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While Wingcast is History, Telematics is Alive and Well
Last year, market analysts were confidently predicting a rosy future for the telematics industry. But the June decision by Ford Motor Co. to pull out of Wingcast, its telematics venture, has caused tremors throughout the fledgling telematics industry.
Even as late as the last quarter of 2001, market forecasts for telematics were uniformly upbeat. Strategy Analytics predicted a $40 billion market by the end of 2007 ( In-Car Telematics Terminals Forecast 2001-2007 Report, January 2002). Frost & Sullivan was predicting the European market for telematics to double to 2.15 bilion euros by 2006 and the North American telematics market to surge to $7 billion by 2007 (North American Automotive Telematics Market, August 2001). The Telematics Research Group saw the automotive telematics market take off on an “explosive growth cycle” that would see 33 percent of all new autos telematics-enabled by 2006. A report from Allied Business Intelligence, Inc. estimated that the global market for telematics would grow to over $12.3 billion by 2007 from $2.2 billion for 2001 (The Digital Car: Dynamic Player Roles and Business Models in the Telematics Value Chain, May 2002). Market research firm Driscoll-Wolfe predicted that about 10.8 million American motorists will subscribe to telematics services by 2004, up from about 2.4 million today. And strategy consulting firm Roland Berger forecasted 100 million telematics subscribers worldwide by 2010, with 44 million of them in the United States. By 2010, Roland Berger said, telematics will be a $24 billion market worldwide.
Early this year, a note of caution crept into the analysts’ forecasts. Paul Hansen, author and publisher of The Hansen Report on Automotive Electronics, warned that “The industry is emerging much more slowly than anyone expected” and speculated that the vision of a booming telematics business may remain unfulfilled for as long as eight years. (Telematics Service Providers - Near Term Prospects Diminish, May 24, 2002). McKinsey, having last year predicted that the U.S. telematics market would reach $40 billion per year by 2010 (The Road Ahead for Telematics, The McKinsey Quarterly, 2001, No. 2), slashed its estimate to $15 - 20 billion in its 2002 report (The McKinsey Quarterly, 2002, No.2). At the Telematics 2002 Conference in Detroit in May 2002, sponsored by the EyeForAuto group, speakers began to warn against unrealistic expectations and suggested that the prevailing business models, predicated on subscription fees from motorists, need to be re-examined.
Then, came the announcement that shook the telematics industry - and its analysts - to the core. On June 3, Ford Motor Co. announced that it was terminating Wingcast - its joint venture with Qualcomm, Inc. to provide telematics services to owners of Ford vehicles. Launched in July 2000 by the former Ford CEO Jacques Nasser, Wingcast was supposed to become a competitor to OnStar and ATX Technologies in the emerging U.S. telematics market. Unlike OnStar, which relies on an embedded communication system, Wingcast had planned to make use of a portable device that would enable customers to use the service inside as well as outside the vehicle and would not require another wireless service contract. Ford expected to install Wingcast systems in more than one million vehicles by the end of 2002. This number was then expected to rise to more than three million by the end of 2003, and to nine million by 2005.
After Nasser’s departure last October, Wingcast became a cost-cutting target under Chairman William Clay Ford’s “back-to-basics” restructuring plan that focused on the company’s core business. While the company is still committed to the objective of providing telematics services in its vehicles, “we do not believe it is necessary to have equity interest in a telematics service provider in order to meet that goal,” said Douglas VanDagens, director of Ford’s Wireless Mobility.
While Ford’s decision to pull the plug on Wingcast can be seen like a prudent business decision rather than a sign of fundamental trouble for telematics, the announcement has caused consternation among market analysts and a lot of soul searching by industry leaders. Here are some typical comments from the analysts in the aftermath of the Ford announcement: “We do not expect the telematics market to perish as a result of Wingcast’s downfall , but it certainly has been a blow to the North American automotive telematics market” (Frost & Sullivan); “While we are confident that Wingcast’s failure will not mark the beginning of a telematics Armageddon, it will in fact mark a period of much more cautious and deliberate service rollouts. No longer will self-declared ‘killer apps’ be launched in hopes of widespread consumer adoption... (Allied Business Intelligence, Inc.) . “Wingcast’s demise does spell the likely end for automakers going into business as telematics service providers, and may add power to the push toward non-embedded systems for suppliers other than OnStar (Telematics Update); “Automakers are likely to continue to struggle to find profitable safety-based telematics business models, even as hardware costs decline... They will find many speed bumps along this road...” (The Strategis Group).
The Ford announcement also had a sobering effect on the telematics community. Wingcast’s demise is viewed by some industry leaders as part of an inevitable consolidation within the telematics industry. Already last January, Steven A Millstein, ATX Technologies CEO, predicted that 2002 would be remembered as the year of the “great telematics shakeout.” The telematics industry, in some respects today, resembles the dot-com business before the crash,” he told an interviewer in 2001. “There are too many telematics start-ups running on hype, inflated market projections and unrealistic expectations of the consumer.” Other industry leaders, while stressing that Wingcast’s failure should not be heralded as the death of telematics, have echoed Millstein’s view that the industry is due for a restructuring.
The debate about the future of telematics in the post-Wingcast era is focused on several key issues:
What should be the primary focus of telematics ?
A long-standing premise within the telematics industry, championed by
OnStar management, has been that “safety and security” are
the foundation of a successful telematics market.“Safety is a prime
concern for both consumers and car manufacturers, and telematics is the
best safety enhancement since the introduction of seatbelts,” echoed
Elliott Hamilton, Senior Vice President of The Strategis Group. Proponents
of this point of view contend that vehicle owners are willing to pay monthly
subscription fees for the peace of mind offered by automatic airbag deployment
notification systems, emergency roadside assistance and other telematic
safety/security features. For carmakers, the attraction of this business
model was the prospect of a steady revenue stream from driver subscription
fees, long after the vehicle left the showroom.
But, the assumption that there is a robust demand for safety-related features
has been challenged by some critics. The emphasis on safety and security
is an example of “selling the customer what we make, rather than
selling what the customer wants,” said Andrew Cole, senior vice
president of Adventis, at the opening session of Telematics 2002 conference.
Responding to Cole, OnStar Vice President Scott Kubicki, pointed out that
the service receives some 200,000 calls per month, including 500 airbag
deployment notifications and 375 stolen vehicle tracking requests -
validating OnStar’s focus on safety, security and customer call
centers as the foundation for its business model.
ATX Technologies’ Steve Millstein has articulated an alternative
mission for telematics. Telematics, he contends, must focus first and
foremost on “vehicle-centric” applications The biggest payoff
and most immediate potential lies with “under the hood” services
that monitor vehicle performance in real time and communicate this data
to the motorist, the dealer’s service department and the automaker.
Examples include:
- remotely providing early diagnostic information to the dealership service center and/or roadside assistance service, thus enabling them to determine the nature of the required repairs and pre-order necessary parts;
- providing vehicle owners with the current maintenance status of their vehicle such as tire pressure;
- moving from preventive maintenance to predictive maintenance based on trend analysis produced by real-time monitoring of performance data;
- providing automakers with an early warning system of specific faults in vehicle parts, wear and performance;
In sum, the biggest payoff for telematics, Millstein argues, is better Customer Relations Management - helping automakers and dealerships to customize and personalize service to their customers. Automakers could use “under-the-hood” telematics to keep in touch with customers and gain valuable insights into car performance, knowledge that could enhance automakers’ ability to correct design faults make improvements in subsequent models.
What features are customers willing to pay for and how much are they willing to spend?
Currently, the telematics industry is struggling to understand what features customers are willing to pay for and how much they are willing to spend for specific services. Several years ago, traveler information and route guidance were considered as a potential “killer application.” The business model then in vogue envisioned information providers selling personalized traveler information services to individual subscribers. Experience has proved this model to be flawed. Motorists turned out to be unwilling to pay for information they could readily obtain for free over car radios, on the internet and by consulting maps. Today, few operators would claim that provision of traffic information or route guidance offers significant monetary rewards, although surveys continue to show that traffic advisories are highly valued by motorists (so long as they come free!)
The OnStar business model has both proponents and detractors. OnStar offers its services to more than 2 million GM vehicle owners (also Acura, Audi, Isuzu, Lexus and Subaru owners) at monthly fees raging from $17 to $70 depending on the level of service. However, it is not clear whether the OnStar business model is financially viable. Some analysts claim that only two-thirds of OnStar- equipped vehicles are ever activated despite that fact that the service is free for one year. They also contend that OnStar re-subscription rates are hovering below 50%, significantly below the 70-80% renewal rate that is commonly considered as needed for profitable service.
A more promising commercial future might be in store for digital satellite
radio. XM Satellite Radio, one of two commercial satellite radio ventures
in North America has signed up more than 136,000 subscribers since its
nationwide launch last August. For $9.99 a month, subscribers get access
to 69 music channels and 31 news, sports and talk channels with far more
variety than is offered by conventional AM/FM radio. A second
company, Sirius Satellite Radio, launched on July 1 of this year, expects
to sign up 300,000 subscribers by the end of 2003 at a monthly fee of
$12.95. While doubts still remain whether consumers will spend money on
safety or concierge services, they do appear willing to pay for in-vehicle
entertainment. Or so the digital satellite companies hope.
Are automakers the “natural owners” of the telematics
business?
Are automakers uniquely positioned to dominate delivery of telematics
services? Not necessarily, contends a growing number of industry participants.
Many speakers at the Telematics 2000 Conference argued that, while automakers
will lead on installation of telematics systems, the car industry
is not necessarily best equipped to operate telematics services.
Instead, some observers think that telematics service delivery should
be turned over to the wireless industry since telecom carriers already
have considerable experience in integrating content from disparate sources
and expertise in customer relationship management.
Embedded vs. portable devices
OnStar has built its business model on the concept of embedded systems.
Proponents of this approach argue that embedded systems are always on
and always connected, providing services, such as automatic crash notification,
without fail. Embedded systems can never be lost or left behind.
Proponents of portable devices retort that most services that consumers want can be reached on portable devices. Consumers will not want to pay twice to have services delivered via an embedded system in the car when they already are likely to have those services on their cell phones. Product life cycles present another advantage. Portable devices can incorporate the latest technological improvements while embedded devices can become technologically obsolete during the car’s longer life span.
Many observers think that DaimlerChrysler’s decision to introduce a Bluetooth-based system (UConnect) which allows specially equipped cell phones to synchronize with in-car telematics hardware may portend the future.
While Wingcast is History, Telematics is Alive and Well
Last year, market analysts were confidently predicting a rosy future for the telematics industry. But the June decision by Ford Motor Co. to pull out of Wingcast, its telematics venture, has caused tremors throughout the fledgling telematics industry.
Even as late as the last quarter of 2001, market forecasts for telematics were uniformly upbeat. Strategy Analytics predicted a $40 billion market by the end of 2007 ( In-Car Telematics Terminals Forecast 2001-2007 Report, January 2002). Frost & Sullivan was predicting the European market for telematics to double to 2.15 bilion euros by 2006 and the North American telematics market to surge to $7 billion by 2007 (North American Automotive Telematics Market, August 2001). The Telematics Research Group saw the automotive telematics market take off on an “explosive growth cycle” that would see 33 percent of all new autos telematics-enabled by 2006. A report from Allied Business Intelligence, Inc. estimated that the global market for telematics would grow to over $12.3 billion by 2007 from $2.2 billion for 2001 (The Digital Car: Dynamic Player Roles and Business Models in the Telematics Value Chain, May 2002). Market research firm Driscoll-Wolfe predicted that about 10.8 million American motorists will subscribe to telematics services by 2004, up from about 2.4 million today. And strategy consulting firm Roland Berger forecasted 100 million telematics subscribers worldwide by 2010, with 44 million of them in the United States. By 2010, Roland Berger said, telematics will be a $24 billion market worldwide.
Early this year, a note of caution crept into the analysts’ forecasts. Paul Hansen, author and publisher of The Hansen Report on Automotive Electronics, warned that “The industry is emerging much more slowly than anyone expected” and speculated that the vision of a booming telematics business may remain unfulfilled for as long as eight years. (Telematics Service Providers - Near Term Prospects Diminish, May 24, 2002). McKinsey, having last year predicted that the U.S. telematics market would reach $40 billion per year by 2010 (The Road Ahead for Telematics, The McKinsey Quarterly, 2001, No. 2), slashed its estimate to $15 - 20 billion in its 2002 report (The McKinsey Quarterly, 2002, No.2). At the Telematics 2002 Conference in Detroit in May 2002, sponsored by the EyeForAuto group, speakers began to warn against unrealistic expectations and suggested that the prevailing business models, predicated on subscription fees from motorists, need to be re-examined.
Then, came the announcement that shook the telematics industry - and its analysts - to the core. On June 3, Ford Motor Co. announced that it was terminating Wingcast - its joint venture with Qualcomm, Inc. to provide telematics services to owners of Ford vehicles. Launched in July 2000 by the former Ford CEO Jacques Nasser, Wingcast was supposed to become a competitor to OnStar and ATX Technologies in the emerging U.S. telematics market. Unlike OnStar, which relies on an embedded communication system, Wingcast had planned to make use of a portable device that would enable customers to use the service inside as well as outside the vehicle and would not require another wireless service contract. Ford expected to install Wingcast systems in more than one million vehicles by the end of 2002. This number was then expected to rise to more than three million by the end of 2003, and to nine million by 2005.
After Nasser’s departure last October, Wingcast became a cost-cutting target under Chairman William Clay Ford’s “back-to-basics” restructuring plan that focused on the company’s core business. While the company is still committed to the objective of providing telematics services in its vehicles, “we do not believe it is necessary to have equity interest in a telematics service provider in order to meet that goal,” said Douglas VanDagens, director of Ford’s Wireless Mobility.
While Ford’s decision to pull the plug on Wingcast can be seen like a prudent business decision rather than a sign of fundamental trouble for telematics, the announcement has caused consternation among market analysts and a lot of soul searching by industry leaders. Here are some typical comments from the analysts in the aftermath of the Ford announcement: “We do not expect the telematics market to perish as a result of Wingcast’s downfall , but it certainly has been a blow to the North American automotive telematics market” (Frost & Sullivan); “While we are confident that Wingcast’s failure will not mark the beginning of a telematics Armageddon, it will in fact mark a period of much more cautious and deliberate service rollouts. No longer will self-declared ‘killer apps’ be launched in hopes of widespread consumer adoption... (Allied Business Intelligence, Inc.) . “Wingcast’s demise does spell the likely end for automakers going into business as telematics service providers, and may add power to the push toward non-embedded systems for suppliers other than OnStar (Telematics Update); “Automakers are likely to continue to struggle to find profitable safety-based telematics business models, even as hardware costs decline... They will find many speed bumps along this road...” (The Strategis Group).
The Ford announcement also had a sobering effect on the telematics community. Wingcast’s demise is viewed by some industry leaders as part of an inevitable consolidation within the telematics industry. Already last January, Steven A Millstein, ATX Technologies CEO, predicted that 2002 would be remembered as the year of the “great telematics shakeout.” The telematics industry, in some respects today, resembles the dot-com business before the crash,” he told an interviewer in 2001. “There are too many telematics start-ups running on hype, inflated market projections and unrealistic expectations of the consumer.” Other industry leaders, while stressing that Wingcast’s failure should not be heralded as the death of telematics, have echoed Millstein’s view that the industry is due for a restructuring.
The debate about the future of telematics in the post-Wingcast era is focused on several key issues:
What should be the primary focus of telematics ?
A long-standing premise within the telematics industry, championed by
OnStar management, has been that “safety and security” are
the foundation of a successful telematics market.“Safety is a prime
concern for both consumers and car manufacturers, and telematics is the
best safety enhancement since the introduction of seatbelts,” echoed
Elliott Hamilton, Senior Vice President of The Strategis Group. Proponents
of this point of view contend that vehicle owners are willing to pay monthly
subscription fees for the peace of mind offered by automatic airbag deployment
notification systems, emergency roadside assistance and other telematic
safety/security features. For carmakers, the attraction of this business
model was the prospect of a steady revenue stream from driver subscription
fees, long after the vehicle left the showroom.
But, the assumption that there is a robust demand for safety-related features
has been challenged by some critics. The emphasis on safety and security
is an example of “selling the customer what we make, rather than
selling what the customer wants,” said Andrew Cole, senior vice
president of Adventis, at the opening session of Telematics 2002 conference.
Responding to Cole, OnStar Vice President Scott Kubicki, pointed out that
the service receives some 200,000 calls per month, including 500 airbag
deployment notifications and 375 stolen vehicle tracking requests -
validating OnStar’s focus on safety, security and customer call
centers as the foundation for its business model.
ATX Technologies’ Steve Millstein has articulated an alternative
mission for telematics. Telematics, he contends, must focus first and
foremost on “vehicle-centric” applications The biggest payoff
and most immediate potential lies with “under the hood” services
that monitor vehicle performance in real time and communicate this data
to the motorist, the dealer’s service department and the automaker.
Examples include:
+ remotely providing early diagnostic information to the dealership service
center and/or roadside assistance service, thus enabling them to determine
the nature of the required repairs and pre-order necessary parts;
+ providing vehicle owners with the current maintenance status of their
vehicle such as tire pressure;
+ moving from preventive maintenance to predictive maintenance based on
trend analysis produced by real-time monitoring of performance data;
+ providing automakers with an early warning system of specific faults
in vehicle parts, wear and performance;
In sum, the biggest payoff for telematics, Millstein argues, is better Customer Relations Management - helping automakers and dealerships to customize and personalize service to their customers. Automakers could use “under-the-hood” telematics to keep in touch with customers and gain valuable insights into car performance, knowledge that could enhance automakers’ ability to correct design faults make improvements in subsequent models.
What features are customers willing to pay for and how much are they willing to spend?
Currently, the telematics industry is struggling to understand what features customers are willing to pay for and how much they are willing to spend for specific services. Several years ago, traveler information and route guidance were considered as a potential “killer application.” The business model then in vogue envisioned information providers selling personalized traveler information services to individual subscribers. Experience has proved this model to be flawed. Motorists turned out to be unwilling to pay for information they could readily obtain for free over car radios, on the internet and by consulting maps. Today, few operators would claim that provision of traffic information or route guidance offers significant monetary rewards, although surveys continue to show that traffic advisories are highly valued by motorists (so long as they come free!)
The OnStar business model has both proponents and detractors. OnStar offers its services to more than 2 million GM vehicle owners (also Acura, Audi, Isuzu, Lexus and Subaru owners) at monthly fees raging from $17 to $70 depending on the level of service. However, it is not clear whether the OnStar business model is financially viable. Some analysts claim that only two-thirds of OnStar- equipped vehicles are ever activated despite that fact that the service is free for one year. They also contend that OnStar re-subscription rates are hovering below 50%, significantly below the 70-80% renewal rate that is commonly considered as needed for profitable service.
A more promising commercial future might be in store for digital satellite
radio. XM Satellite Radio, one of two commercial satellite radio ventures
in North America has signed up more than 136,000 subscribers since its
nationwide launch last August. For $9.99 a month, subscribers get access
to 69 music channels and 31 news, sports and talk channels with far more
variety than is offered by conventional AM/FM radio. A second
company, Sirius Satellite Radio, launched on July 1 of this year, expects
to sign up 300,000 subscribers by the end of 2003 at a monthly fee of
$12.95. While doubts still remain whether consumers will spend money on
safety or concierge services, they do appear willing to pay for in-vehicle
entertainment. Or so the digital satellite companies hope.
Are automakers the “natural owners” of the telematics business?
Are automakers uniquely positioned to dominate delivery of telematics
services? Not necessarily, contends a growing number of industry participants.
Many speakers at the Telematics 2000 Conference argued that, while automakers
will lead on installation of telematics systems, the car industry is not
necessarily best equipped to operate telematics services. Instead, some
observers think that telematics service delivery should be turned over
to the wireless industry since telecom carriers already have considerable
experience in integrating content from disparate sources and expertise
in customer relationship management.
Embedded vs. portable devices
OnStar has built its business model on the concept of embedded systems.
Proponents of this approach argue that embedded systems are always on
and always connected, providing services, such as automatic crash notification,
without fail. Embedded systems can never be lost or left behind.
Proponents of portable devices retort that most services that consumers want can be reached on portable devices. Consumers will not want to pay twice to have services delivered via an embedded system in the car when they already are likely to have those services on their cell phones. Product life cycles present another advantage. Portable devices can incorporate the latest technological improvements while embedded devices can become technologically obsolete during the car’s longer life span.
Many observers think that DaimlerChrysler’s decision to introduce a Bluetooth-based system (UConnect) which allows specially equipped cell phones to synchronize with in-car telematics hardware may portend the future.
Conclusion
Perhaps the best summation of where telematics finds itself today has
been made by a group of McKinsey analysts. Writing in the current issue
of The McKinsey Quarterly they said: “Times have changed
since telematics arrived as a white knight and carmakers seemed destined
to lead the mobile world. Today, those betting on a full suite of telematics
services face strong competition from entrenched devices such as mobile
phones and PDAs. To win by providing a full suite, the automakers would
have to force their customers to pay for overlapping services and somehow
make those customers at least partly satisfied with last year’s
technology - a difficult proposition. When carmakers update their
telematics strategies, they must abandon the hype that surrounded the
field, focus on building great cars and carefully choose where to invest.”
(Anjan Chatterjee, Hans-Werner Kaas, T.V. Kumaresh and Philip J. Wojcik,
The McKinsey Quarterly, 2002, Number 2)
Perhaps the best summation of where telematics finds itself today has
been made by a group of McKinsey analysts. Writing in the current issue
of The McKinsey Quarterly they said: “Times have changed since telematics
arrived as a white knight and carmakers seemed destined to lead the mobile
world. Today, those betting on a full suite of telematics services face
strong competition from entrenched devices such as mobile phones and PDAs.
To win by providing a full suite, the automakers would have to force their
customers to pay for overlapping services and somehow make those customers
at least partly satisfied with last year’s technology - a
difficult proposition. When carmakers update their telematics strategies,
they must abandon the hype that surrounded the field, focus on building
great cars and carefully choose where to invest.” (Anjan Chatterjee,
Hans-Werner Kaas, T.V. Kumaresh and Philip J. Wojcik, The McKinsey Quarterly,
2002, Number 2)
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