Cloudy outlook for telematics revenue

  • 27-Jun-2011 09:56 EDT

“It’s a struggle to get content to customers in the car,” said Audible’s Guy Story.

The telematics industry is poised for solid growth as carmakers add connectivity capabilities to their vehicles. But there are still many questions about the services that will be provided, and how those who provide services can bring in revenue.

Many prognosticators feel the majority of vehicles will have telematics connections in the second half of the decade. “By 2016, the majority of users will experience connectivity,” said Thilo Koslowski, Research Vice President, Gartner Inc. “For premium vehicles, the tipping point will occur earlier, probably around 2013.”

Connectivity will let OEMs monitor vehicles for diagnostics so they can send owners notices for maintenance, among other functions. The links will also be able to send emergency crash notifications and provide real-time navigation data.

A large number of independent vendors are gearing up to provide additional capabilities such as infotainment and location-based information. But many speakers at the Detroit Telematics 2011 conference this month said that it will be difficult for many third-party suppliers to make a profit by providing services.

“Connectivity will be in every vehicle, but paid services with monthly fees will be in less than 20% of them,” said Veerender Kaul, Automotive Research Director at Frost & Sullivan. “People will download apps, but they do that one time so there’s not considerable revenue.”

A large number of companies from outside the automotive industry are targeting telematics. They range from startups aiming at niches to well-established broadcasters who feel drivers want content not available locally.

“We’re going from traditional radio to customized, personalized radio,” said Patrick Polking, Senior Director of Distribution Development at ESPN. “The ability to get say, Detroit Lions content, is very valuable to someone who no longer lives in Michigan.”

Many service providers feel that a key to success is to provide customized functions in a way that’s easy for drivers to access them. They envision a menu of options that adapts to the current driver of a family vehicle, for example.

“Telematics should become more personalized,” said James Flavell, Senior Vice President of MyAssist, which provides concierge services and mobile apps. “When you push the telematics button, the system should know who you are and what you typically do.”

However, there’s no clear path for companies that are developing and deploying telematics services. Hardware platforms vary widely, making it difficult for content providers to get data to vehicles.

“It’s a struggle to get content to customers in the car,” said Guy Story, CTO & Chief Scientist for Audible, an subsidiary. “The opportunity to innovate is hampered because we’re not writing to one platform.”

Audible wants to transmit audio books to vehicles, but figuring out how functions like storing beginning and end points for each usage is difficult because there are no standard telematics platforms. Some systems will use smart phones to connect to the Web, while others use a range of embedded hardware for most functions.

Many providers have copied the successful model of cell phones, developing apps that are targeted at drivers. Many can be used by those who use smart phones to connect to Internet services while others will rely on built-in telematics receivers. Here again, analysts note that drivers may also follow the trend of the cellular industry, where few downloads generate revenues.

“In 2012, there should be 30 billion downloads of apps, but 26 billion of them will be free,” Koslowski said “It’s not clear how you make money in this field.”

Another concern is that the market for automotive apps may be fairly limited. Drivers concerned about distractions are likely to limit their downloads to apps that are easy to use, and many may find only a few applications that are useful while they’re driving.

“People don’t need to buy 1000 apps for their car,” Polking said.

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