Telematics: Business and Revenue Models

What is telematics?
Telematics represents the rapid convergence of mobile communications, mobile computing  and transportation -- autos, trucks, aircraft, and cruise lines. There are two trends driving telematics: mobile communications and computing (and speech recognition) become more reliable, available and inexpensive; and vehicles are becoming an intelligent platform for enabling mobile life.

A fundamental assumption behind the entire automotive telematics industry: The car serves as the mobile platform of the next century. 50-70% of all mobile calls originate in the car. Telematic solutions are often divided into three categories: front-seat, rear-seat and under-the-hood solutions. The front-seat market, constrained by the need to avoid distracting drivers, will revolve around safety, security, and features that make driving easier. Rear-seat include interactive games, music, and entertainment. Under-the-hood solutions will use data collected by on-board computers to provide tools such as remote diagnostics, remote engine tuning, and the intelligent ordering of replacement parts.

Examples of three competing telematics business ecosystems in the U.S. are: OnStar (GM + Delphi) versus WingCast (Ford + Visteon + Qualcomm) versus DaimlerChrysler (Johnson Controls). Mercedes-Benz USA is providing a safety and security system called Tele Aid as part of its standard offering. Each ecosystem consists of Automotive OEMs; Carriers, Content Providers; Application Developers; Financial Institutions; Merchants; Service Centers; and Dealers.

Telematics Trends

Telematics Strategy Issues

Some broad strategic questions:

• Recurring streams of revenue -- Will auto manufacturers will become mobile virtual network operators [MVNOs]. Both GM-backed OnStar and Ford-backed Wingcast could be considered MVNOs.
• Differentiation -- Will telematics will become a competitive differentiator of automobiles and will increasingly help sell cars to safety-conscious and connectivity-oriented car buyers.
• New Product lines -- Telematics innovation is creating several new area. Take for instance, automotive "infotainment systems" provided by players such as Harman International.  Harman is an "original equipment manufacturer," or OEM, for the auto industry making components such as speakers and the miniature microphones used in the GM "OnStar" emergency system. Aiming to become the market leader in high-end infotainment systems, Harman developed an optical hookup system that has become the industry standard. It replaces the nest of copper wires that connect components with a miniature fiber-optic network. Telematics could multiply Harman's sales per car such as BMW 7 eightfold - from $250 per car to around $2000.
• Expanding the Locus of Computing -- Will the car/truck/SUV become the hub for several interesting mobile scenarios. You take your laptop on a camping trip. The laptop that you are operating in the log cabin communicates with your car using a 802.11b network. The car then uses satellite uplink and downlink capability to transfer information to the Internet. 
• Embedded, real-time control systems -- Who -- Palm OS, Linux, Nokia, IBM, Sun or Microsoft -- will gain leverage as the operating system. Delphi Automotive is using IBM Telematics J9 virtual machine. J9 is a production environment offering dynamic compilation of Java application bytecodes and JIT (Just-In-Time) program execution.
• Grid computing -- who --  IBM, ATT, AOL, Sun or Microsoft -- will be the provider of the backbone computing grid as more cars and trucks connect to wireless data networks and act like rolling Web appliances. This means that the car is just another node on the Internet, like a home or office connection.
• Integration with 802.11a (WiFi5) networks. Delphi, Sun, Intel and others are experimenting with prototypes where your car will pull up to a gas pump and do more than download a tank of regular fuel. It will download the latest maps from MapQuest, videos for the backseat DVD player, music for the in-dash MP3 player and even access your home security system. WiFi 5 sends data at 54 Mbps. With Wi-Fi5, a typical full-length movie could be downloaded in about two minutes, compared with an hour on a cable modem or 12 hours on a 28.8 dial-in modem.

OnStar Case Study
OnStar is a wholly owned subsidiary of General Motors. OnStar is the leading provider of in-vehicle safety, security and information services. Using the Global Positioning System (GPS) satellite network and wireless technology, OnStar links the driver and vehicle to the OnStar Center. OnStar is steadily building a relationship with the customer. If in-vehicle telematics takes off, watch for OnStar to be an 800-lb gorilla.

OnStar's initial value proposition was focused on safety and security. More recently, OnStar has moved incrementally to “daily relevant interactions,” a value proposition less directly connected to the operation of a car and more concerned with convenience, communication, and the car as a mobile work and entertainment environment. Convenience includes features like route support (the OnStar Advisor locates your car using GPS and guides you to your destination), ride assist (the Advisor will call you a taxi), information services (a nearby restaurant address), and concierge services.

To gain market penetration, GM is pushing OnStar into more vehicle models—its own and other manufacturers. In 1996, only Cadillac owners who opted for the dealer installed hardware had access to OnStar. This strategy has evolved to a wider footprint, OnStar is factory-installed in 32 of GM's 54 US vehicle models. GM has positioning OnStar as a separate subsidiary allows the parent company to resell its telematics solution through non-GM cars. The Toyota Lexus and Honda Acura provide branded versions of the OnStar services.

Make no mistake, the car companies like GM are no pondering behemoths. They understand consumers. They are heavily invested in satellite radio broadcasting, subscription services, with a projected subscriber base of 20 million in 2005. GM owns 20 percent of XM Satellite Radio. Ford and DaimlerChrsyler are partners with rival Sirius Radio. Delphi and Visteon are building receivers for both services. Much of the revenue in the telematics market will come not just from hardware sales but from the provision of recurring services like satellite radio.

Telematics Platform Startups
A look at some startups complementing the telematics industry.

SOURCE: Red Herring (Wheel-Time Computing, February 2002