Growing an Industry

Automotive Industries, July, 2001 by Lora J. Bingham

Get ready for an explosion in the European telematics market, but challenges remain.

Wireless interactive technology - telematics - is expected to drive the European automotive market to new heights over the next several years, seeing a growth of $6.6 billion in revenues by 2007, according to a recent report from Frost & Sullivan.

The expected increase in revenue is attributed to several factors, chief among them the total number of future vehicles that will be equipped with telematics capabilities. As the cost of telematic control units (TCU) falls over the next seven years, the number of vehicles equipped with TCUs is expected to dramatically increase.

"There are numerous challenges for market participants, though," cautions Frost & Sullivan analyst Tif Awan. "The principal one is unlocking the value of telematics for end users in terms of desirable applications and services."

Indeed, hardware currently makes up the lion's share of revenue in this market, at 82 percent. And there are two types of TCUs available. The first is the "Navigation Unit," consisting of CD-based onboard navigation systems with varying degrees of complexity. The second is the "Safety Security Unit," commonly known as the three-button system. A number of automakers offer a combination of the two systems as well.

Frost & Sullivan predicts that the two TCUs will converge into a single unit, offering safety and security applications with navigation capability, by 2004. And as improvements are made to the systems, a range of options - including several multimedia ones - and prices should become available to the market, helping to increase the number of vehicles equipped with telematics hardware.

But simply equipping vehicles will not be enough, asserts Awan. "Any technology that does not create superior value for users has a limited future, a lesson that was learned from the development of the Internet," he says. "For the European automotive telematics market to yield its potential, the industry must move from a technology-push to a market-pull strategy."

Assuming telematics vendors make the move, Frost & Sullivan predicts the market share of telematics services will outstrip hardware by 16 percent by 2007. Breaking the services expected into four key segments for development - safety and security, navigation, infotainment and remote vehicle systems access - revenue is expected to come first from annual subscriptions for safety and security services and repeat purchases of CD maps and/or map service. Revenue from other services such as infotainment should pick up momentum after 2004.

Another hangup for the telematics market is the technological developments in other related industries. Profitability and innovation issues faced by the auto industry regarding telematics technologies are very similar to those in the mobile communications industry, Awan points out. The cellular industry is in transition from second generation (2G) to third generation (3G), via 2.5G wireless communication standards. It is these 2.5G standards that services such as off-board navigation require. In Europe, the 2.5G technology is entering the marketplace late, and 3G coverage is even further off. Similar problems with Bluetooth and other technologies advanced telematics systems require exist. Thus, in order to create a market push for telematics services, raising consumer awareness of the telematics market as a whole could benefit several industries. After all, demand drives innovation.

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