The dawn of 3G telematics

This summer, key acquisitions transformed three sectors of telematics.

In the personal navigation industry, Garmin completed its acquisition of Navigon.

In the traffic information domain, Inrix, the American traffic information provider, made an offer to acquire ITIS Holdings, its UK-based competitor.

Voice-recognition leader Nuance Communications acquired Swiss-based SVOX in June, thereby building up its presence in the automotive market for voice solutions.

Meanwhile, in the field of B2B telematics, companies like TrafficMaster, Masternaut, Punch Telematix, and more experienced consolidation.

America, the engine of M&A activity

There were two common traits to all of these acquisitions.

First, all acquirers were American companies.

Upon closer examination, a company such as Trimble Navigation closed 19 acquisitions including six related to telematics within three years.

It is striking to see companies from the country with the highest public debt in the world making so many acquisitions. Would you expect companies from a high-debt country such as Greece or Japan to acquire so many foreign businesses?

In fact, there are links between the macro- and the micro-economy. Thanks to two rounds of quantitative easing, the Federal Reserve quadrupled its holdings of US treasury bonds in two years to rescue the American economy from the credit crunch.

Channels to the “real” economy of this financial booster abound, starting from credit growth to low interest rates. It led to a major increase in the price of assets, notably the most risky assets that are technology companies.

Unless foreign investors start doubting the sustainability of the dollar, this could continue, particularly if the Fed launches a third round of quantitative easing in the coming weeks.

Telematics turns three

Second, this M&A activity is the symbol that the third generation of telematics has arrived.

In our view, the early models of second generation telematics, invented in the 2000s, are being challenged.

Numerous stars of this period, like TomTom, Navteq, Garmin, Masternaut, and TrafficMaster, are now suffering. These companies had been excellent at revisiting the models invented by the car industry in the 1990s and had benefited from the opening of GPS to civil applications and the emergence of low-cost consumer electronics components.

But it is so difficult to recognise the crisis and act on it early enough when you are the leader or inventor of a category.

In the new paradigm of telematics, content is dynamic rather than static, platforms are open and connected rather than closed, revenue is generated by "Freemium" or ad-based models rather than paid-for content, and products and services are sold online rather than through direct channels.

Exemplars of 3G telematics

Several companies have already come to epitomize 3G telematics.

In the field of content, OpenStreetMap has been extremely good at producing free maps and is now starting to open itself to third-party developers.

For example, NNG (formerly NavNGo) has developed a free onboard mapping application for iOS and Android smartphones.

Navigon, despite the fact that it was acquired by a larger and more diversified Garmin, has been actually better at understanding how to survive in 3G telematics when you are a small player.

Hence the amazing success of its smartphone navigation and traffic applications.

With Sync, Ford has been a master example of how to integrate the mobile phone into the car and rebuild the credibility of the OEM around it.

With MirrorLink (previously know as Terminal Mode), Nokia is trying to shape an alternative model of smartphone integration.

Coyote Systems, the French speed camera provider, is also a classic example of how to challenge large companies such as TomTom by leveraging crowd-sourcing and the community.

Mobile Devices, the company behind Coyote’s connected PND has proven that users don't really care about whether they use a mobile phone, a PND or an embedded system. The question is whether the system 1) best achieves its primary purpose at the lowest cost possible and 2) is open to a large number of third party applications.

Keys to success in the 3G era

From these success stories, let me draw three MUSTs of a car telematics strategy today:

1) Shape an ecosystem or leverage it before or better than others. The most agile company and the best brand cannot win against an ecosystem. Think about Sony or Nokia…

2) In the Internet era, what is possible will become available. So choose the way you can do it before others do and get all the credit.

3) Integrate the mobile phone in the car and build your value added on top of or around it.

In addition, there is a link between the M&A frenzy of American players and this new age of telematics.

To become a global player, cash helps. Inrix’s $37-million funding by Kleiner Perkins and August Capital before its acquisition of ITIS is a case in point.

Second, American companies can leverage the largest market in the world to gain economies of scale and build a worldwide ecosystem.

Last, the US dominance of the Internet, mobile and software worlds is an advantage to better create ecosystems.

As a result, if you want to succeed as a non-US player in the 3G telematics industry today, you need to do more to differentiate yourself with stronger products.