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Telematics, A New Market Success?

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Who is Working to Create the Market?

Telematics is the combination of electronics, safety, communications, and location (GPS) services that electronically connect a car to a service supplier. In the U.S., if you buy a Mercedes Benz, one of 36 GM, most BMW 7 series, or several Lexus, Jaguar, Acura, or Lincoln/Mercury vehicles, you'll get telematics service at no extra charge. The breadth of the services is wide, from unlocking your door for you, to telling the supplier when your airbag has opened (allowing the company to call 911 for you), to giving you directions, to finding your car if stolen, to checking weather and traffic, to web shopping, to doing your smog check while you drive.

Each of the long list of suppliers has something at stake here. The car companies want more brand loyalty and driver usage details for marketing. The dealers want to keep you from using independent repair shops. The wireless telecom companies hope for volumes of air time. The service companies (OnStar, ATX, others) supply the infrastructure to answer the calls you or your car make. The software companies (Siebel, Reynolds & Reynolds) provide the tools to track you from first purchase until you trade in your car. Others want to sell you products and services as you drive. Countless software, hardware, and consumer electronics suppliers can make products to help this work.

What Is the Market?

No two vendors or analysts agree on how to define the telematics market. For the sake of this Index, we define the market as people willing to pay separately for two-way communications between their car and an information supplier. Perhaps 3 million users have telematics today, all but a thousand or so as a "required option" in a new car. Of these, we do not know how many have been willing to pay their own money to renew the service, and at what level.

How Are These Companies Working to Create That Market?

The most successful and repeatable path to creating a new market is to solve a specific problem that your prospective customers strongly feel. Another path, harder to follow, is to pick a less critical problem and then reduce the customer's cost of solving that problem to the noise level.

In this market it is not clear what problem consumers are willing to pay to solve. The evidence is not good. The LoJack service to find stolen cars through police departments, has 2 million customers. None pay ongoing fees. OnStar has around 2 million active telematics customers who got the service as part of their car. The company reports that the two most common services are to unlock doors and to get driving directions. ATX (which supplies the services for Mercedes Benz, BMW, and others) reports that the most common reasons to pay to renew are for collision detection and tracking stolen vehicles. (Less than 1 percent of all ATX calls are for those and other emergencies.)

None of these is a problem that consumers urgently feel. For them, telematics is a solution looking for a problem. To succeed, telematics vendors must find a stronger set of problems. This means selling to other suppliers rather than to consumers.

What These Companies Are Doing to Create the Telematics Market

The strategy of the car manufacturers is to supply the service at no cost when you buy a car. This keeps you closer to the company's service chain, where the after-market parts and product sales are profitable. The longer you keep using the in-car communications, the more likely you are to use the dealer for service, and the more information the company collects about you. That market information can become an asset to the car company, and to other companies.

NetworkCar and Reynolds & Reynolds are using a different strategy. Since the vast majority of cars on the road are not new, these companies will retrofit cars through independent repair shops. Again, part of the key benefit is "owning" information about and access to the car owner.

What Is the Benefit?

You can get many services via telematics. These include: Track stolen vehicles; Get directions; Weather updates; Accident alerts; Roadside assistance; Unlock your door; Tire monitoring; Smog checks; Reading and writing E-mail; Web surfing; Shopping based on location; Concierge services; Mobile entertainment; Managing your schedule; and Reverse telematics, the ability to control your garage door and thermostats from your car.

The benefits to the suppliers include: Increased loyalty; Detailed customer usage information; Increased volume in air minutes; Mobile commerce opportunities; Early knowledge of service needs; and Creating the new consumer electronic products.

Is the New Market Working?

A critical factor for success in existing markets is the skill of the supplier to handle basic operational and delivery requirements. These skills are less critical in new markets, but they are still important. The question is: If the suppliers all show superb competence, will enough users convert to paying for telematics? Our answer is no, the benefits listed above do not solve real problems. They are not attractive enough to garner $30 a month from millions of consumers or the necessary subsidies from dozens of suppliers. The other approach is to ask: Will the suppliers pay the bill, making telematics free to consumers, to get access to the drivers and customer usage information? This is uncomfortably similar to on-line advertising or some other dot-com strategies. No supplier seems to have a big enough problem to justify the expense.

Telematics is not a likely market for the most fundamental of reasons. The problem doesn't justify the solution.

For more information, please contact Peter Meyer at 831/439-9607 or Peter@MeyerGrp.com. Copr. 2002 by the Meyer Group, all rights reserved. Much of the process used to evaluate new markets is contained in "Creating and Dominating New Markets" published by AMACOM in March of 2002.

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email: Peter@MeyerGrp.com
phone: (831) 439-9607

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