I've been driving all morning through Tokyo's crazy quilt of clogged highways and narrow, nameless streets. But I'm not lost. I'm trying to outsmart a car.
It's a Toyota Crown Athlete luxury sedan, which sells for about $35,000, and it's loaded with a system called Monet, which makes use of the latest navigation gear and Internet gadgetry, worth an additional $4,366. I tell the navigation system to chart the way to my office address. Then I drive in the opposite direction--on purpose. The car quickly recharts the course, tracking my location using satellite beams. As I cruise, I instruct an animated robot on the dashboard to read my e-mail messages to me aloud. Then I order it to brief me on various topics: the weather on Mt. Fuji, the results of a sumo match, and decisions that day in Japan's Parliament--information that is broadcast to the car over radio links.
Despite some kinks, the car juggles my various requests, which include calling up real-time video pictures of traffic at major intersections. In effect, this vehicle is a cross between a car, a living room, and a cockpit for navigating all the byways of the Information Highway. It is the kind of vehicle that automotive visionaries have been dreaming of for well over a decade. With backseat video displays, controlled acoustics, an enhanced digital videodisk system, and Net-based games, digital wheels will soon have as many audio-video amenities as a home theater. In terms of raw computing power, cars will match most home offices and will eventually go head-to-head with corporate headquarters. And as demand for these gizmos takes off, car companies and others hope to provide a panoply of digital services--from entertainment to traffic news--creating new streams of subscription and e-commerce revenues.
From where I sit in Tokyo, the implications of this transformation are already apparent: The car is the next big frontier on the Net. In Japan, a land of gadget-happy drivers and a government that budgets as much as $642 million a year in smart-car research, digital wheels are becoming engines of growth for a whole new mobile Internet market.
WRENCHING TRANSITION. But carmakers worry about just who will reap the rewards of all this innovation. Is that next car you buy a Lexus? Or is it a Sony, with body by Toyota? Or is it the latest showcase for Microsoft Windows CE? In short, the car's electronic amenities could start to upstage its traditional selling points, such as the engine and antilock brakes. Thus, Toyota or Ford might start to lose control of both their customers and a key part of their manufacturing supply chains. For the first time, car companies would have to compete for brand clout and profit potential with their own parts suppliers. And carmakers could end up paying hefty fees for the privilege of carrying the latest gadgets or software. But they would have no choice, says Hiroyuki Nomura, a general manager in the intelligent trans- port systems group at Nissan Motors: "Thanks to communications and multimedia, the whole definition of a vehicle is changing."
This may be the same kind of wrenching transition that telecom companies have gone through as they morphed from phone companies into suppliers of Internet infrastructure and services. Sure enough, Toyota is investing in a new telecommunications company, while Mercedes has linked up with Deutsche Telecom and General Motors Corp. with America Online. Carmakers are also rethinking old-style merger strategies. "From now on, if auto makers want to merge, they should merge with electronics companies like Sony," says Kiyomi Yamada, a business development manager at Honda in Tokyo.
The Toyota-designed Monet system in the car I'm driving speaks volumes about how cars are evolving and how the competitive landscape is changing. It is a high-power computer packaged into the dash, sporting a stripped-down operating system that resembles Microsoft Corp.'s Windows CE. Drivers can download digital pictures and maps from the Net and zip them off to friends or colleagues--including other folks on wheels. By next year, drivers may be able to use Monet and similar systems from Honda Motor Co. and Nissan Motor Co. to trade stocks and purchase goods. Within two years, Toyota says drivers should be able to download music and whole movies for passengers.
Industry forecasts hint at what lies down this road. This year, about 1.6 million cars in Japan will carry navigation gear using a global positioning system (GPS). That's almost half of all new cars sold in Japan. By next year, 40% of all navigation systems sold will come bundled with DVD systems--meaning they will have access to vastly more detailed maps and city guides. DVDs for backseat entertainment will also flood into vehicles. And by 2003, Matsushita Communication Industrial estimates that 40% of all cars sold in Japan will have on-board computers with Internet access, up from less than 1% today. By 2015, Japan's digital wheels may constitute a market worth about $67 billion a year in hardware and software combined, up from about $8 billion today.
The new automotive gold rush is already drawing in big players from across several industries. In Japan, Microsoft has teamed up with top parts supplier Denso Corp to co-develop next-generation navigation systems. "The communication between car devices and other mobile devices in the future should be seamless," says Motoki Hirano, senior manager of Microsoft's research and development group in Japan.
GAMES. Not surprisingly, Microsoft wants its software to be the organizing principle for information on the dashboard. In the U.S., working with supplier Clarion Co. Ltd., Microsoft will soon unveil a new version of its AutoPC concept, in which the Windows CE operating system powers everything from the in-dash navigation unit to the mobile theater in the backseat.
Consumer electronics giants are also captivated. Pioneer, Sony, Matsushita, Toshiba, and Alpine Electronics all see GPS, DVD, and high-end audio as keys to expanding their roles within the auto industry. Nokia Corp. and Matsushita Communication Industrial are targeting the car's wireless communication systems. Sega Enterprises, Sony, Nintendo, and Microsoft will rule in games. "The dashboard is now the battlefield for auto makers, super suppliers, electronics makers, communications makers, and computer makers," says Koichi Sugimoto, an automotive analyst at Nomura Securities.
In this complex struggle, profits will have to flow from new services, not commoditized consumer gear and car bodies. Carmakers have a first-mover advantage: They're in a position to roll out new services more quickly than their electronics suppliers. Some car companies are offering voice-based restaurant and hotel reservations. Starting this spring, Nissan drivers will be able to press a button and dial into an army of human operators, who will zip them photos, directions, and maps to the best nearby restaurants and sites for cherry-blossom viewing. Honda also offers road news, and for a $24 initiation fee, Honda's Web site will remind motorists when their driver's licenses are about to expire and provide other personal tips.
Not to be outdone, European auto makers are cramming new features into their own wired cars. DaimlerChrysler's new Mercedes' S-class sedans automatically notify the nearest police station in the event of an accident. BMW is experimenting with voice-based Web browsers on a dashboard screen. DaimlerChrysler is also designing a system that will not only call for help in an emergency but also provide hospitals with the driver's medical details. "This technology will change our world more than we expect," says Jurgen Hubbert, chief of Mercedes-Benz's car division at DaimlerChrysler.
North American auto makers are also struggling to harness the Net--although progress has been slower than in Japan. This year, both GM and Ford Motor Co. have plans to outfit cars with a Net link. GM also plans to upgrade its OnStar system, which keeps track of vehicles' locations, automatically notifies authorities when an airbags go off, and links to a human concierge who advises and directs drivers to gas stations and restaurants. Later this year it will be able to read e-mail. GM will build Web access into 400,000 North American vehicles this year. Eventually, says GM Chairman John F. Smith Jr., "you'll be listening to your messages and talking to your [windshield] visor to send a reply. There will be 100 channels of satellite radio to choose from. All manufacturers will do it."
In the hottest arena, entertainment systems, Sony and Matsushita won't have all the action. Top parts suppliers feel they have the best grip on the whole interior. Johnson Controls designs smart entertainment and safety systems. When Visteon Automotive Systems first introduced its $1,700 high-tech interior in North America last May, they were a tough sell. Now it has booked $100 million in orders with carmakers who want to install DVD-based entertainment systems in their 2001 models. At the top of the line, for S-type Jaguars, Visteon has a $3,200 product that rolls together navigation, climate control, audio systems, and a phone. Rival Delphi Automotive Systems has received $2.5 billion in orders from seven carmakers for similar systems, which include Net access and various PC functions.
A lack of global technical standards for all this in-car equipment could threaten schemes for digital wheels. Because there are few standards for electronics gear installed in cars, suppliers such as Toshiba Corp. must customize such functions as voice synthesis for dozens of different makers. According to Yasuyuki Kono, a senior scientist at Toshiba, the costs of such customization get passed to customers as daunting price tags--$2,000 and up for navigation gear, for example. Customization also slows the pace at which new multimedia gadgets are introduced. Carmakers are also worried about "bloatware" from too many different players, who are all trying to bombard cars with new software, while waging standards wars across the dashboard.
To avoid such struggles, auto companies have been holding meetings behind closed doors to thrash out common global standards. At a recent Tokyo meeting, execs agreed there had to be clearer guidelines as whole new technologies are added into the dash, from novel music compression schemes to an emerging wireless communications standard called Bluetooth. It's clear that all the carmakers want what engineers call an open architecture, so that nobody--read Microsoft--can stand at the gate and charge a Windows-like toll.
Where will the profits come from? Toyota and GM want to build up a critical mass of drivers that will pay for infotainment services. Today, Toyota charges drivers an up-front fee of $24 to access the company's Monet system, plus a $56 annual charge. By the year ending in March, 2003, Toyota expects its Monet operations to be profitable, with about 100,000 members.
Many Japanese drivers are already hooked on digital services. Masahiko Kobayashi, a 35-year-old senior marketing manager at British Telecom Japan in Tokyo, has been through four navigation systems in the past seven years. The latest, a $2,000 DVD unit from Pioneer, is in his Nissan Leopard luxury sedan. A single DVD holds maps of all Japan. "This system saves me both time and frustration," he says. "When I'm driving to a location I don't know, my wife doesn't have to be the navigator."
It's hard to say if such systems will really fly in the U.S. For one thing, American customers are accustomed to free service on the Net. And roads in America are much more clearly marked than those in Japan. "The average American drives to work and has been there before," says James Holden, president of DaimlerChrysler's U.S. operations. "If you put an extra $1,000 worth of stuff in cars and try to charge for it, the customer will tell you to take it out."
Health and traffic-safety authorities also have concerns about the distraction factor. Accidents related to navigation gear are on the rise in Japan. Last year, two people were killed and 324 people injured in 219 accidents caused by drivers glancing at their navigation systems, according to the National Police Agency. That's far fewer than the accidents involving drunk drivers. But as more functions flood into the dashboard, the distraction factor is bound to get worse.
There's no turning back. The next generation of drivers raised on the Internet may have little interest in the styling or power of the vehicle that moves them from one place to another. "Most people are not car fanatics," observes Ford Motor design chief J Mays. To provide the extra value consumers are looking for, cars will have to facilitate the kinds of work you do at the office, or the fun you have at home. That leaves auto makers a simple choice. They can either drive the transformation of the automobile into a communications portal on wheels. Or they can be driven by it.
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