The software maker has persuaded a number of carmakers to use its slimmed-down Windows CE operating system to power a variety of in-car electronics, from navigation systems to music players to information devices. BMW, in particular, has gravitated to Microsoft systems, although the company has announced wins with Honda, Volvo and others as well.
Microsoft has kept its car talk to a dull roar in recent months, but is expected to talk more about its effort in January, when Chairman Bill Gates delivers a keynote speech at the Consumer Electronics Show in Las Vegas. In a speech to a group of university researchers in July, though, Gates offered a bold forecast.
What's new:
Microsoft wants its Windows CE operating system to power a host of in-car electronics, from navigation systems to music players.
Bottom line:
This is not the first time Microsoft has tried to make it in the automotive world. But its persistence, clout and new savvy in dealing with manufacturers may pay off in the long run.
"You go three years out, which is the design lag on these things--about 30 percent of the cars will have a Windows CE display system built in them," he said at the time. He added that more of those cars would be in Japan and Europe than in the United States, where "putting a display in the car is still a bit more controversial."
Analysts say that goal may be a hard one to reach.
"That's a bit of a stretch," said Phil Magney, principal analyst of the Telematics Research Group. "You'd have to have 100 percent market share to make that claim."
Microsoft is just one of many companies offering an operating system for use in automotive electronics, competing against QNX Software Systems, Wind River and Linux makers, among others. As of this summer, analysts said the company had just about 10 percent of the market for in-car electronics, an industry that itself has fallen short of early estimates.
Who's gonna drive you home?Only about 13 percent to 14 percent of cars are connected to a network today, Magney said, although other cars have systems for navigation or entertainment. Most of those that are connected to a network have General Motors' OnStar system, which the carmaker includes as part of the luxury packages for many of its models.
While Gates' short-term goal may still be a bit overblown, analysts say the company has made great strides with its products and has also tamed the hubris that carmakers found off-putting.
"Microsoft's big issue in the past was that the company was very aggressive and probably didn't have the right approach when it came to auto makers and suppliers," said Gartner analyst Thilo Koslowski. "Microsoft always wants to own the customers in the end."
The company also wanted to control all aspects of the system and wanted its brand out front, ideas that did not sit well with carmakers. "They have to learn how to behave like a supplier in order to be accepted as a credible force in the automotive space," Koslowski said.
This time around, though, Microsoft is doing a much better job of working with partners--both the carmakers and the companies that make gear sold after a car leaves the dealer, analysts said.
"Microsoft is doing fairly well in Japan and is making headway in Europe," Magney said.
Although the company has struggled a bit more to gain ground with U.S. manufacturers, Magney said it's likely that the company could also announce a design win there soon. "All of the major companies are developing a telematics strategy and investing money," he said.
Unlike past efforts, in which Microsoft tended to have a single vision of what an in-car computer would look like, this generation of devices is likely to vary in appearance and function. Some will be purely for entertainment, others for navigation, and still others may serve as information devices that connect to e-mail and calendar information. The systems also draw heavily on the company's substantial research into voice-recognition and other innovative methods of accessing data.
Microsoft is also looking at different ways for such systems to connect to the outside world. Some devices will read information on memory cards, while others will have a built-in network connection. Some will piggyback off cell phones and other devices. "Most likely there will be multiple ways (of connecting) for the near future," said Kelly Kimura, a product manager in Microsoft's automotive unit.
At this month's Comdex trade show, Microsoft showed off a BMW X5 sport-utility vehicle that had a prototype voice-activated system that could be used to get traffic information as well as access e-mail and other personal data.
The long haulWhile the market for in-car electronics has not exploded, analysts do see steady growth ahead. Magney predicted that within five years 36 percent of cars will connect to a wireless network. By 2010 or 2012, most new cars will have some sort of in-car communications system, Koslowski said. "The revenue opportunity is significant," he said.
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The union of computers and cars
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"It's part of the broad companywide effort to make sure that if a market emerges for software in unusual places, that Microsoft is there," said Directions on Microsoft analyst Matt Rosoff. "I think it's very similar to what they've been doing in the TV set-top box (market). It's similar to what's been going on in the mobile phone space with Smartphone, which has finally gotten some traction."
But even as it earns praise for its persistence, Microsoft continues to face many of the same criticisms it often does--namely that its software is too buggy to be used for things like cars and phones, which people expect to work well. And, although the company has learned to deal better with carmakers, it could still be more flexible when it comes to working with partners, Koslowski said. "That is something the company is a little bit struggling with," he said.
On the plus side, Microsoft has some natural advantages since it already dominates the market for computer software both in the home and the office--two of the key places where people access and store information.
Also the company makes other devices, such as cell phones and handheld computers, that could help bring information to the car. The latest version of its Windows for Automotive software supports Bluetooth connections, allowing in-car systems to tap the power of a cell phone to access information.
"Most people have a wireless phone. A lot of people have a PDA," Rosoff said. "It makes sense for them to use these things in conjunction" with an in-car computer system.
Koslowski said that people may be more willing to pay for a mobile system if parts of it can be taken outside the car. "Something embedded is limited," he said. "That makes it very difficult for consumers to understand."
Still, analysts don't see Microsoft being able to translate its PC dominance into a monopoly inside the car.
"It will be hard to convince car makers and suppliers and the industry to standardize on Microsoft," Koslowski said.
