July 11 (Bloomberg) -- Tim Nixon, chief technology officer of General Motors Co.’s OnStar service, knew something was amiss when he saw his two sons taking the “suction-cup approach” to in-car navigation. They would turn their iPhones sideways, stick them to the windshield and use a free map app to find their way.
That represented a rejection of their father’s life’s work: Convincing car buyers to pay $1,500 or more for a dashboard navigation system with an 8-inch screen and elaborate graphics. Rather than scold his young-adult sons, Nixon came up with an answer: GM now offers a $50 map application for iPhones that can play on the dashboard touchscreen of a $12,170 Chevrolet Spark.
“We’ve historically had these on-board, embedded nav systems,” Nixon said. “That’s just not going to cut it anymore. The game has changed and the bar has been raised by these always-connected devices that bring fresh information into the car.”
The chase is on for the fully connected car. Streaming Internet music sites through the car radio isn’t enough anymore. As more people use smartphones to traverse their daily drive, automakers’ pricey and profitable in-car navigation systems are threatened. The reason is simple: Many map apps are free while embedded nav systems run from $500 to more than $2,000.
Even more compelling is the emergence of social-networking map apps like Waze. “Wazers,” as the app’s 48 million users call themselves, touch prompts on their smartphone to report traffic jams and accidents and then the app re-routes them onto a faster path. Last month, Google Inc. outbid Facebook Inc. to acquire Waze Inc., paying about $1.1 billion for the app maker with offices in Israel and Palo Alto, California.
“If you have a choice between paying a lot of money on an expensive in-car nav system or a free app on your iPhone, which are you going to choose?” Di-Ann Eisnor, head of Waze’s U.S. business, said in an interview. “It is a considerable threat” to automakers.
The boom in mobile-phone map apps is pressuring automakers to adapt so they can maintain control of the burgeoning navigation market. Installations of in-car navigations systems worldwide will grow to 32.7 million in 2019, more than double this year’s 13.8 million, according to consultant IHS Automotive. In the U.S., half of all cars will come equipped with nav systems by 2019, up from 25 percent now, IHS forecast in a report this month on automotive-infotainment systems.
Off The Web
“The nav function has become the Internet browser of infotainment systems,” Mark Boyadjis, an IHS analyst based in Minnetonka, Minnesota, said of the growing ubiquity of digital dashboard maps.
Even mapping-device providers, such as Garmin Ltd. and TomTom NV, now offer apps that run on phones.
Until now, most in-car navigations systems haven’t been connected to the Web. Instead, they use maps loaded onto DVDs that work with global positioning satellites to plot a course. Those maps become dated quickly, especially as points of interest, such as coffee shops and gasoline stations, open and close. Smartphone apps have fresher maps and points of interest because they constantly pull new data from the Internet via storage and other computing services known as the cloud.
“If you want to update the maps in your car, it’s an expensive and complicated process of having to go to the dealership,” said John Canali, who tracks the navigation business for Strategy Analytics in metropolitan Boston. “With the smartphone, a lot of applications have the maps refreshed regularly.”
Automakers have increased profits from nav systems by bundling them with expensive option packages such as leather seats, sun roofs and high-end audio systems.
“It’s a very lucrative, profitable option for carmakers,” said Niall Berkery, executive director of the automotive business for TeleNav, a provider of the Scout navigation system for smartphones which can be operated through Ford Motor Co.’s touchscreen controls. “Carmakers push those kinds of packages with navigation because it’s a higher margin package for them.”
Consumers, however, aren’t always pleased. Satisfaction fell last year among car owners with nav systems, according to a survey by J.D. Power & Associates. The biggest complaint: How difficult they are to use. Ford’s namesake brand has fallen to 27th in J.D. Power’s Initial Quality Study, from fifth in 2010, due mostly to problems with its touchscreen dashboard controls.
Meanwhile, 47 percent of car owners told J.D. Power they used a map app on their mobile phone while driving last year, up from 37 percent in 2011. And 46 percent of car owners with a factory-installed navigation system said they wouldn’t buy one again if their smartphone app could play on their dashboard screen.
“Many people view their smartphone as having better processing speed, better points of interest and better map data,” said Mike VanNieuwkyuk, J.D. Power’s executive director of global automotive research. “Consumers get frustrated when they take ownership of their vehicle that map data can be up to a year-and-a-half old or more. It’s very frustrating for somebody to search for something they know is there and the map can’t find it.”
That’s why consumers increasingly are turning to their phones for driving directions. U.S. visitors to map apps in May grew 11 percent to 79.1 million, making it one of the most popular applications, according to researcher ComScore Inc.
“Smartphones and the software are becoming so advanced that they’re really changing consumer behavior in a profound way,” said Andrew Lipsman, a Chicago-based analyst for ComScore. “So categories that may have really grown a few years ago all of a sudden have a new competitor because these devices can do a little bit of everything.”
Automakers are embracing the challenge and scrambling to re-engineer their nav systems to make them compatible with smartphones.
“We look at it as an opportunity,” Marios Zenios, vice president of Chrysler Group LLC’s Uconnect infotainment system. “All this capability, including Waze, is sitting on the cloud, it’s not sitting on the phone. We are able to go to the cloud through their phone, bring the information down and display it on our screen.”
Chrysler, however, hasn’t paired with Waze, nor has Ford or GM, though GM’s Nixon said he met with the map app maker’s leaders in Israel this year.
Waze will make its first appearance on a car later this year, said Eisnor, the company executive. It’s with a Japanese automaker that she declined to identify.
“We’ve had conversations with everyone,” Eisnor said of the interest Waze is getting from major automakers.
Cars and mobile map apps will ultimately merge because each complements the other’s strengths, said Michelle Moody, Ford’s consumer tech marketing manager. Cars have a stronger GPS connection and larger display screen. Phone apps have the latest maps and users providing real-time traffic updates.
“The reality is neither one is a perfect solution,” Moody said. “Together, they might be a perfect solution.”
Eisnor sees a time when Waze is plugged into the functions of a car and can crowd-source information on a rain storm when Wazers turn on their windshield wipers. Providing information on braking and wheel speed to the social network would reduce traffic and get people off the road quicker, she said.
“What you do with all that information could save billions of hours a year,” she said. “Think what that does for the GDP and the CO2 saved from going into the environment. This has big possibilities.”
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