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GM Aiming to Redefine, Rebuild OnStar

Telematics brand is making money, but needs to respond to fast-changing world, says new CEO.

by on May.28, 2010

OnStar has "healthy" revenues - but plenty of challenges - says new CEO Chris Preuss.

A pioneer in automotive telematics, General Motors’ OnStar unit may be generating “healthy” revenues, but the world of in-car electronics is changing fast and if it doesn’t make some major changes soon OnStar very well could be left behind, admits its new chief executive.

While its core business is selling safety and security – with devices that can call for help after a crash or another emergency – OnStar is exploring a fast-expanding array of possible services that can be delivered within a moving car, says the unit’s new Chief Executive Chris Preuss.  And it is willing to break with tradition, he notes.  In years past, OnStar believed it had to develop all services in-house, but is now willing to work with outside software and service partners.

The challenge, warns Preuss, the former head of General Motors public relations, is that many of the features that might be technologically possible pose potential risks.

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“I see a big, flashing red light,” says Preuss.  “One of the biggest issues we have is distracted driving,” which is being blamed for thousands of deaths and injuries on the road each year.  “At the end of the day, 6,000 people died playing with devices (while driving) last year.  That’s the equivalent of two 9/11s.”

And it flies in the face of the fundamental selling point of OnStar, which is providing safety and security to drivers and their passengers, he stresses.  The telematics company’s primary feature is its ability to recognize when there’s a crash and automatically place a call for help.  Motorists also can call for help directly and, if they subscribe, seek out less critical assistance, such as directions.

OnStar has had far less success getting customers to use its embedded – or built-in – phone service, no surprise, officials admit, considering the ubiquitous nature of today’s hand-help cellphone.  Parent GM was initially reluctant to adopt hands-free Bluetooth technology because it would cut into OnStar business, but competitive pressures have forced it to adapt.

Nonetheless, OnStar is generating good business, according to Preuss, with more than 5.5 million motorists – almost all driving GM vehicles – subscribing to the service.  And “We tend to convert just over half of the people who leave the (normally free) trial (on most GM products) to stay with us,” the executive says.  At a typically subscription rate of $350 to $300 a year, Preuss adds, “Revenues around here are pretty healthy.”

But unless OnStar adapts, that might not be the case for long, he concedes, acknowledging that basic telematic services, like the ones OnStar is built upon, “are going to become commodities.”

GM is by no means the only automaker pressing into the telematics stake.  Many makers, like Mercedes-Benz, now offer emergency call services. Others are pressing into new territory that more closely resembles what is happening on smartphones. 

Ford’s SYNC system is the most aggressive example.  The voice-activated technology has, like OnStar, a positive selling point because it is hands-free and can be used in the growing number of states and cities barring a driver from using a hand-held cellphone.  But SYNC also delivers an assortment of app-based services, not only providing navigation, but helping a motorist find cheap gas or local movie theater listings.

For the next-generation of the telematics system, Ford is pairing with mobile app providers, like Pandora, which allows a user to stream a customized audio channel – which will now be able to play, through SYNC, over the vehicle’s audio system. 

Significantly, while a buyer pays for the SYNC system, there are no subscription fees.

“The subscription system is going to come under increasing pressure going forward,” concedes Preuss.  But that raises some fundamentel questions for a company, like OnStar and its potential partners.  “Where’s it going to be monetized?  All this free content is great, but who’s going to make money on it?”

OnStar already has some limited partnerships going, notably with the Internet navigation giant, MapQuest.  This permits a subscriber to plan ahead by setting up a trip and then having the route information transmitted to the vehicle.

One of the concerns, going forward, cautions Preuss, will be ensuring the safety and security of the vehicle itself.  He notes that hackers have already begun to attack cellphones, such as Apple’s iPhone.  At worst, that could compromise personal data or cause the phone to crash.  That latter term would have a very different meaning if the software caused a vehicle to crash.

At one point, General Motors was starting to market the OnStar system to other manufacturers, including Honda and Toyota.  But it has changed course and now the telematics systems is operated, says Preuss, “for the good and glory of GM,” and offers several potential advantages for the automaker.  It can help win over a potential customer, it generates an additional, ongoing revenue stream, and it allows GM to stay in touch with its customers.

E-mailings from OnStar, suggests Preuss, are opened at “an unprecedented level by industry standards.”

The new CEO hints that a variety of new services and features will be coming to market, later this year, when OnStar migrates to a next-generation hardware system. 

One of the challenges OnStar shares with other telematics providers is how to link to the car.  The more data a user demands, the more strain there is on the cellular infrastucture.  That has been underscored by AT&T, which is struggling, in many parts of the country, to meet the demand of its iPhone users.

For its part, OnStar is teamed with the Verizon network, and Preuss said he is anxious to see that provider migrate to the 4G, or fourth-generation data network.  “It’s mind-blowing what…4G, wil bring,” he says.

The bandwidth will be necessary if OnStar is to deliver all the features future users will look for.

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