I’ve been watching a lot of Hulu lately thanks to The Handmaid’s Tale and revisiting my favorite Battlestar Galactica Episodes. While watching Hulu, I’ve been subjected to commercials that Verizon is running on Hulu for its Hum connected car device. Verizon’s Hum is a dongle that uses the Verizon network to send data collected from a car’s onboard diagnostic port.
While watching the second commercial I was struck by how this is an excellent example of how the data available through connected devices can provide new business models for established companies while erasing old advantages in others.
Every car made in 1996 or later has an onboard diagnostic port. It provides engine diagnostic data and can also share information about how fast someone is going, their braking and accelerating style and even real-time location when combined with a cellular network. All the latest cars will be equipped with this. Brand new 19 plate vehicles are often leased to businesses looking to expand their fleet.
Other companies competing with Verizon’s Hum include Zubie and Automatic, which was backed by insurer USAA and acquired this year by Sirius XM.
So back to that commercial and my epiphany. With Hum, Verizon is providing an entirely new service to customers built on its 4G network. Buy the device for $50 ($30 for the device and $20 for Verizon’s activation fees) and then pay $10 a month and a consumer has a portable OnStar-like system for their cars. They can get warning information from their vehicle and 24-7 roadside assistance.
Meanwhile, Verizon gets data on how its customers drive, what goes wrong across a fleet of cars, and an additional revenue stream that generates money from Verizon’s multi-billion core asset (its network). But why should Verizon stop there?
When USAA invested in Automatic, industry watchers were excited about what car-level data could do for the insurance business. Not only could your insurer provide Triple AAA type services, but it could also have data on actual driving habits and patterns that could influence its actuarial charts. This type of device could change the relationship you have with your insurer and it could allow them to price insurance more accurately.
But having your insurance firm know how you drive goes a step too far for most consumers. Many of them would balk at letting their insurer know they regularly speed or that they perform a rolling stop at stop signs. Good drivers might share their data in exchange for lower rates, but a real picture of all drivers would likely remain elusive.
Yet Verizon has an advantage with consumers. Verizon doesn’t sell insurance, so it can pitch a data-gathering connected car device as a service. Instead of charging you more for those rolling stops, Verizon will let you know if your teen has picked up your bad habit. Or it will send a tow truck after a fender bender.
With Hum, the consumer gets a service from a perceived neutral provider while Verizon gets to capitalize on its network and get high-quality data of interest to insurers and car makers. From there, who’s to say that Verizon won’t gather enough data to create and price a better insurance product, entering a new market?
That’s what should be keeping every executive up at night. Cheaper access to data and analytics means that anyone who can get that data (by tapping into a larger consumer audience or signing a deal with a data provider) can use it to undermine established ways of doing business. Technology is razing barriers to entry left and right, but most companies are too slow to realize it because they are afraid to cannibalize their existing business lines, or because they are working from outdated metrics that are no longer relevant.
So the two things a business should realize are that with the right data any company might become a competitor, and thanks to the internet of things, getting access to the “right data” has now expanded. For example, Amazon gained its early advantage optimizing search results and stocking the products consumers wanted based on searches and purchases on the web site. Now it is preparing to get that data from the physical world with its purchase of Whole Foods and forays into brick and mortar retailing.
Will Verizon decide to take on insurers? I don’t know, but the point is that given enough data they have not just an opportunity, but even an advantage. All because of the internet of things.