Connections +

Realities of the Telematics Market

While not highly lucrative, the early telematics market has attracted a number of players seeking to position themselves for long-term success.

May 1, 2002  

Print this page

Telematics is the convergence of location technology, automotive electronics, and wireless communication that enables the delivery of in-vehicle information, entertainment and safety services.

Today, basic safety offerings, rather than entertainment services, are dominating the market. While end users currently express interest in advanced telematics services, they are not necessarily willing to pay for them. Accordingly, the focus of the telematics industry has increasingly shifted away from the much hyped in-vehicle entertainment, m-commerce, and wireless Web services and grown toward safety and security features.


Presently, the telematics market is driven by a number of supply-side and demand-side factors. On the supply side, realities such as the automotive industry malaise and the evolution of telematics technologies and enhanced services act as major drivers. The slowdown in the global automobile market means that OEMs must realize greater margins from each vehicle. One way to accomplish this is to capitalize on the convergence of digital content, wireless communications and automotive electronics. In the short term, however, telematics will represent a product differentiation strategy rather than a revenue play.

The development of safer and more robust input technologies — such as embedded voice recognition engines — is supporting the case for enhancing information distribution in the vehicle. Increasing availability of smarter devices, as well as the introduction of location-enabled (i.e., GPS) handsets by handset manufacturers also act as telematics delivery platforms.

Wireless carriers are beginning to introduce services that can take advantage of their next-generation networks. Over the next year, they will pursue an increasingly aggressive strategy of services rollout, including location-based services.


Although telematics technologies and services remain far from mainstream adoption, the impact of certain demand-side drivers is significant. Increasing mobile user penetration increases the potential market size of telematics users.

As more mobile subscribers use wireless services in the car, more drivers will grow accustomed to telematics-like offerings. And as the mobile user market continues to adopt wireless data services, demand for enhanced services, including location-based services, will simultaneously increase.

Furthermore, the ongoing debate over the safety of wireless usage in the car will drive the need for better integration of wireless communications in vehicle environment through technologies such as hands-free kits, road-side assistance, and, eventually, more sophisticated telematics systems.


Given the inherent fragmentation within each of the industries involved, standardization across telematics systems will present quite a challenge. Driving standardization across one industry is generally a task in itself. In telematics, however, standardization is required across the automobile, wireless communications and mobile computing industries. The diverse wide-area network technology landscape, complicated further by emerging wireless technologies such as 802.11b and Bluetooth, will only get more complex as carriers migrate to next-generation technologies. Fragmentation in wireless communications spans across operating systems, application platforms, devices and connectivity solutions.

Other issues such as high capital costs and network coverage will also be barriers to the success of telematics services. Adding telematics capabilities introduces new costs to the vehicle such as the TCU and multimedia bus, as well as wiring and integration costs. With such a high cost structure, auto makers will have difficulties driving telematics into the mass market.

On top of the cost issues, network coverage still leaves a lot to be desired. Services for safety and security purposes will have to rely on the least common denominator network.


While not highly lucrative, the early telematics market sets the stage for future developments, and has attracted a number of players seeking to position themselves for long-term success in the market, including wireless carriers, automobile manufactures, location technology enablers, content providers, etc. In order to deliver any true value to the telematics end-user market, vendors from the automobile, wireless communications, and consumer electronics industries must collaborate in order to jump some of the hurdles facing the technology.

Jeremy R. Depow (who shares this column with the Yankee Group’s Iain Grant) is a Senior Analyst with the Yankee Group in Canada, a technology-consulting firm in Brockville, ON. In this position, Mr. Depow is responsible for primary research and analysis of new telecom technologies and market developments.

Print this page