The business case: Government-led subsidies may be the only way forward.
There is broad agreement that telematics is a good thing, but nobody has yet been able to produce a sound business model to ensure its success.
The equipment was originally seen as an optional extra that all drivers would pay to have installed in their vehicles. They were then expected to pay a monthly subscription for services, thereby providing vehicle manufacturers with an additional income stream.
"The vehicle manufacturers and telematics service providers have spectacularly failed to build profitable telematics businesses," says Simon Smith, an information systems expert at PA Consulting, the management consultancy.
Research by Frost & Sullivan, the analyst, found that European drivers are willing to pay a one-off amount of between Euros 1,800 and Euros 1,900 for installed equipment. However, that is only 50 per cent of the current average recommended retail price.
Even worse, consumers expect the system to boast the most advanced navigation system, full safety and security system, remote vehicle access and infotainment system with voice activation and ability to plug in mobile phone or personal digital assistant (PDA).
"Most manufacturers who have gone into the telematics market have failed to show a successful business model," says John Archer, general manager of telematics for Ford in Europe, "either in terms of its appeal to its customers or in terms of its financial return. The motor manufacturers will not continue to fund the whole cost. We only develop technology and devices that our customers are actually asking for, which is not the case right now, and where the economics at least allow us to make a reasonable profit."
The problem is that each element of the telematics package brings different benefits to different groups. Car manufacturers benefit from establishing a relationship with drivers, as well as vehicle centric services, such as engine monitoring and fault prediction.
Motoring organisations benefit from remote diagnostics, emergency services benefit from safety features. Passengers enjoy information and entertainment; drivers appreciate navigation and traffic information; and insurance companies benefit from security and theft tracking (see below).
For example, Harbans Dass, European marketing manager for Motorola Automotive, suggests that the insurance industry could subsidise a tracking device in a vehicle to see how many miles it is driven and to assess the owner's driving habits. "This would enable them to give a more competitive insurance quote," he says. "It would also allow them to only charge for the time that the vehicle is being driven."
Alan Brown, principal analyst at Gartner Dataquest, explains how governments and society benefit. "With more cars and less space for roads to be built, one of the advantages of automotive telematics is real time traffic management," he says.
Mr Smith agrees: "Road safety, congestion, pollution and crime can be tackled with telematics. They affect not only the individual motorists, but also motorists as a group, other road users and the environment."
Mr Archer believes that the only way to get to the mass market is to have a cross-industry, cross-institution funding model. "People are being more realistic about telematics," he says. "You have to find the parties that benefit and then promote a hybrid business model to offset the massive up-front costs that have dogged this technology for years."
In effect, this means that the driver will only bear part of the costs. The rest would be subsidised by a government-led consortium of beneficiaries.
The European Union eSafety initiative aims to increase road safety and reduce the number of accidents on Europe's roads. It has found that the greatest potential in applying new technologies for road safety is offered by integrated road safety systems that address the interplay between the driver, the vehicle and the road environment.
"The widespread take-up of intelligent integrated road safety systems cannot depend on the private business case only," says Erkki Liikanen, European commissioner for enterprise and the information society. "It also needs the full support of the public sector, contributing to a positive public/private business case."
He envisages many partners working together, including the vehicle manufacturers, equipment suppliers, motorway operators, telecommunication operators, service providers, insurance industry, road safety and user organisations, road authorities, emergency service providers, member states and the commission.
However, Mark Bunger, senior analyst at Forrester Research, believes that consumers will not be interested in embedded telematics, such as service, vehicle performance, tracking, security and stolen vehicle recovery. He believes in a "Bluetooth cockpit," in which a radio link connects the embedded device with any Bluetooth enabled consumer device, such as a mobile phone, PDA, MP3 player, global positioning system or portable computer.
"It would serve as the interface to the vehicle specific content," he says. "However, it would provide communications, entertainment, news and navigation. A consumer device costs 20 per cent of an installed device to buy and has no recurring charges. It takes away a lot of the business case for building those services into the car."
It is clear that there are many benefits available from telematics, but that subsidising the costs of the service needs to be spread equitably between an improbably large number of different interests. "The business case going forward is not evident," says Mr Brown. It is a market in its infancy and has to be worked out. It has to be a strategic decision."
"Widespread deployment of telematics will need to be 'pump primed' by government," says Mr Smith. "Even if the financial benefits eventually exceed the financial costs, it will be up to the motorist and tax payers to provide the money for telematics."
