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IBM expected to gain sales as cars get access to Web

IBM Corp, the biggest computer maker, will gain sales as more cars and trucks connect to wireless data networks and act like rolling Web appliances, analysts said.

Researchers initially predicted a rapid boom in the use of location devices, chips and software to route data to and from vehicles -- a field called telematics that lets cars and drivers interact with the Internet and the outside world. The outlook now is less buoyant. Still, telematics is growing, and the business strategy has shifted in IBM's favor, the analysts said.

Telematics proponents first envisioned cars as rolling multimedia computers, processing data on board. Now, analysts say, the more likely business model -- called thin client, or off-board -- will see basic communications processors and software inside the car linking to richer databases, Internet services and networks outside the vehicle.

"Their solution is the right way to go: thin client," said Jonathan Lawrence, a former financial analyst who is president of the consulting firm Crystal Mountain Group Inc, of IBM's approach.

Michael Heidingsfelder, head of US operations for the German consultancy Roland Berger & Partners GmbH, calls IBM "well-positioned" in telematics because it is focusing on "providing technology for the voice and data flow into and out of the vehicle" instead of loading up the car itself.

"They're not an auto company, but they've become very knowledgeable," Heidingsfelder said.

For navigation and emergencies

Telematics can be used to determine a vehicle's location using global-positioning-system satellites, automatically call for help after a collision, provide traffic alerts and connect to the Internet for services and entertainment or to hear or dictate e-mail.

It also will let automakers and dealers forge closer relationships with customers. Data on a car's service and maintenance needs can be communicated automatically from car sensors to a local dealer. Information on the use of individual cars can be fed back to designers so systems and warranties can be improved. Using monitoring devices, fleet owners can charge according to the precise usage of a car or truck.

A year ago, the global telematics market was expected to grow from US$7 billion in sales this year to US$49 billion by 2010, according to a study by UBS Warburg LLC. In a report last month, Roland Berger estimated this year's sales at US$1.3 billion and put the 2010 market total at US$24 billion.

Carmakers and wireless-phone companies are vying for the fees drivers pay for some telematics services, Lawrence said. Drivers now pay an average of US$17 a month in the US, and charges are expected to decline, a Roland Berger study said.

With General Motors Corp's OnStar service, a Cadillac or Saab owner whose "check engine" light comes on will have a remote computer diagnose the problem and report back on what to do.

"My personal view is that the wireless service providers will win," Lawrence said. "That plays into IBM's hands."

The Armonk, New York-based company wants to keep on-board computing to a minimum, preferring that data is transferred wirelessly for processing at remote data centers. This avoids driving up the price of cars, repairs and stocking parts.

Linked to a wireless network, cars can update on-board software automatically. Internet access can deliver automated services via the Web.

Different drivers of the same vehicle can use a log-in to personalize their connection. And carmakers can interact with customers well beyond the sale date.

Multi-billion-dollar growth

While only 5 percent of new cars -- including Ford Motor Co's Lincoln and DaimlerChrysler AG's Mercedes-Benz -- are telematics-equipped, IBM sees the technology portion of the market growing to about US$4 billion in the next few years, said Steve Ward, general manager of the IBM unit that sells to the auto industry.

Competition for the technology portion is stiff, according to Lawrence, and includes Germany's Siemens AG, software maker Oracle Corp, server-computer maker Sun Microsystems Inc and cellular phone-gear maker Qualcomm Inc.

IBM has forged partnerships with a range of US and European carmakers, parts suppliers and chipmakers, and more partnerships are expected next year, Ward said. Under an alliance with chipmaker Intel Corp, a version of IBM's WebSphere Web management software is built into Intel microprocessors geared for wireless telematics.

IBM also has an alliance with DaimlerChrysler, which is using IBM's ViaVoice speech-recognition software, among other tools. IBM also is a telematics partner of Motorola Inc, Volkswagen AG's Audi unit, BMW AG's North America unit and closely held ATX Technologies Inc, a Texas-based parts maker that sells telematics systems.

As it mines the market, IBM expects to sell voice and Web management software, databases, microchips for location systems, server computers to process data remotely, and services to consult on and install wireless networks.

Demand for interaction

"Ours is an off-board strategy with on-board elements," Ward said. "We believe that what users will want is interaction with the outside world."

IBM sees a broad role for telematics, starting with trucks and emergency vehicles and moving to cars. Beyond making vehicles more useful, wireless connections may help automakers cut design costs and let them gain sales by providing new telematics-based services to drivers, Ward said.

Telematics already is letting heavy equipment leasing companies monitor individual vehicles and set prices according to usage data sent from vehicles, Ward said.

Microsoft Corp's effort to have its Windows operating system run on-board computers has lagged in part because Detroit doesn't want to relinquish "command of the vehicle" to Microsoft, Heidingsfelder said.
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