand and reputation. But there may be many reasons why Ford or Lincoln customers won’t want to switch to a new insurance carrier. Customers may have well-established relationships with other carriers that will keep them from switching. A better offering would allow Ford and Lincoln customers to take their connected car data to the insurance carrier of the customer’s choice.

Limits on Customer Control over Driving Data

This program requires the customer to enter into an insurance contract before knowing what his or her driving data looks like, and how it will affect insurance rates. Savings, if any, won’t be applied until the customer renews the initial policy. The customer doesn’t know ahead of time whether he or she will be likely to save. A better approach would be for Ford to give customers their driving data and help the customer understand whether the data is likely to lead to savings on insurance. The customer should have this data before deciding whether to share it with an insurance company.

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OEM to Transportation Service Provider — Easier Said than Done!

Intense OEM Activity

Over the past year or so, several auto manufacturers, or OEM’s, have announced their intention to make a shift from manufacturing cars and trucks to become providers of comprehensive transportation services.  And their announcements are backed up by multi-billion-dollar investments. 

In December, Hyundai announced its intention to “Transition into a Smart Mobility Provider by 2025” as part of its 5-year, $40B capital plan.  Following that, Herbert Diess, CEO of Volkswagen, said in January of 2020 that, as VW shifts to become a maker of electric vehicles and connected cars, “The era of the classic carmaker is over.”  In April of 2019, Ford implemented a re-organization, which placed Jim Farley as President of New Business, Technology, and Strategy.  Farley’s responsibilities include Ford’s Smart Mobility business, which is intended to invest in and create new mobility services. Finally, General Motors unveiled it’s “Origin” autonomous vehicle in January of 2020.  In response, a NY Times article covering the unveiling reported that GM’s plan was not to sell the vehicle, but rather to use it as part of an autonomous taxi service operated by GM’s Cruise subsidiary.  Other global OEM’s have made similar announcements.

Why OEM’s have their eyes on Transportation as a Service, or TaaS

The OEM’s interest in becoming transportation service providers is understandable.  They see growing interest of consumers in purchasing transportation this way through ride sharing, micromobility services, etc.  This causes the OEM’s to fear a shift of customer loyalty toward the providers of those services, and away from the manufacturers.  OEM’s are also widely installing Connected Car technologies, which allow for easier remote management of fleets of vehicles.  But it is not easy to become a service provider, and it is even harder to do it while continuing to be a profitable manufacturer. 

Challenge #1:  Running a Service Business Requires New Skills

Today’s OEM’s are very good at efficiently manufacturing huge volumes of complex vehicles with high reliability and consistent quality.  OEM’s are good at logistics and supply chain.  OEM’s are good at product and manufacturing engineering.  OEM’s are good at product design.  But OEM’s have very little experience with managing 1:1 customer relationships.  In managing a service, every single customer experience is unique.  To be successful, a service provider has to be great at listening to and evaluating customer feedback.  A service provider has to quickly adjust their service to match changing customer needs (no more 4-year product cycles!).  To be profitable, a service provider has to rapidly adjust capacity and pricing to match demand.  To their credit, many OEM’s are experimenting in these spaces through investments in start-ups and through services pilots.  They are certainly learning from these experiences.  But to be successful and to successfully shift their business models, OEM’s will need to gain a lot more experience.

Challenge #2:  The Services Business may not be Aligned with the Manufacturing Business

Several OEM’s have painted a vision of providing comprehensive transportation services for consumers — from bikes and scooters, to cars and trucks, to buses, planes, and trains.  No OEM has indicated that they intend to make every device in the chain, but most indicate that they plan to use their own cars and trucks within their transportation service.  The challenge comes when the OEM doesn’t happen to make the product that is best suited to the needs of the transportation service.  For example, suppose the transportation services needs a standard midsize sedan as part of its service suite.  What happens if the parent OEM doesn’t make the most space-efficient, or most reliable, or most fuel-efficient midsize sedan?  Should the transportation service have the freedom to buy the best vehicle for its service, or will it be forced to buy a sub-optimal sedan from the parent and eat the loss in efficiency or revenue?

Challenge #3:  Competition with the OEM’s Traditional Customers

Before it was called “Transportation as a Service (TaaS),” or “Mobility as a Service (MaaS),” this concept had another name:  the Fleet Business.  Rental companies and Fleet Management companies have been in the business of providing transportation services for a long time.  These Fleet customers can represent 20% or more of some OEM’s sales.  Fleet customers will see a move by OEM’s into Transportation Services as a shift from the OEM as a Supplier to the OEM as a Direct Competitor.  In order to maintain their sales volumes, OEM’s may have to choose between serving their traditional customers and building their new service businesses.

So, all credit to the traditional OEM’s for recognizing the growing customer interest in transportation as a service.  They can take credit, also, for seeing the potential for disruptive business models that are enabled by Connected Car and other technologies.  OEM’s may find, though, that their new TaaS businesses may need to quickly become much more independent in order to  be build the necessary skills to grow and become fully successful.