Telematics: No profits yet

Automotive Industries, Dec, 2001 by Paul Hansen

OnStar, by far the world's biggest telematics service company, had a total of 1.8 million North American subscribers as of November 7, 2001. But the GM subsidiary hasn't made a dime. Indeed, GM "hopes" OnStar will turn a profit in 2003, as there are current indications it will become cash flow positive sometime in 2002. It has been commercially available since the fall of 1996, debuting on the 1997 Cadillac DeVille, Seville and Eldorado. To keep it affordable, OnStar uses a very simple telematics platform in the vehicle: a GPS (Global Positioning System) receiver, embedded cell-phone circuit, a microphone and a few input switches.

Telematics was first marketed to the Japanese in the fall of 1997 and early 1998 on platforms considerably more sophisticated than OnStar's. Japanese platforms such as Toyota's Monet, or Honda's Inter Navi system handle not only autonomous navigation but also provide access to telematics services and the Internet Speech synthesis can be included to convert text into speech so the driver can listen to messages.

These platforms required considerable computing power, a color display, lots of memory, and a combination of soft and hard input switches. By the time Monet and Inter Nay hit the market, DaimlerChrysler was already operating its Intelligent Traffic Guidance System (ITGS) in Tokyo. ITGS is a dynamic route-guidance service, which guides Mercedes owners to their destinations while avoiding traffic.

Last month, while visiting the Tokyo Motor Show and talking with people at Toyota, Honda, Denso and DaimlerChrysler, I learned that the total number of telematics subscriptions has grown very little in the four years since its introduction. In October, there were only 30,000 or so telematics subscribers in Japan. And sadly, DaimlerChrysler stopped taking on new ITGS subscribers in spring of 2001. Even in electronics-gadget-loving Japan, where onboard navigation sales this year will reach the 2 million mark, telematics has not yet blossomed.

During a speech I gave last spring in Stuttgart to 400 German automotive electrical engineers and executives, I asked my audience, "If anybody here knows of a company that's definitely making money in telematics, please raise your hand." Not one hand went up. Telematics services in other European countries are doing no better than those in Germany. Clearly it will be years before telematics will make money anywhere in the world.

Before telematics can successfully live up to its promise, and really take advantage of the Internet, several key obstacles have to be overcome:

* The biggest obstacle to the success of telematics is content There is simply not enough content available that can bring in sufficient revenue to push telematics businesses into the black Though it is not a telematics business, Japan's i-mode Internet service for portable phones averages $17 per subscriber per month, from a total of 28.5 million subscribers.

* Another major obstacle to telematics success is the human-machine interface, which is difficult, even frustrating, to use while driving. The car environment can be very noisy and today's speech-recognition technology is not able to accurately capture strings of words as drivers naturally, comfortably speak them.

* Onboard telematics computing platforms need to be far less expensive than they are today. Ideally, they should cost about $500 each.

Despite these near-term difficulties, most will be overcome within the next five to seven years, and telematics will begin to pay back investors. Global standards will allow content providers to make better business cases for new products or services because the market for their products will be larger. And content providers will get revenues from new sources such as advertisers or government.

Telematics is struggling now, but poised for profits.

PAUL HANSEN is a strategy and market research consultant He publishes The Hansen Report on Automotive Electronics in Rye, N.H., a business and technology newsletter.

[www.hansenreport.com]