The auto industry's dot-com angst isn't unique. Executives in industries ranging from academics to healthcare complain that the dot-com bubble perverted business models, particularly in areas where technology overlapped with other industries. For example, realtors in tech meccas such as San Jose, California, and Boston say that housing prices are still in the process of readjusting to post-bubble economics; airline executives complain that the Internet forced them to rush e-commerce into sales structures before they could come up with the best model. But telematics -- the place where the high-powered technology and automobile industries intersect -- was perhaps the most interesting and long-lasting case of "bubble fever," and possibly the most ironic. Until the 1990s, the tech sector was considered a bit player in the US economy, dwarfed by Detroit's big iron. Automobiles had been a cornerstone of the US economy since the 1950s, when suburbia exploded and few American families could do without at least one vehicle. But technology gained footing in the 1990s, boosted by companies' soaring stock prices and consumers' eagerness to purchase PCs, cell phones and other gadgets. Economists at Well Capital Management in Minneapolis determined last year that the tech sector accounted for nearly half of the US economic growth in the 1990s. Did the auto industry leap into telematics in part to regain some of its economic thunder? Auto executives dismiss such theories outright, but many admit they were shifting focus to technology, ranging from satellite TV at General Motors and a giant e-commerce marketplace for automakers called Covisint. In the late 1990s, Michigan even spearheaded a massive business campaign called "Automation Alley," an effort to court tech companies on its corporate Interstate 75 corridor. Even though activity in the tech sector quieted after the spring 2000 stock implosion, Silicon Valley's courting of Detroit intensified in the second half of 2000 and 2001, when a venture capital drought in the tech sector forced start-ups to turn to deep-pocketed automakers. Many auto executives said they were almost flattered by the attention from tech companies -- and the chance to shake off their image as Rust Belt stalwarts. "We saw a plethora of different opportunities, and we were really enticed," said Scott Kubicki, vice president of OnStar Core Services. "You could bite at those apples pretty quickly, but we only bit at a few. We were pretty conservative, but we got offered a ton of opportunities. Everyone wanted to partner with us. People were calling us who thought we were 'Old Economy' only a year before." Although the telematics implosion didn't force any carmakers into bankruptcy or cause the deep-pocketed companies to scramble for more venture funding, auto executives say they've learned valuable lessons about their future because of the bubble. Peter van Alstine, vice president of telematics for Boston-based consulting firm Cross Country Automotive Services, said the important lesson he learned was that telematics, like the Internet, is in its infancy. He also learned that telematics is here to stay, even if the niche doesn't immediately produce billions in new revenue for automakers. "This is a long-distance race," van Alstine said, noting that several years of OnStar promotions have resulted in only about 2.2 million customers. "Right now there are some customers willing to pay $20 or $30 per month, but it's going to be a long put to get 10 million or more customers." Numerous executives said that the bubble and its bursting have forced them to scrutinise business practices -- and even question whether to stay in the telematics niche at all. Many automakers, including Ford and DaimlerChrysler, are revamping business strategies to provide little more than a dashboard outlet or hub and rely heavily if not entirely on wireless and electronics partners to provide products and services. (By contrast, General Motors's OnStar mobile communication division is emphasising more embedded devices.) "We have learned in the last year to become very humble," Bruno Simon, director of telematics at Paris-based Renault. "We've had many experiences, but the only thing we're sure of is that we've burned a lot of cash out and haven't brought a lot of cash in," Simon said. The cure for the dot-com hangover
It's unclear how damaging telematics' dot-com hangover will be or how long it will last. Pessimism at the Detroit conference and in the ranks of telematics service providers around the world has become so pervasive that some experts worry about a morale drain in the emerging sector. "The telematics high has cooled off significantly," said GartnerG2 automotive analyst Thilo Koslowski. "There was a big vision and dream to realise revenue for car manufacturers, and now we realise that won't happen anytime soon and that vision was overly optimistic." Although dot-com fever caused the auto industry to inflate potential profits and then forced companies to retrench, the Internet bubble may have been fortuitously timed. Some say it forced the automakers to consider broader ramifications and potential liabilities of cell phones and electronics. As cell phones became ubiquitous on American roads in the late 1990s, some safety advocates were lobbying against the use of traditional cell phones while driving because of driver distraction. At least 40 states have proposed legislation banning traditional handheld phones, and in 2001 New York became the first state to ban handheld phones for drivers while their cars were in motion. Judges and consumers also debated who was responsible for deaths caused by distraction. In 1995, a motorcyclist died after a Smith Barney broker hit him while talking on his cell phone and driving his Mercedes Benz at the time of the accident. Although the firm did not supply the phone, lawyers alleged that Smith Barney encouraged workers to use personal phones for business. Smith Barney settled the case for $500,000 in 1999. Automakers are now weighing such tragedies and political movements carefully as they try to find a must-have app for telematics. Many now say that hands-free calling through embedded speech-recognition technology could increase revenue -- and reduce the number of crashes and win political allies. Auto executives say their foray into telematics could help them stay ahead of the curve if more states pass New York-style bans or if consumer outrage increases. "Whether hands-free becomes law is irrelevant," said Jack Withrow, director of telematics for Chrysler, the Auburn Hills, Michigan-based division of Germany's DaimlerChrysler. "The public is saying, 'We want to talk on the phone safely,' and the automakers are now in a position to give them the ability to do just that."
See the Hardware News Section for the latest update on everything from MP3 players and PDAs to supercomputing.
Have your say instantly, and see what others have said. Go to the ZDNet news forum.
Let the editors know what you think in the Mailroom.
