Machine 2 Machine Vision

Today’s New York Times has an Op-ed piece by Robin Chase, the founder and former chief executive of Zipcar. Mr. Chase puts forth the proposition that a simple solution to getting out ahead of potential safety issues such as the current Toyota accelerator problem is real-time access to vehicles’ “black boxes” via wireless applications. In the Op-ed piece, he states: “Aberrant engine and driving behavior would leap out of the carmakers’ now-large data set, allowing them, if necessary, to conduct recalls much earlier. And, in exchange for your contribution of anonymous data, carmakers could send you driving benchmarks aggregated from your peers…”. As I and others have presented multiple times at various Telematics Update conferences over the past ten years or so, there are various incentives that could be offered to the vehicles’ owners in exchange for anonymous access to this data. The cost to the automotive OEM for the telematics device and service that would be used to gather this data would be justified by cost savings related to reduced warranty and potential recall costs. Additionally, the telematics solution would then be resident in the vehicle, ready for use as a platform to up-sell consumers services like crash notification and remote door unlocking, as well as creating partnering opportunities for potential new revenue streams such as Pay-as-you-drive (PAYD) insurance. Car guys need to start thinking about telematics as more than safety, security, and navigation, but as being a tool for transformative business model improvement.

Today’s Wall Street Journal has an article entitled “Heists Targeting Truckers On Rise”. The story outlines the increase in trucking freight theft since the current recession started. Being that most decisions to implement telematics systems are driven by ROI models I have been pondering the concept of reduced insurance rates for transporting freight if security and tracking technology is implemented on the trailer. At the Telematics Update Fleet & Asset Management conference this past November in Atlanta I asked some of the insurance industry participants if they had been looking into this sort of offering. All of them responded that they were currently focused on insurance offerings related to driver behavior and had not looked into the technology for purposes of reducing freight loss while in transit. Being that this story was reported in a mainstream media publication (WSJ), it would seem that this is a growing problem in search of a solution – and as such an opportunity for the telematics industry.

Despite the ecological value of incentivizing the swapping of low mileage cars for higher mileage cars, there has been some questions over the economic value of the Cash for Clunkers program. Many are wondering if the program only served to pull forward manufacturing demand that would have soon developed anyway. I have been kicking around the following questions: would there have been more value in the program if there were additional incentives for purchasing cars that had telematics systems? Besides the obvious personal and societal advantages regarding safety and security, could cars equipped with telematics potentially be more efficient because of better routing afforded by these devices and their value added services? Could the telematics systems be used to gather real life data regarding emissions? From an economic standpoint, incentivizing the purchase of telematics systems would have extended the value of the program beyond the automotive industry and benefited the wireless device, cellular service, software, and GPS industries as well as others. These industries represent innovation – the future of the nation as well as the automotive industry. Vehicles will have to have connectivity capability resident in order to derive the maximum value out of the Smart infrastructure that is called for in the Stimulus Plan of earlier this year. Incentivizing the purchasing of telematics systems as part of the program would have helped to accelerate this up-take and adoption. The Cash for Clunkers program was based purely on mileage – meaning that many small, low end cars – those most probably lacking in innovative cutting edge technology, including telematics, were left out of the mix, ultimately resulting in missed opportunities on both the economic and ecological fronts.

GPS and mobile communications are essential capabilities of any telematics solution. For a couple of years now, the manufacturers of wireless modules have been offering converged GSM/GPS modules. They have had trouble maintaining margins on the price of the converged package because everyone in the industry has knowledge of the market prices for the individual components and the wireless module companies have done a poor job of communicating any increased value that is provided by the converged offering. Last week, u-blox, the GPS solutions provider announced that it was acquiring Neonseven, an Italian based company that provides design and development services in the wireless communications space. This announcement was released on the same day that u-blox announced the launch of a new GSM/GPRS/GPS surface mount module. It’s not too much of a stretch to imagine that the previous week’s announcement of the SiRF /CRS merger is intended to deliver similar solutions and value to the market. Because of the commercial challenges experienced by the wireless module companies in maintaining margins, it will be interesting to see if a converged offering brought forward by a GPS focused company will fare any better. These acquisitions /mergers also expands the number of companies providing such offerings, theoretically causing further commoditization and price erosion for all players, regardless of the industry in which their legacy resides.

Plainly speaking, GPS solutions have been perceived as commodities by OEMs and Tier 1s for a while now and wireless communications modules are rapidly achieving the same perception. I guess that we are about to find out what happens when two distinct industries try to increase the value of their offerings by assembling two commodities into a single offering.

As I have been saying for some time now, the global economic crisis could very well be a good, albeit tumultuous, period for the telematics and broader M2M space. Telematics and M2M are all about efficiency and productivity. Efficiency and productivity increases are exactly what are needed by industry and enterprises to help them maintain profitability and survive during these times of shrinking economic activity and potential deflation.

The February 17th edition of The Wall Street Journal had an article by Michael Totty with the title: “Smart Roads. Smart Bridges. Smart Grids.” The article makes the case that since the government is making huge infrastructure investments as part of the stimulus plan, it should do so with an eye toward the future and that this technology will provide for an easier monitoring and maintenance of that infrastructure. There are additional cases made for the societal benefit of the Smart Infrastructure in areas such as traffic management and accident avoidance, as well as adding efficiency to the power and water grids.

Government and industry need to realize that they have a common goal in bridging the good provided to society through infrastructure spending with that of private industry’s deployment of applications intended to increase productivity and efficiency. This is because the technologies behind telematics and M2M have evolved to the point where there will be much more utility and value for the industries and enterprises that deploy the technology if the resident infrastructure is enabled to facilitate their deployment – thus providing a value multiplier effect to both parties. I am making the case that this economic crisis is a catalyst for industries’ investments in these applications, while in a parallel track; the stimulus plan will be a catalyst for government spending in “Smart Infrastructure”, which is basically the same as telematics and the broader M2M areas. Those of us in the telematics and M2M industries need to recognize this opportunity and attack it aggressively, despite the generally accepted management instinct to retrench and cut costs during a recession.

The January 3rd edition of The New York Times had an opinion piece written by a Computer Science professor and a Product Manager from Google.

They suggest four ways that technology can help Detroit to save itself. At least three of these ideas could be considered telematics or an extension of telematics related technology and are not new ideas to those of us in the telematics industry. I have two reactions to stories such as these:

1. Joy; in that people from disciplines outside of telematics are now realizing the potential benefits that we have been speaking about for roughly a decade now.

2. Concern; because we now have the government and mainstream media heavily involved in determining the future direction of the automobile industry. Their statements (informed or otherwise) will definitely have an impact on the public’s expectations. There is no way that those who develop and put into practice public policy have any idea about the unique challenges of implementing wireless technology into an automobile.

With regards to item number two above, I speak from some experience. I come from the cellular industry and started selling wireless radios to Tier 1s for implementation in OEM telematics projects around 2001. At that time, I viewed everything through the lens of what is technologically possible. The wireless industry was growing in leaps and bounds, and I strongly believed that when combined with the power of the internet and location based applications then we could help to transform the automotive industry business and revenue models. The car guys were not moving at a speed that suited my vision, so I ended up labeling them as being dinosaurs who “didn’t get it”. Of course, at the time I had no idea about anything related to an automotive project. Over the years, I learned a lot. A lot about how cars are developed, a lot about the business models, and a lot about the safety and resulting liability risks that the car guys have to take into consideration for everything that they do.

What I learned from a career in the wireless industry:

A. Wireless networks are systems that continually evolve while in operation with the ability to overlay upgrades onto existing technology. The technology develops at a faster pace than it can actually be deployed. This will even happen with little understanding of the business dynamics which will ultimately impact that deployment. For example, in the late ‘90s I was involved in a thing called WAP. This was wireless internet technology that while it worked, didn’t have ready all of the business or market support process that it required. In that case, the failure wasn’t fatal, it was seen as more or less a learning experience in an iterative process that very soon led to the launch of GPRS, which led to an overlay of EDGE, etc.

B. Devices are even less problematic in the industry. The expected life span of a mobile device is somewhere around two years with no requirement to maintain form, fit, function over any period. If the device breaks, throw it out and we will give you another new one with an extension of your service plan!

C. Just keep technology moving forward, because if you don’t you run out of things to sell.

What I learned as an automotive outsider who tried to sell technology to the automotive industry:

A. A car is a static, closed system and is assembled from various sub-systems. Once all parts, sub-systems, etc. are tested and approved, there shall be no changes until it goes through production. Even after production, there is really nothing in it for an automotive company to make a car “upgradeable”. You already own it. Allowing for changes introduces risk to the overall performance of the vehicle, thus creating a liability risk for something that was already shipped and paid for.

B. It takes over three years to define, develop, test, correct, retest, and approve all of the parts so that the final vehicle can be locked down and go to production. Most of the parts and sub-systems in a car are specifically designed and develop to be part of the car. This allows for incremental improvement of features and cost, without radically changing the sub-system that would require major new design, testing, and approval. These incremental improvements can take place over five to ten years, minimizing continued large investments.

C. In the car world, change equals cost related to redesign, retest, etc. As such, all of this additional cost needs to be justified in an ROI.

If you match up the items above to their corresponding letter, you start to see that this is not a matter of what is technologically possible. It’s a matter of completely incompatible business models and development cycles. The folks inside of the auto companies understand this, but they do not currently have the highest level of credibility. So you get outsiders from “successful” industries suggesting what Detroit needs to do to save itself.

Being that I come from the wireless side of things, there is no benefit to me in making the implementation of wireless technology into an OEM vehicle sound any harder that it is. As a matter of fact, it would have been a great couple of years for me and the companies that I worked for if it was easy. I also sincerely hope that this crisis can be a catalyst for changes in the automotive development and business model that will allow the industry to overcome these challenges. However, I am not sure how you maintain the quality and risk mitigation that is required to avoid product recall / litigation while keeping up with the technology cycles of consumer grade offerings that have little, if any, impact on public or individual safety. These are very big issues for very smart guys. I hope that the expectations of government and the public can be properly managed as the issues are worked through.

Being that I love to observe markets at work, I am particularly interested by the way the broader “telematics” industry is forming up. For the past several years I have worked in what is generally known as the M2M (machine-to-machine) industry of which telematics is viewed as a major segment. I always tell people that M2M is not a segment, but an enabling technology that horizontally crosses multiple vertical segments. In the early days, I simply considered telematics to be one of those vertical segments. I think that previously most people in M2M bundled any applications that were installed in a car or truck as being “telematics”. As applications become more specific – in many cases being pulled in a specific direction by users – it becomes even clearer that the term telematics is much the same as M2M, a general bundling of specific applications that share common technology. By this I mean that the majority of the technology used in deploying a telematics solution is very common, but that everything else, including the value chain, purchasing decisions, etc., are very unique. For example, let’s take two distinct applications:

• Aftermarket AVL
• Sub-prime auto sales payment assurance technology

Both segments use some combination of a wireless radio, a GPS, a basic processor and connectors into the vehicle. So if you are a developer of telematics solutions, you might develop a business plan where you develop one basic platform and then make the specific modifications required for each one of the segments, thus greatly expanding your potential addressable market. This is a very strong strategy, but ultimately it is a technology or product strategy. Many technology companies fail to realize that a unique marketing strategy may be required for each of these segments in order for the overall business plan to succeed. For example:

• In aftermarket AVL, the company that is selling the service will have a business plan, but it is very dependant upon individual sales to individual consumers. There are a lot of issues at work here. What is the distribution or sales channel to the customer? Is the sales staff properly incentivized to proactively sell the product and service? Are they properly trained? Is the service offering attractive to the consumer at a price that communicates value? As a developer of a telematics box, you are dependant on many issues that are completely out of your control.

• In sub-prime auto sales, the sale is not to a consumer or vehicle owner, but there is an economic buyer – that being the finance company. The finance company will decide what features, quality, and cost is appropriate for the business objectives that they are trying to achieve. The service provider will actually be the party purchasing the box, but pretty much with the guidelines for features, price, quality, etc. set by the finance companies requirements. In this case, your shipments and sales will be somewhat more predictable as sub-prime used car sales can be benchmarked using sales history from a particular dealer with deviations being more or less driven by macro economic drivers.

My point in this post is to not lose sight of the unique value chain and market drivers for each sub segment under the telematics umbrella. Addressing multiple sub segments gives you the ability to smooth out the business cycle as each sub segment will move at its own clock speed.