History repeats herself, but she mumbles. Some have expressed that she enjoys rhymes or puns. One must lean in close and listen carefully to understand exactly what she’s getting at. Most of the time we can only in retrospect discern what she was trying to say.

Sometimes, though, history’s intent is clear. Evidence suggests a chain of events that will yield to an educated guess of the near future. That’s where we stand right now with the state of connected cars: History is repeating itself, with a slight variation. There is a close correspondence in the patterns of disruption when you compare the future of connected cars to the past of the smartphone industry.

At some point within the next two to three years, consumers will come to expect car connectivity to be standard, similar to the adoption curve for GPS navigation. As this new era begins, the telecom metric of ARPU will morph into ARPC (average revenue per car). Note: In this case, the term “connected” brings together related concepts, such as Wi-Fi, Bluetooth and evolving cellular networks, including 3G, 4G/LTE, 5G, etc.

In that time frame, automotive OEMs will see a variety of revenue-generating touch points for connected vehicles at gas stations, electric charging stations and more. We also should expect progressive mobile carriers to gain prominence as essential links in the automotive value chain within those same two to three years.

Early in 2016, that transitional process began with the quiet but dramatic announcement of a statistic that few noted at the time. The industry crossed a critical threshold in the first quarter when net adds of connected cars (32 percent) rose above the net adds of smartphones (31 percent) for the very first time. At the top of the mobile carrier chain, AT&T led the world with around eight million connected cars already plugged into its network.

The next big event to watch for in the development of ARPC will be when connected cars trigger a significant redistribution of revenue among the value chain players. In this article, I will focus mostly on recurring connectivity-driven revenue. I will also explore why automakers must develop deep relationships with mobile carriers and Tier-1s to hold on to their pieces of the pie in the connected-car market by establishing control points.

After phones, cars will be the biggest category for mobile-data consumption.

It’s important to note here that my conclusions on the future of connected cars are not shared by everyone. One top industry executive at a large mobile carrier recently asked me, “Why do we need any other form of connectivity when we already have mobile phones?” Along the same lines, some connected-car analysts have suggested that eSIM technology will encourage consumers to simply add to their existing wireless plans connectivity in their cars.

Although there are differing points of view, it’s clear to me that built-in embedded-SIM for connectivity will prevail over tethering with smartphones. The role of Tier-1s will be decisive for both carriers and automakers as they build out the future of the in-car experience, including infotainment, telematics, safety, security and system integration services.

The sunset of smartphone growth

Consider the U.S. mobile market as a trendsetter for the developed world in terms of data-infused technology. You’ll notice that phone revenues are declining. Year-over-year sales of mobiles have registered a 6.5 percent drop in North America and have had an even more dramatic 10.8 percent drop in Europe. This is because of a combination of total market saturation and economic uncertainty, which encourages consumers to hold onto their phones longer.

While consumer phone upgrades have slowed, non-phone connected devices are becoming a significant portion of net-adds and new subscriptions. TBR analyst Chris Antlitz summed up the future mobile market: “What we are seeing is that the traditional market that both carriers [AT&T and Verizon] go after is saturated, since pretty much everyone who has wanted a cell phone already has one… Both companies are getting big into IoT and machine-to-machine and that’s a big growth engine.”

At the same time, AT&T and Verizon are both showing a significant uptick in IoT revenue, even though we are still in the early days of this industry. AT&T crossed the $1 billion mark and Verizon posted earnings of $690 million in the IoT category for last year, with 29 percent of that total in the fourth quarter alone.

Data and telematics

While ARPU is on the decline, data is consuming a larger portion of the pie. Just consider some astonishing facts about data usage growth from Cisco’s Visual Networking Index 2016. Global mobile data traffic grew 74 percent over the past year, to more than 3.7 exabytes per month. Over the past 10 years, we’ve seen a 4,000X growth in data usage. After phones, cars will be the biggest category for mobile-data consumption.

Most cars have around 150 different microprocessor-controlled sub-systems built by different functional units. The complexity of integrating these systems adds to the time and cost of manufacturing. Disruptive companies like Tesla are challenging that model with a holistic design of telematics. As eSIM becomes a standard part of the telematics control unit (TCU), it could create one of the biggest disruptive domino effects the industry has seen in recent years. That’s why automakers must develop deep relationships with mobile carriers and Tier-1s.

The consumer life cycle for connected cars will initially have to be much longer than it is for smartphones.

Virtualization of our cars is inevitable. It will have to involve separate but interconnected systems because the infrastructure is inherently different for control versus convenience networks. Specifically, instrument clusters, telematics and infotainment environments have very different requirements than those of computing, storage and networking. To create a high-quality experience, automakers will have to work through hardware and software issues holistically.

Already we see Apple’s two-year iPhone release schedule expanding to a three-year span because of gentler innovations and increasing complexity. The consumer life cycle for connected cars will initially have to be much longer than it is for smartphones because of this deep integration required for all the devices, instruments and functionalities that operate the vehicle.

Five factors unique to connected cars

Disruption is everywhere within the auto industry, similar to the disruption that shook out telecom. However, there are several critical differences:

Interactive/informative surface. The mobile phone has one small screen with all the technology packed in behind it. Inside a car, nearly every surface could be transformed into an interactive interface. Beyond the instrumentation panel, which has been gradually claiming more real estate on the steering wheel, there will be growth in backseat and rider-side infotainment screens. (Semi-) autonomous cars will present many more possibilities.

The mobile phone has one small screen with all the technology packed in behind it. Inside a car, nearly every surface could be transformed into an interactive interface. Beyond the instrumentation panel, which has been gradually claiming more real estate on the steering wheel, there will be growth in backseat and rider-side infotainment screens. (Semi-) autonomous cars will present many more possibilities. Processing power. The cloud turned mobile phones into smart clients with all the heavy processing elsewhere, but each car can contain a portable data center all its own. Right now, the NVIDIA Tegra X1 mobile processor for connected cars, used to demonstrate its Drive CX cockpit visualizations, can handle one trillion floating-point operations per second (flops). That’s roughly the same computing power as a 1,600-square-foot supercomputer from the year 2000.

The cloud turned mobile phones into smart clients with all the heavy processing elsewhere, but each car can contain a portable data center all its own. Right now, the NVIDIA Tegra X1 mobile processor for connected cars, used to demonstrate its Drive CX cockpit visualizations, can handle one trillion floating-point operations per second (flops). That’s roughly the same computing power as a 1,600-square-foot supercomputer from the year 2000. Power management. The size and weight of phones were constrained for many years by the size of the battery required. The same is true of cars, but in terms of power and processing instead of the physical size and shape of the body frame. Consider apps like Pokémon Go, which are known as battery killers because of their extensive use of the camera for augmented reality and constant GPS usage. In the backseat of a car, Pokémon Go could run phenomenally with practically no affect on the car battery. Perhaps car windows could even serve as augmented reality screens.

The size and weight of phones were constrained for many years by the size of the battery required. The same is true of cars, but in terms of power and processing instead of the physical size and shape of the body frame. Consider apps like Pokémon Go, which are known as battery killers because of their extensive use of the camera for augmented reality and constant GPS usage. In the backseat of a car, Pokémon Go could run phenomenally with practically no affect on the car battery. Perhaps car windows could even serve as augmented reality screens. Risk factors. This is the No. 1 roadblock to connected cars right now. The jump from consumer-grade to automotive-grade security is just too great for comfort. Normally, when somebody hacks a phone, nobody gets hurt physically. A cybersecurity report this year pointed out that connected cars average 100 million lines of code, compared to only 8 million for a Lockheed Martin F-35 Lightning II fighter jet. In other words, security experts have a great deal of work to do to protect connected cars from hackers and random computer errors.

This is the No. 1 roadblock to connected cars right now. The jump from consumer-grade to automotive-grade security is just too great for comfort. Normally, when somebody hacks a phone, nobody gets hurt physically. A cybersecurity report this year pointed out that connected cars average 100 million lines of code, compared to only 8 million for a Lockheed Martin F-35 Lightning II fighter jet. In other words, security experts have a great deal of work to do to protect connected cars from hackers and random computer errors. Emotional affinity. Phones are accessories, but a car is really an extension of the driver. You can see this aspect in the pride people display when showing off their cars and their emotional attachment to their cars. This also explains why driverless cars and services like Uber are experiencing a hard limit on their market penetration. For the same reasons, companies that can’t provide flawless connectivity in cars could face long-lasting damage to their brand reputations.

Software over hardware

The value in connected cars will increasingly concentrate in software and applications over the hardware. The connected car will have a vertical hardware stack closely integrated with a horizontal software stack. To dominate the market, a player would need to decide where their niche lies within the solution matrix.

However, no matter how you view the hardware players and service stack, there is a critical role for mobility, software and services. These three will form the framework for experiences, powered by analytics, data and connectivity. Just as content delivered over the car radio grew to be an essential channel for ad revenue in the past, the same will be true in the future as newer forms of content consumption arise from innovative content delivery systems in the connected car.

In the big picture, though, connectivity is only part of the story.

As the second-most expensive lifetime purchase (after a home) for the majority of consumers, a car is an investment unlike any other. Like fuel and maintenance, consumers will fund connectivity as a recurring expense, which we could see through a variety of vehicle touch points. There’s the potential for carriers to partner with every vehicle interaction that’s currently on the market, as well as those that will be developed in the future.

When consumers are filling up at the gas pump, they could pay via their connected car wallet. In the instance of charging electric cars while inside a store, consumers could also make payments on the go using their vehicles. The possibilities for revenue generation through connected cars are endless. Some automakers may try the Kindle-like model to bundle the hardware cost into the price of the car, but most mobile carriers will prefer it to be spread out into a more familiar pricing model with a steady stream of income.

Monetization of the connected car

Once this happens and carriers start measuring ARPC, it will force other industry players to rethink their approach more strategically. For example, bundling of mobile, car and home connectivity will be inevitable for app, data and entertainment services as an integrated experience. In the big picture, though, connectivity is only part of the story. Innovative carriers will succeed by going further and perfecting an in-car user experience that will excite consumers in ways no one can predict right now. As electric vehicles (EVs), hydrogen-powered fuel cells and advances in solar gain market practicality, cars may run without gas, but they will not run without connectivity.

The first true killer app for connected cars is likely to be some form of new media, and the monetization potential will be vast. With Gartner forecasting a market of 250 million connected cars on the road by 2020, creative methods for generating revenue streams in connected cars won’t stop there. Over the next few years, we will see partnerships proliferate among industry players, particularly mobile carriers. The ones who act fast enough to assume a leadership role in the market now will drive away with an influential status and a long-term win — if history has anything to say about it.