The Emerging In Vehicle Intelligent Transportation Systems Market.

The in-vehicle Intelligent Transportation Systems (ITS) market is emerging as a major force in mobile communications. The industry has grown from a few companies pursuing new applications for their technologies to an industry dominated by major automotive, communications, computer, and software

companies. Alliances were a key growth strategy and significantly reduced stakeholder risk and product time to market while enabling small as well as large companies to participate in what was then an unproven market. Now, automotive original equipment makers (OEMs) are at the forefront of in-vehicle ITS development, with several other industries eyeing the car as the next major market for their products and technologies.

Over the past fifteen years, the in-vehicle Intelligent Transportation Systems (ITS) industry transformed itself from a few companies pursuing high-risk product development in an unproven market to a dynamic industry and fast-growing market consisting of major companies in the information technology (IT), automotive, communications, and retail industries. Telematics, or the basic technology infrastructure encompassing in-vehicle navigation, communication, information, and entertainment services, is expected to maintain its rapid growth, expanding from a worldwide market of about $4 billion today to about $47 billion by 2010, as reported in Global Positioning & Navigation News (October, 2000).

ITS products and services provide an intelligent link connecting travelers, vehicles, information/ content, and infrastructure, with the goals of reducing traffic congestion and pollution and improving vehicle safety and efficiency. In-vehicle ITS units are becoming more complex and multifunctional, often providing several if not all of the following capabilities:

* Driver assistance with navigation systems enhanced by route guidance

* Driver safety and security systems

* Communications, computing, entertainment, and other systems for drivers and passengers

* Improved commercial vehicle productivity through automated tracking, dispatch and weigh-in-motion systems.

The History of ITS In-vehicle Information Systems

In the late 1980s and early 1990s, a handful of companies started exploring ways to use wireless communications, information, and computing technologies to assist drivers. The market was unknown and risky; consumer response to products was unexplored. Investors and developers in small ITS start-ups found alliances an effective means to obtain the technologies needed to support their research and development as well as deployment efforts. Most of the alliances were technology driven, but some also had market development as a primary objective. The alliances enabled members to share risk, reduce the time to market, and gain access to core competencies not available within their organizations.

Companies such as Etak and Navtek focused on providing digital maps for the in-vehicle navigation market while another two companies, Qualcomm and HighwayMaster (now @Track), pursued fleet management systems for long distance trucking. In vehicle traffic information, safety and security, and wireless communications later became part of bundled ITS offerings. By the mid-1990s, major companies in aerospace and defense, looking for diversification opportunities, were participating in alliances to offer products such as MayDay and GPS (global position satellite) positioning and tracking for vehicles. Also entering the industry were wireless communications, computer, software, and entertainment companies looking to tap a new, large market--the personal vehicle.

The industry was ripe for alliances and collaboration. Micro soft, SunMicrosystems, and others started vying for the operating system for in-vehicle computing systems while IBM, Hewlett Packard, Motorola, and other major companies pursued hardware, interactive voice, and other applications. Consumer electronics giants such as Sony, Bosch, Clarion, and Philips worked to design in-vehicle units that expanded their existing in-vehicle entertainment offerings. Although competition was often intense, companies banded together to develop standards, especially for a databus to connect the increasingly complex devices to the car.

In the early 1990s, U.S. auto manufacturers showed little interest in ITS, but European and Japanese car companies were actively pursuing integration of both telematics and vehicle safety ITS applications as a means of differentiating their upper-end vehicles. However, with the threat of competition from foreign car manufacturers and with several major IT companies poised to try to take control of the dashboard ITS market, Ford and General Motors decided to act. They independently surveyed consumers and determined that safety and security were hot issues for American drivers. Soon both companies offered their own in-vehicle telematics systems, Rescu by Ford and OnStar by GM. With industry backing, the Society of Automotive Engineers quickly formed a collaborative effort to develop an industry standard for an in-vehicle electronics appliance databus.

Since 1998, when the first truly integrated in-vehicle information systems started appearing in a meaningful way in the U.S. market, the number and type of in-vehicle systems have grown. Now all major car manufacturers offer telematics or some derivation of in-vehicle information systems as an option or standard feature. Numerous aftermarket devices also are available, for example the AutoPC and Alpine's Navigation System. Entertainment systems are common, with backseat television and game capabilities available in many family cars and vans.

The Current Situation and Outlook

The in-vehicle ITS market remains divided between commercial and passenger vehicle applications. Although there is a considerable overlap in technology, their distinctive requirements prevent any merger of the commercial and passenger products. Logistics and supply chain integration drive commercial vehicle applications, and product offerings are geared to reduce transportation costs. In the passenger vehicle market, safety and security are key features, with information, communication, and entertainment functions also important. Integration is vital to success for both passenger and commercial applications. Without bundling applications into a single unit, devices require too much dashboard space and are too expensive for mass-market appeal.

Passenger Vehicles

U.S. passenger vehicle telematics sales, well under $1 billion in 2000, are expected to reach from $5 to $13 billion by 2004. Sales in Europe and Japan, whose markets are already better developed than those in the United States, are expected to be equally strong. Telematics devices were on about eighteen percent of new cars sold in the United States in 1999, and The Strategis Group forecasts that ninety percent of new cars sold in 2004 will be equipped with some type of telematics, as automakers consider these devices to be important product differentiators.

Consumers are rapidly becoming aware of telematics systems. In the United States, preferences lean toward safety and security devices, although interest in communications, entertainment, and Internet access is emerging. The most prominent examples of telematics services available today include Emergency Roadside Assistance, airbag deployment notification, turn-by-turn navigation assistance, and stolen vehicle tracking. Other safety and security devices--such as collision warning and avoidance, driver status monitoring, hazard warning, and night vision--will take longer to be commercialized (primarily because of liability issues) and will be tightly controlled by the automakers. Currently, in-vehicle telematics systems cost from $500 to $2,500 and are targeted to upper-end vehicles, but prices should drop as sales volumes increase and the cost of GPS, wireless communications, and computing equipment declines.

Mobile operating systems are being enhanced. Microsoft has revamped and replaced its AutoPC with Car.Net that will deliver news, traffic information, navigation support, and other traveler information. Sun Microsystem's Car Java now includes such features as Java Speech Application Programming Interface and Java Telephony Adaptive Programming. Telematics devices on concept cars incorporate new technologies such as smart cards, small-screen Internet displays, voice recognition, and docking devices. Voice recognition and voice command, as well as product integration, are critical for the ultimate success of telematics.

While automakers retain a distinct advantage in controlling the direction of in-vehicle systems, they still rely heavily on alliance partners and after market suppliers. Standardization allows automakers to reduce wiring bundles and eliminate the need to reengineer vendor products. Because multiple vendors are common, automakers do not want to spend months changing in-vehicle ITS products to fit into their cars, especially when new technologies are introduced every year or two. The Automotive Multimedia Consortium, which includes twelve major automotive companies, is working on low-speed and high-speed buses for plug and play capabilities. The Telematics Suppliers Consortium, which includes AMP, Hewlett-Packard, Motorola, and Navtech (Navigation Technologies), also promotes open standards.

Major automotive OEMs, such as Mercedes Benz, BMW, and General Motors, have established research facilities to pursue ITS development. Motorola, Visteon, Siemens, Delphi, and numerous other companies are working collaboratively with OEMs in the product development efforts, while computer and software companies, such as IBM, Sun Microsystems, and Microsoft, are providing the computing power, software, and other applications to support mobile computing capabilities. Alliances remain commonplace among these companies, and continue to be fluid and adaptive to meet the industry's constantly changing needs.

Commercial Vehicles

The commercial vehicle market has advanced from simple communications and tracking systems to sophisticated applications that link trucks to supply chains and highway infrastructure. Major highways now have weigh-in-motion and pre-clearance programs (e.g., PrePass) that communicate directly with in-vehicle devices. These same devices, for example, keep track of mileage by state to minimize paperwork preparation time. International border crossing automation is expected within a year or two. Radio frequency identification (RFID) and bar coding are being used to help make trucks a part of the warehousing system by tracking and monitoring freight as it moves. Vehicle tracking is not without controversy. For example, there are concerns about driver privacy, but savings from real-time vehicle tracking and other truck monitoring technologies are sufficiently high to offset these issues.

The commercial vehicle market for ITS devices is still dominated by long haul trucking. This segment accounts for nearly $500 million of the $750 million automatic vehicle location market. Forecasters expect this market to double in size within five to ten years. Qualcomm retains the largest share of this market, with @Tracks a major contender.

The local use and short haul markets are expected to expand from about 200,000 units shipped in 2000 to nearly a half a million by 2007, according to Global Positioning and Satellite News. The local use market will eventually dominate the commercial vehicle segment because of its sheer size relative to long haul trucking. @Road and Teletrac are two of the leading companies in the local use market, and @Track is also entering the market. This market, however, has numerous small suppliers, most of which target specific sectors and offer logistics support services to enhance their product offerings. Because of the wide variation in needs of local and short haul commercial fleets, niche markets provide opportunities for smaller companies.

Alliances as a Growth Strategy

The development of in-vehicle ITS products and services required the use of specialized knowledge from at least five major industries: computer hardware, computer software, consumer electronics, wireless communications, and automotive. In the early 1990s, no one company possessed all of the knowledge required. Acquiring specialized knowledge--either by building or buying--was an expensive and time-consuming option, especially to support an unproven and risky venture to develop such in-vehicle ITS information products as vehicle navigation and location systems. Once the industry began to take off in the mid-to-late 1990s, the window of opportunity for many new entrants was short.

Alliances and other collaborative efforts enabled companies to fund speculative cross-industry technology development and quickly bridge the gap of specialized knowledge and technology. As with cross-functional teams established by large corporations, many of the in-vehicle information systems alliances were short-lived, designed to accomplish a specific objective, and then to break up. Other, more traditional industrial alliances had staying power. In either case, these alliances enabled companies to share knowledge and form elastic building blocks critical for successful product development. As the transfer of specialized knowledge took place, the need for shared services and knowledge diminished, and the structure of alliances in the ITS industry changed. Mergers and acquisitions are now taking place, and alliances are shifting from a focus on research and development to a focus on market penetration and service support, and often from tactical to strategic. The following examples illustrate the types of alliances and collaborative efforts used.

Qualcomm

The first in-vehicle ITS sector to demonstrate market potential was fleet management systems for the trucking industry. The payback for ITS fleet management products for many of the larger long-haul freight companies was short, sometimes less than a year. Qualcomm was first in this market, introducing in late 1988 OmniTrac, an in-vehicle communications systems based on satellite communications that provided two-way mobile terminals with messaging services. Qualcomm was successful with OmniTrac well before its CDMA (Code Division Multiple Access, a digital wireless technology) market materialized. Soon location capabilities, which enhanced the benefits of the service, were added to OmniTrac. Qualcomm provided the in-vehicle units and maintained ongoing service centers to monitor and maintain communications between trucking companies and their fleets. Alliances were formed with software companies to provide supporting logistics capabilities, enhancing the value of OmniTrac services. Qualcomm used revenues from OmniTrac to fund its development of CDMA technologies, its core business. Because of this strategy, Qualcomm extensively relied on joint ventures, purchases, licensing agreements, and other forms of alliances to penetrate foreign markets in Asia, Europe, and South America. Its joint-venture partners were responsible for setting up the business and maintaining local operations, while Qualcomm produced the equipment (which it considered to be part of its core business) and maintained control of the monitoring centers in San Diego and Las Vegas.

In the early 1990s, Qualcomm also became a seven percent owner of the Globalstar satellite consortium to supplement eventually its satellite-based communications system. Qual-comm purchased NavTek in 1998 to augment its navigation capabilities. Partnering with Microsoft enabled Qualcomm to use Windows CE soft ware and applications for its dashboard mounted computers. With its CDMA technology a commercial success, in 2000 Qualcomm ventured into the personal vehicle market by partnering with Ford Motors to form Wingcast. This venture will provide CDMA-based services for the automobile market that should be commercially available by 2001. Table 1 highlights selected Qualcomm alliances.

Etak

Etak was an early developer of digital mapping for ITS navigation systems. The company began in 1983 with a group of about eight researchers with the aim of developing an in-vehicle navigation device. The first system was too costly for general consumer markets but was a pioneer in the field. The company was acquired in 1989 by New Corporation to add digital mapmaking and associated database development to New Corporation's electronic publishing and travel guide capabilities.

Etak joined the TravInfo Project in the San Francisco Bay Area in 1992 as a member of a public/private partnership for providing real time traffic information. With the Japanese market showing considerably more interest in in-vehicle navigation than the U.S. market, Etak developed a relationship with Sony. Sony acquired Etak in 1996 to extend its mobile navigational software capabilities. Tele Atlas of Gent, the Netherlands, purchased Etak from Sony in 2000. Along the way, Etak developed numerous other alliances (see Table 2), such as with Metro Networks for national real time traffic reporting and with Compusearch of Toronto, Canada, for mapping population centers. The company has also partnered with SkyMap to provide mobile GPS-guided maps and navigation systems and with IPC to co distribute the product in Asia. The alliances enabled Etak to leverage its resources, expand its presence geographically, and take advantage of market opportunities.

General Motors

General Motors, as did the other automakers, recognized that Microsoft and other IT giants were targeting personal vehicle dashboard space for in-vehicle information system and advocating an open architecture model for in-vehicle ITS products and services. The open architecture model proved successful for most computer technologies, and IT manufacturers believed it should be applied to automotive applications as well. Many European automakers were comfortable with this model, especially smaller ones that did not have the capabilities or funding to pursue their own ITS products. An open architecture model would level the playing field. However, GM was unwilling to give up control of the dashboard to the IT industry because in-vehicle products could provide powerful product differentiation and an ongoing stream of revenue through service contracts.

Cadillac worked with a traditional team of automotive suppliers and alliance partners (e.g., Delphi, EDS, Hughes) to develop OnStar, which first appeared in selected Cadillac models in 1997 and 1998. GM took a clear leadership position in its alliances and the relationships were not far removed, in some cases, from a traditional supplier-OEM one. OnStar featured automatic notification of air bag release, roadside assistance with location, route support, and emergency services. The system was enhanced to include new information services such as service station and hotel information. These services were developed in strategic partnership with seven major U.S. corporations: Mobil Oil, Fodor's Travel Publication, Promus Hotel Corporation, Hilton Hotels Corporation, HFS Incorporate, American Floral Services, and LesConcierges of California, as shown in Table 3.

GM also joined with other auto manufacturers to develop a database or interface to connect the ITS products to the vehicle. The Society of Automotive Engineers worked rapidly to develop the standards for an ITS databus by 1998 and prevent the computer industry's Universal Serial Bus from making any headway in American vehicles. This auto industry alliance was designed to be temporary but to develop critical standards that would promote overall in-vehicle ITS development.

GM recognized it needed an operating system for the increasingly complex OnStar product. The two major developers of mobile in-vehicle information operating systems in the United States were Microsoft (Windows CE) and SunMicrosystems (Car Java). GM is currently working with SunMicrosystems to enhance its in-vehicle ITS products and services.

Microsoft

By the mid-1990s, to promote its Windows CE operating system, Microsoft developed alliances with Intel (joining the alliance on a nonexclusive basis), Trimble, systems integrators such as Visteon and Mannesmann, established aftermarket suppliers (Samsung, Alpine, Hitachi, Clarion, and Daewoo), and automotive OEMs (Citroen and Nissan). Many of the alliance partners were competitors, especially at the aftermarket supplier level. Part of Microsoft's strategy was to establish Windows CE as the dominant vehicle computer operating system by incorporating it in as many products as possible. Microsoft was clearly the leader of its alliances. It provided the operating system, which all alliance partners were to use, and supported the development of integrated systems based on the Auto PC. Table 4 provides a list of selected Microsoft alliances.

IBM/SunMicrosystems

At the same time Microsoft was developing its alliances and Windows CE capabilities, SunMicrosystems was working with IBM, Delphi Electronics, and Netscape Communications to advance a prototype car computer/information system. Each member of this alliance contributed a major integrated electronics component (see Table 5). In contrast to the Microsoft and GM alliances, the IBM/SunMicrosystems alliance did not have a single firm acting as dominant leader. Neither did it involve members that competed with each other. The alliance produced the Network Vehicle to display the in-vehicle ITS capabilities offered by the team. General Motors, Ford, Saab, and other car manufacturers use the Car Java system.

Component Alliances

Numerous small, two-to-four-company alliances were formed to provide specific components to ITS products. These alliances were often international in scope and were able to exploit sharing of both technical and geographic specific knowledge. A few representative alliances are shown in Table 6.

Conclusions

The telematics industry is poised to explode in the next few years, with some experts predicting these devices will be incorporated into almost all new commercial and passenger vehicles by the end of the decade. Alliances have been instrumental in the development and commercialization of ITS in-vehicle information technology and products. The alliances formed are pragmatic, tactical, opportunistic, and fluid. They provide critical support to in-vehicle ITS product development through sharing of technologies, knowledge, and risks, and reducing the time to market. The industry relies heavily on specialized knowledge in several key technologies that no one company holds.

As the industry further matures, the structure and nature of the alliances continue to change from being oriented toward technology and research and development to market structure, and finally to control by major OEMs and other industry leaders. Many automotive OEMs, such as DaimlerChrysler, Toyota, and BMW, are on the forefront of in-vehicle ITS development through their in-house research facilities located in high tech capitals such as Silicon Valley. Nevertheless, alliances still remain a key element in these endeavors because of the need to form elastic building blocks that share the specialized knowledge associated with new technologies.

REFERENCES

"Automatic Vehicle Location Poised for Expansion" 2001. Global Positioning & Navigation News. February 21. Volume 11, Issue 4. Page 1.

Benson, David, et. al. 1998. "Strategic Alliances," Intelligent Transportation Systems Multiclient Project 2, Report Number Three. SRI Consulting. Menlo Park, CA. December.

Day, Rebecca. 1999. "The Integrated Vehicle of the Future." VISION Online: The Integrated Vehicle of the Future. May/June.

Harbison, John R. and Peter Pekar, Jr. 1998. Smart Alliances: A Practical Guide to Repeatable Success, Jossey-Bass Business and Management Series, Booz Allen Hamilton.

Jensen, M. and W. Meckling. 1995. "Specific and General Knowledge and Organizational Structure." Journal of Applied Corporate Finance. Volume 8, Number 2.

Murray, Charles J. 2000. "Cars Go Digital." Design News. October 2, Volume 55, Issue 19.

The Strategis Group. November 2000. "U.S. Telematics Marketplace."

"Telematics Prospects Great, But Who'll Make the Money?" 2000. Global Positioning & Navigation News. October 18, Volume 10, Issue 21.

"Telematics Use in Vehicles to Grow." 2000. Purchasing. September 21, Volume 129. Issue 5.

Zuckerman, Amy. 2000. "Warehousing at 65 mph." Transportation and Distribution. September, Volume 41, Issue 9.

Selected Qualcomm Alliances
Selected Alliances,              Specialized Knowledge of
Partners, and Acquisitions       Partners
Logistics software system        Trucking industry, logistics
developers
Partners in other countries to   Knowledge of trucking market
build and run local OmniTrac     in foreign countries
systems
Globalstar satellite consortium  Satellite communications
                                 systems
NavTek                           Navigation systems
Microsoft                        Windows CE software
Wingcast/Ford                    Knowledge of private
                                 vehicle market
Selected Alliances,              Tactical/Strategic
Partners, and Acquisitions       Purpose
Logistics software system        Improve the applicability
developers                       and usefulness of OmniTrac
Partners in other countries to   Achieve a global presence
build and run local OmniTrac     with minimal investment
systems
Globalstar satellite consortium  Improve access to critical
                                 satellite communications,
                                 enhance CDMA linkages
NavTek                           Augment OmniTrac's tracking
                                 and navigation capabilities
Microsoft                        Provide operating systems
                                 to support new capabilities
Wingcast/Ford                    Expand CDMA technologies
                                 into personal vehicle market
Source: TDS Economics
SELECTED ETAK ALLIANCES
Selected Alliances, Partners,  Specialized Knowledge
and Acquisitions               of Partners
New Corporation                Electronic publish and
                               travel guide capabilities
TravInfo                       Real time traffic information
Metro Networks                 in the San Francisco
Compusearch                    Bay Area
Traffic Angel (Metro           Real time traffic information,
Networks, radio stations,      yellow pages services,
ATT Wireless, Unwired Planet)  text messaging
IPC                            Knowledge of Asia markets
Sony                           Consumer product and
                               equipment market
                               knowledge
Tele Atlas                     European navigation
                               market
Selected Alliances, Partners,  Tactical/Strategic Purpose
and Acquisitions
New Corporation                Provide funding to extend
                               capabilities and markets
TravInfo                       Add real-time component to
Metro Networks                 navigation technology and
Compusearch                    improve appeal to driving public
Traffic Angel (Metro           Enhance product appeal
Networks, radio stations,      through advanced traveler
ATT Wireless, Unwired Planet)  information services
IPC                            Expand market into Asia
Sony                           Provide Etak navigation
                               technologies to Sony
                               products in Japan and U.S.
Tele Atlas                     Increase presence and
                               capabilities of both companies
Source: TDS Economics
SELECTED GM ALLIANCES
Selected Alliance Partners  Specialized Knowledge of
                            Partners
Automotive OEMs/Society     Automobile operations,
of Automotive Engineers     ITS product requirements
OnStar partners: EDS,       Specific knowledge, such
Delphi, Hughes, Trimble     as data center management,
                            auto parts and accessories,
                            cellular phone systems, and
                            navigation.
Mobil Oil, Fodor's Travel   Specialized knowledge of
Publication, Promus Hotel   various segments of the
Corporation, Hilton Hotels  travel industry
Corporation, and others
Sun Microsystems/Car Java   Operating systems designed
                            for mobile applications
Selected Alliance Partners  Tactical/Strategic
                            Purpose
Automotive OEMs/Society     Develop a car manufacturers
of Automotive Engineers     version of a databus
OnStar partners: EDS,       Rapidly provide an OEM-
Delphi, Hughes, Trimble     controlled in-vehicle ITS
                            system to differentiate
                            upper-end cars and compete
                            with European and
                            Japanese systems
Mobil Oil, Fodor's Travel   Enhance OnStar information
Publication, Promus Hotel   services
Corporation, Hilton Hotels
Corporation, and others
Sun Microsystems/Car Java   Enable OnStar to perform
                            additional computer and
                            communications functions
Source: TDS Economics
SELECTED MICROSOFT ALLIANCES
Selected Alliance Partners  Specialized Knowledge of
                            Partners
Intel, Trimble              Components for ITS
                            telematics
Visteon, Mannesmann         Systems integration
Samsung, Alpine, Hitachi,   Automotive aftermarket
Clarion, Daewoo
Citroen, Nissan             Automotive industry
Selected Alliance Partners  Tactical/Strategic Purpose
Intel, Trimble              Develop and provide necessary
                            component products
Visteon, Mannesmann         Develop systems for mobile
                            applications
Samsung, Alpine, Hitachi,   Develop consumer products
Clarion, Daewoo             that use Windows CE
Citroen, Nissan             Provide other avenues for
                            applications of Windows CE
Source: TDS Economics
SELECTED IBM/SUNMICROSYSTEMS ALLIANCE PARTNERS
Selected Alliance Partners  Specialized Knowledge
                            of Partners
Sun Microsystems            Operating Systems
IBM                         Speech recognition,
                            computer hardware
                            and software
Netscape                    Internet software
Delphi                      Displays, communications
Selected Alliance Partners  Tactical/Strategic Purpose
Sun Microsystems            Expand applications of
                            Java to mobile uses
IBM                         Promote interactive
                            voice technologies
Netscape                    Expand into mobile market
Delphi                      Maintain market presence in
                            vehicle market
Scurce: TDS Economics
SELECTED COMPONENT ALLIANCES
Selected Alliance Partners  Specialized Knowledge
                            of Partners
Clarion and Rockwell        Clarion brought knowledge
                            of consumer products,
                            and Rockwell brought GPS
                            technology
Amerigon and Yazaki         Amerigon, an American voice
Corporation                 recognition company, and
                            Yazaki, a Japanese auto
                            aftermarket supplier
Trimble and Siemens         Trimble provides knowledge
                            of GPS software, and
                            Siemens provides
                            components
Selected Alliance Partners  Tactical/Strategic Purpose
Clarion and Rockwell        Develop a GPS receiver for
                            Clarion's in-vehicle navigation
                            system products
Amerigon and Yazaki         Provide voice-activated,
Corporation                 navigation units that can be
                            incorporated into integrated
                            systems
Trimble and Siemens         Develop GPS receivers
                            for integrated systems
Source: TDS Economics