Ford Overcomes Alien Status in Silicon Valley as Carmakers Clamor for Apps

When Ford Motor Co. came to Noah Shanok’s San Francisco startup about using his technology, he expected it to be like meeting strangers from another planet.

“We thought we might have been like aliens,” said Shanok, the 35-year-old chief executive officer of Stitcher, whose software lets users collect talk-radio programs on one custom channel. “It became quickly clear when talking to the leadership at Ford that we were smart people looking at problems together.”

The meeting, which led Ford to add Stitcher to its voice- activated Sync entertainment system, typifies Detroit automakers’ new approach to technology. Ford, Chrysler Group LLC and other car companies are counting on Silicon Valley to help boost sales and shake off their image as slow adopters of innovations. That means working with startups on iPhone-style apps, adding staff in the Bay Area, and giving drivers freer range over the software and hardware that go into their cars.

The three biggest sellers of vehicles in the U.S. --General Motors Co., Ford and Toyota Motor Corp. -- are all banking on so-called infotainment technology to help them gain market share, said Jim Hall, principal with consulting firm 2953 Analytics Inc. in Birmingham, Michigan.

While Ford has been selling Sync for three years, the company stepped up its focus on technology as it tried to pull out of the recession. Ford buyers cited the Sync system as critical to their purchase 32 percent of the time, the company said in January. The technology, available as a $395 option on some models, also helps make cars more profitable. It’s included standard on higher-end vehicles.

No Winner

“The winner on this ain’t known yet,” Hall said. “The company that can accommodate as many different mobile devices as possible, and integrate them in the car -- they’re the guys who are going to win long term. But it’s a very difficult job.”

It’s harder for automakers to take risks with car software than with smartphone apps, because people keep their vehicles longer -- and their lives depend on them. Infotainment technology, which lets customers use social networking, search for nearby businesses and access the Internet, also has to be designed to avoid distracting drivers.

“Do you think Apple cares if your iPod works four years after you buy it?” Hall said. “With a car, you have to.”

Correcting a glitch in an iPhone app usually just requires a software update. Fixing a flaw in a vehicle can cost millions, require a recall and damage a company’s reputation. Toyota is trying to burnish its image after recalling more than 8 million vehicles for defects linked to unintended acceleration.

‘An Expensive Phone’

“The car is an expensive phone,” said Sal Dhanani, co- founder of Sunnyvale, California-based TeleNav Inc., a maker of software for global positioning systems on mobile phones. TeleNav is working with Ford to handle navigation on Sync.

Ford has been touting its new technology features in commercials, showing drivers customizing touch-screen buttons to get directions, portable music and text messages. Getting to this point took the company at least a decade, said Doug VanDagens, director of Ford’s Connected Services Solutions.

“We had all kinds of stodgy and frumpy management,” VanDagens said in an interview. “At best, we were a fast follower with regard to technology.”

Now the company’s executives fly out to Silicon Valley once a month to meet with startups and software developers. Ford is working directly with companies such as Stitcher, TeleNav, Oakland-based Pandora Media Inc. and Emeryville-based Gracenote, while inviting others to its developer network site for instructions on how to make an app work with Sync. The latest version of the system will debut later this year on the company’s 2011 cars.

Better Reputation

Ford’s image is already improving, according to Standard & Poor’s. The ratings service raised the automaker’s debt grade two levels earlier this month, citing expectations the company will remain profitable and signs that customers have a better impression of its vehicles.

“They are trying to eliminate what’s been a perception gap about the vehicles and just the general brand, and we think they’ve had some success over the past few years,” said Gregg Lemos Stein, an S&P analyst in New York. While quality of the vehicles has been the biggest contributor to Ford’s improved image, “certainly some of the technology offerings haven’t hurt,” he said.

Market Share

The Dearborn, Michigan-based company aims to make gains on GM, which remains the top seller of cars in the U.S. following its bankruptcy last year. Detroit-based GM has 19 percent of the market so far this year, compared with 17 percent for Ford and 15 percent for Japan’s Toyota.

The infotainment trend may face challenges from groups such as the National Safety Council, which is concerned it will distract drivers. Doing activities that take a driver’s concentration off the road isn’t something manufacturers should encourage, said Dave Teater, a senior director at the council.

“Any automaker who’s making it easier for the driver to do those things is probably doing a disservice to the driver, and the rest of the motoring public,” said Teater, whose 12-year- old son died after a car crash with a driver using a mobile phone.

Ford’s Sync system is less distracting than what drivers already do in the car, the company said. It relies on hands- free, voice-activated technology to ensure that drivers don’t lose concentration.

German Presence

Ford wasn’t first in cozying up with Silicon Valley. Bayerische Motoren Werke AG established its Technology Office in Palo Alto more than a decade ago. The lab works on improving the interface between humans and cars, as well as infotainment and driver-assistance technology.

Another German company, Volkswagen AG, opened a research lab in the area in 1998. The office is working on such innovations as autonomous driving -- the idea of a car navigating itself.

“We’re here to bridge the two different worlds,” said Chuhee Lee, head of infotainment for Volkswagen’s Electronics Research Lab in Palo Alto. “They expect us to surprise them.”

Chrysler, now run by Fiat SpA, worked with San Francisco- based Autonet Mobile Inc. to put Wi-Fi technology inside vehicles. The Auburn Hills, Michigan-based automaker also is using Qualcomm Inc.’s Flo TV to provide live television.

“Silicon Valley is a hot spot and we have relationships with companies in that area as well as others to integrate the newest technology into our vehicles, such as streaming Bluetooth audio and live mobile TV,” said Chrysler spokesman Nick Cappa.

Microsoft Corp., the world’s biggest software maker, is taking a bigger role in the market. The company helped Ford develop Sync, and it worked on an in-car infotainment system for Hyundai Motor Co.

The auto industry also is mimicking the way technology companies introduce features, said Ford’s VanDagens. Rather than heralding innovations years in advance at auto shows, companies are keeping more of them under wraps, he said.

“We’re not going to announce our future products until the day we release it,” VanDagens said. “We don’t want to help our competitors catch up.”

To contact the reporter on this story: Ryan Flinn in San Francisco at rflinn@bloomberg.net

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