Reference Section

The Future of Automotive Telematics

a report by
Dr Egil Juliussen

Principal Analyst, Telematics Research Group

Telematics Industry Overview telematics requirements and a few of the many

additional options.
During the last two decades, the automobile has
made the transformation from an analogue machine Telematics technology will also have a large impact
with mostly mechanical and hydraulic control on many other automotive electronic systems such as
systems to a digital car with a rapidly growing automotive control systems, x-by-wire, driver assist
volume of computer-based control systems. This systems (also called intelligent vehicle systems) and
transition will continue for another decade or two as ITS. ITS will increase in sophistication over the next
Dr Egil Juliussen is Principal Analyst drive-by-wire or x-by-wire systems emerge and decade and will increasingly require telematics
for the Telematics Research Group. eventually proliferate. The addition of sensor-based capabilities in automobiles that can take advantage of
He was previously President and
Editor of the Computer Industry intelligent vehicle functions will further advance ITS applications. The telematics industry is built on
Almanac and Internet Industry digital technologies in future automobiles. Intelligent these three telematics technologies and has several
Almanac and was Chairman of
Workstation Laboratories. He was
transportation systems (ITS) will also require distinct market segments as illustrated in Figure 1.
Chairman and Co-founder of Future increasingly capable in-vehicle digital systems. The
Computing and, when it was sold resulting digital car will create a long-term market The largest telematics market segment is the
to McGraw-Hill in 1984, he
remained President of the push and pull for telematics technologies. telematics systems that are installed by automotive
company’s StoreBoard unit for manufacturers. The average end-user price of an
several years following a private
In the last two decades, connectivity and optional telematics system was in excess of US$1,200
placement. Previously, Dr Juliussen
has been with Texas Instruments communications between individuals both at home in North America in 2002 and many high-end
Inc. where he was a strategic and and at work have increased dramatically. Since 1990, systems were much more costly. In 2003, nearly
product planner for microprocessors,
mini-computers and personal the number of mobile phone subscribers has leapt three million telematics systems will be sold
computers (PCs). He was also from a few million to over 1.1 billion at the end of worldwide. The worldwide average telematics
employed by Norden, a division of 2002. The number of Internet users worldwide was system price will be around US$1,500, giving an
United Technologies, where he
designed graphics systems. His only two million in 1990 and surpassed 660 million in end-user market value of US$4.5 billion in 2003.
professional background includes 2002. Personal computers in use have risen from less
more than 25 years of market and
technology analysis in the fields of
than 100 million in 1990 to over 660 million in 2002. The aftermarket telematics market is much smaller
information technology, PCs, The result is that a large portion of the population is than the systems market. Many of the aftermarket
Internet technology, wireless dependent on communications and content and wants devices are bought for other use and are later
communications and vehicle
telematics. He has regularly written to extend this capability to their vehicles. This creates connected to the automobile to create limited-
columns and papers for computer a long-term market pull for telematics technologies function telematics systems. Mobile phone integration
publications and makes
presentations, seminars and lectures
and the resulting telematics content and services. systems are becoming popular and are expected to
in the US, Japan and Europe. He remain the most important telematics application.
received BSc, MSc and PhD degrees Telematics has three basic capabilities:
in Electrical Engineering from
Purdue University. The telematics service market has many segments
1. two-way communications capabilities (wireless); and will grow in variety, desirability and usage
2. location technology (geographic position); and penetration. Today, the monitoring service that is
3. computing platform for system control and prevalent for safety and security system applications is
interface to automotive electronics system(s). the largest service segment. OnStar Corp. has more
than two million monitoring service customers and
The key telematics technologies are two-way its monthly service cost is about US$17, which
communications and location technology, such as a translates to a monitoring service market of nearly
global positioning system receiver, which are US$500 million at end-user value. However, many
combined with a computer hardware and software customers receive a year of bundled and free service
platform to create a telematics system. Depending and, hence, this is an ‘if-sold value’. When other
on the telematics functionality, this system is telematics service providers are included, the
interfaced and integrated with the automobile’s monitoring service if-sold value is expected to top
1 electronics systems. Table 1 summarises the US$600 million in 2003.

BUSINESS BRIEFING: GLOBAL AUTOMOTIVE MANUFACTURING & TECHNOLOGY 2003

 The Future of Automotive Telematics

Table 1: Defining Telematics Technology

Essential Main Approaches Optional

Two-way communications • Embedded mobile phone • Telematics service monitoring
• Integrated driver mobile phone • Remote auto function control
Location technology • Global positioning satellite receiver • Remote auto diagnostics
• Mobile phone location technology • Automatic collision notification
Computing platform for • Embedded safety and security telematics • Crash event data recorder
telematics applications • Mobile phone to radio integration • Bluetooth™ communication
• Mobile phone to navigation integration • Speech user interface
• Entertainment telematics • On-board or off-board navigation

Communications services, navigation services and con- expected to grow substantially in the future. The
tent services are also available to telematics customers. automotive manufacturers have the most to gain from
The usage rates are lower than for monitoring services telematics operational and usage data. They will be
but, as the quality and usefulness of the services grow, able to realise large cost savings and cost avoidance
they will become significant opportunities. Navigation from analysing telematics operational and usage data.
and realtime routing services are desirable to most Customer relationship management and vehicle
telematics users and will become popular choices as the relationship management via telematics systems have
quality of traffic information grows. significant potential for the automotive manufacturers
and their dealers.
Communications, navigation/routing and content
services have also been developed for mobile devices. Telematics operational and usage data is also valuable
Mobile device services both complement and to numerous segments of the automotive support
compete with equivalent telematics services. In the industries. Insurance companies can benefit from
long term, these services are likely to merge and will usage data to lower their claims and fraud exposure
be delivered by the same companies for both mobile and can lower rates to customers that are willing to
devices and telematics systems. share usage data. The healthcare industry can save
lives and improve their efficiency with additional and
Telematics systems are already used to deliver more detailed realtime crash data. Government
valuable data for a variety of applications and are organisations can also benefit from telematics data for

Figure 1: Telematics Market Segments

Telematics Usage Data Telematics Services Mobile Device Service

• Insurance companies • Monitoring services • Communication services
• Healthcare industry • Communication services • Navigation services
• Government organisations • Navigation services • Content services
• Others • Content services • Personal mobile services

Auto usage and

operational data

OEM Telematics Systems Telematics Systems Aftermarket Telematics

• Customer relationship management
• Safety and security™ • Mobile phone integration™
& vehicle relationship management
• Mobile phone integration™ • Navigation™
• Remote diagnostics
• Navigation™ • Mobile device™
• Software upgrades
• Entertainment™ • Tracking devices
• Cost avoidance and savings

Telematics Technology
• Two-way communications
Synergy and Integration • Location technology Synergy and Integration
• Hardware and software platforms
• Auto electronics • Driver assist systems
• Integration with auto electronics
• X-by-wire systems • ITS
2

BUSINESS BRIEFING: GLOBAL AUTOMOTIVE MANUFACTURING & TECHNOLOGY 2003

 Reference Section

Table 2: The Sceptics’ View

Reasons for the failure of telematics Counter-argument

Telematics systems are too expensive • Telematics systems are desirable to a growing portion of buyers
• Proof: OnStar is mostly bundled and • Telematics systems will have steep pricing declines. Examples:
rarely bought by customers • A US$1,000 telematics system will cost US$300+ after five years
• Proof: Few sales in Japan and Europe, • A US$1,000 telematics system will cost US$100+ after 10 years
where bundling is rare • Eventually telematics system cost benefit will be outstanding
Few customers pay for telematics services • Pay-per-usage will complement service pricing
• Proof: OnStar’s low renewal rate • Telematics content and service variety and value will grow
• Proof: Few monitoring subscribers in • Telematics content and service prices will decline
Japan and Europe • Eventually telematics content cost benefit will be outstanding
Telematics business models are broken • Internet bubble business models were unrealistic
• Proof: Demise of Wingcast • Automotive manufacturers do not need to own a telematics service provider
• Proof: OnStar’s low renewal rate • New and better business models are emerging
• Proof: No large telematics service
provider in Japan/Europe • Value of telematics data are new business model opportunities

a variety of uses such as accident statistics collection, slower than previously projected. It is also clear that
regulatory information, safety recall data and telematics services will come from a variety of service
improved road design. providers and the automotive manufacturers will
only control a small portion of the total telematics
The Sceptics’ View service market. There will also be significant overlap
between services delivered to telematics systems and
There are many sceptics that do not believe that services delivered to mobile devices.
automotive telematics will become an important
technology. The sceptics have three main arguments The long-term outlook for telematics services and
as to why telematics will not succeed (see Table 2). content providers looks promising because the
The counter-arguments listed in Table 2 shows that installed base of telematics-enabled vehicles will
the view of telematics sceptics is unlikely to prevail continue to grow and is projected to exceed 100
due to the rapidly improving technology, pricing, million by the end of the decade. It takes less than
service and content variety. US$1 per month per telematics-enabled automobile
to reach a yearly service market of US$1 billion.
Basic monitoring services that provide safety and Currently, most pay-per-use fees are in the dollar
security currently represent the lion’s share of the range (€1 or ¥100) and the majority of customers are
telematics service market, particularly in North likely to use these services many times per month.
America, where original equipment manufacturers The result will be a multi-billion dollar telematics
(OEMs) have been successful at bundling this into service market in a decade or less.
the price of the telematics hardware.
Other types of telematics content will ultimately
The challenge with telematics services has been prove valuable although it involves the aggregation
getting customers to pay for premium services such of ‘data from’ the vehicle in addition to ‘content to’
as customised news or location-based services. the vehicle. This takes a new perspective on the
Currently, only a fraction of telematics customers are telematics business model, as the value derived will
willing to pay for premium services. Over the next be through cost reductions and better product design
decade, content delivery will gain traction with new for the OEMs. At some point, OEMs may subsidise
content, new services and as new distribution the cost of putting in telematics control units in a
technologies are deployed. Flexible payment and vehicle for purposes of obtaining valuable data from
billing options will be needed to satisfy a variety of the vehicles. This provides a platform for basic
usage patterns. telematics services that can be used to add additional
telematics services. Perhaps safety and security will be
Telematics service business models have been under bundled with the vehicle in exchange for allowing
scrutiny lately because Ford’s effort, Wingcast, was data to be periodically transmitted back to OEMs.
abandoned in mid 2002. A problem is that the
telematics service prospects were grossly inflated as Telematics Technology–
part of the Internet ‘bubble’ in 2000. As these Not If, But When
unrealistic expectations crashed in 2002, the
pendulum swung too much to the negative side. The Despite the rollercoaster expectations for the
reality is that telematics services will become a long- telematics industry, it is believed that the
3 term business opportunity, but it will grow much deployment of telematics is inevitable. It may be

BUSINESS BRIEFING: GLOBAL AUTOMOTIVE MANUFACTURING & TECHNOLOGY 2003

 The Future of Automotive Telematics

Table 3: Telematics Is Inevitable

Driving Forces Comments

Hands-free mobile phones Needs speech interface and auto
become telematics systems electronics system integration
Safety and security telematics has Future price decline due to auto
wide appeal – at the right price insurance discount and data value discount
Navigation/routing telematics Current price points too high. Realtime
Market Pull
are desirable – at the right price routing has obvious time/cost savings
Entertainment telematics has Children
strong appeal to several segments Youth: music/images with communication
Tracking telematics are desirable Stolen auto and asset tracking, homeland
for many segments security applications, driver tracking
Digital car needs telematics Software upgrades and replacements
technology Diagnostics: download and remote
Proliferation of electronics systems Not enough cockpit/centre console space
Technology Push
need new user interface Telematics user interface is a likely solution
Technology advances will drive It is only a question of time until telematics
telematics systems prices down systems become affordable
Hands-free mobile phone mandate In many countries and more will follow
crash event data recorder Likely mandate in the US and other countries
Government Mandates Some ITS programs need telematics Electronic toll collection, roadway
& Actions information, active safety
Dedicated short-range communication Dedicated short-range communication
frequency allocated for ITS/telematics bandwidth for roadside-to-auto and
applications by the Federal auto-to-auto communication in the US
Communications Commission
Telematics data from automobiles has Multi-billion dollar cost savings/avoidance
value to automotive manufacturers Quicker design improvements
Telematics Data Value Telematics data from automobiles has Cost savings and lower insurance premium
value to insurance industry Lower legal cost and fraud decline
Data value to healthcare industry Lives saved; better resource deployment
Data value to government agencies Cost savings and better data

argued whether it will take 10, 15 or 20 years until more complex they will increasingly rely on
telematics is prevalent, but it will happen. Table 3 telematics and driver information systems that will
summarises a variety of forces that will eventually become the user interface to both on-board and off-
make telematics technology a basic element of board information.
nearly every vehicle sold.
Government mandates and similar actions are
There are at least five driving forces that are classified already creating needs for telematics systems.
as ‘market pull’, effectively meaning that there is Hands-free mobile phone mandates are growing
customer demand. Many of these market pull factors rapidly due to driver distraction issues. It is likely
have different strengths by regions. For instance, the that low-end telematics with a speech user interface
navigation market pull is strongest in Japan where and radio system integration will become the
auto density and street routing is difficult. preferred solutions. ITS will grow in sophistication
over the next decade and will increasingly require
There are three technology push factors as shown in telematics capabilities.
Table 3. The emergence of the digital car with
continued growth of microprocessor-based systems As large as the automotive telematics hardware and
that eventually will need two-way communication service opportunities may be, the indirect benefits
for software upgrades and remote diagnostics, which available from the value of telematics data may be
is the basis of a telematics system. equally important. The indirect telematics benefits
affect the automobile insurance industry, healthcare
The proliferation of new electronics systems is providers, public safety agencies and many other
already taxing the space for user input and control industries. The cost savings, cost avoidance and
systems. Telematics will be necessary to support the improved operational efficiencies outside the
growing number of user-selectable input buttons telematics industry will be measured in tens of
and switches within the vehicle. As cars become billions of dollars in 15 to 20 years. ■ 4

BUSINESS BRIEFING: GLOBAL AUTOMOTIVE MANUFACTURING & TECHNOLOGY 2003