Verizon Acquires Hughes Telematics, a Strategic Move for Verizon, But What Are the Long-Term Ramifications for Telematics?
On June 1, Verizon Communications and Hughes Telematics) announced a definitive merger agreement under which Verizon will acquire Hughes Telematics for $612 million. At $12 per share, this may appear a high price to pay for a company that has only two early-stage customers - Mercedes-Benz and Volkswagen - and an aftermarket offering intended for data collection, usage-based insurance, and family-centered safety services.
Verizon is very interested in the burgeoning space of machine-to-machine (M2M) and vehicle telematics, but lacks recognition and experience in vertical markets, even after providing the OnStar wireless service for 15 years.
So Verizon is looking to leverage HTI in telematics, and this acquisition certainly gives it a competitive advantage over rivals AT&T and Sprint Nextel, at least for the short term. But while the strategy to own the "plumbing" of the telematics space is clear, Verizon's long-term growth strategy is not, and will likely face challenges from automakers and consumers alike.
While automakers embrace wireless communication for emergency services and vehicle-to-vehicle and eventually vehicle-to-infrastructure communication, they are very ambivalent when it comes to infotainment and how to mash consumer devices and bandwidth with the car's embedded capabilities.
Most importantly, the questions of how to leverage these technologies to grow brand loyalty and how to monetize these capabilities remain wide open.
Furthermore, automakers are extremely sensitive to prevailing and growing concerns about the vulnerabilities of cloud-based automotive services to cyber attacks, driver distraction, and general privacy concerns, further hindering the availability of open infotainment architectures and APIs for broad consumption by third parties.
Consumers, on the other hand, expect a whole lot more in content and services, mostly for free. And their insatiable appetite for bandwidth and storage is not likely to be satisfied by the limited onboard resources that OEMs can provide. Moreover, wireless carriers, trying to catch a piece of the action, would love to have long-term arrangements with automakers for exclusive use of their network, whereas consumers want to not only bring their smart mobile devices into the car, but they also want to bring their own bandwidth and existing wireless service plans.
The prevailing approach to telematics taken by automakers and carriers alike has been akin to "if you build it they will come," which has not proven to be a robust long-term strategy.
We believe that automakers should focus on connecting consumers - drivers and passengers - with an already existing rich ecosystem of content and services and leverage business models, habits, and preferences of consumers. Instead of developing exclusive relationships with a select wireless carrier, automakers can drive adoption by allowing consumers to access their carrier of choice. Working in concert with application providers and carriers, automakers can also ensure they are in control of security, privacy, and driver distraction concerns.
You can get more details and additional analysis here.
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- Joe Barkai
- June 15, 2012
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