Imagine the scene from Will Smith's I, Robot movie -- minus the killer robots -- where cars drive themselves and their artificial intelligence talks to you and knows you as well as anyone else does. It's a scene that might not be as far from real life off as you think. According to AutoNews, when General Motors (NYSE:GM) CEO Dan Akerson came onboard, moving over from the telecom industry, he asked how soon the company could get 4G incorporated into its vehicles. He saw a fresh opportunity a few years in advance, along with the profits it would generate.
He hasn't revealed exactly what GM has in mind, but a webinar from AutoNews that included spokespeople from IBM and Sprint Nextel may give us a better idea. After watching it myself, I believe that the connected vehicle is the next battleground for premium options and could revolutionize the auto industry. All the major players, including GM rivals Ford, Toyota, Honda, and Chrysler, will be competing to be the fastest to innovate the best-connected vehicle.
The year of the connected car
In case there's any question, a "connected" car is simply a vehicle that has the ability to connect to the Internet, and the outside world, through Wi-Fi or 4G -- and that ability is expected to increase in demand dramatically.
Intel told CarTalk.com that the connected car is the third-fastest growing technological device after phones and tablets. ABI Research noted that "the installed base of embedded and hybrid connected car systems is expected to grow from 45 million at the end of 2011 to 210 million by 2016." Machina Research notes that by 2020, up to 20% of a vehicle's value will be attributed to "connected life" -- a staggering amount that's estimated to equal roughly $600 billion. That's more than Ford and GM's total revenues from 2012 combined.
This type of premium option in vehicles could boost margins well above anything the auto industry has seen in its history -- blurring the line between products and services. But what does that mean for automakers such as Ford and GM? Moreover, what's driving this trend?
Put simply: technological innovation and the millennials. My generation was born into the digital age, is accustomed to multitasking, and has a constant multimedia connection. Most people tend to underestimate our spending power, but it's clear that at least corporations aren't. The millennial generation represents almost 80 million consumers, with an estimated purchasing power of $170 billion -- dwarfing Generation X in size and representing the largest generation since the baby boomers.
What can we expect?
We've all seen the Peyton Manning commercials where he audible-calls his father with his vehicle in the midst of a construction zone. Or Blake Griffin's commercial, where he goes back through time to give himself important advice -- like how jean shorts are a no-no. As much as I'd love to tell my vehicle to take me back and save me from a few mistakes -- like investing in Google and Apple instead of in my first-big screen TV -- that won't be an option. Let's get back to that AutoNews webinar and see what we can expect.
Things are happening fast on this technological front, and it won't be too far into the future before we can imagine a scene like this: Your child is suddenly sick or hurt and needs emergency attention. Immediately getting into the car, you can hands-free connect to the hospital, explaining the symptoms and sending vital patient info stored in your phone or car to help the doctor determine in advance what's needed. No spending time checking in, no time paying, no wasted time on anything other than the drive.
As handy as that could be, it will also be used for less dire situations. Most of us already have interactive displays for MPG and such, but in the future we'll also probably be able to see specifics like how well your brake pads are holding up, leading to alerts on how to drive better for less vehicle wear and tear. Maybe the connected car will tell us to speed up 2 miles an hour to avoid running a yellow light -- or to beat the annoying train that got there seconds before you did.
We already have systems that can start our engine in an airport parking lot while we're arriving in the plane, but pretty soon the vehicles might know us better than we do. In a tense driving situation, the steering wheel could read your heart rate -- much like equipment at the gym already does -- and adjust the A/C during a stressful phone call with the boss.
Imagine Apple's Siri on steroids, detecting who you are and offering your preferred industry or company news before you get to work, while on the way home it automatically recaps local events with soothing background music as an accompaniment. Or imagine that your vehicle recognizes it isn't you behind the wheel, and rather a thief, and the car tracks itself to its new location and alerts authorities. Pretty handy.
Of course, this evolution of connected cars comes with caveats. Can you imagine big data or advertising companies drooling to get the information your car has learned about you -- what music you like, what news you watch, what vehicle you drive, and what consumer goods you purchase? Perhaps hackers out there are loving the idea of this new, potentially unprotected, technology and information.
Right now, we can't know what a fully connected vehicle might bring. We can only build the pipeline and innovate as we go to better understand its full potential. Would you hypothetically pay $500 for the premium option and $15-$20 extra per month in the package deal you already have with Internet, phone, and cable for your vehicle to be connected with the outside world? Some undoubtedly would today, and a lot more will as the years progress.
This is something that has the potential to revolutionize the auto industry in terms of technology, as well as company margins and profits. It could turn our vehicles into an extension of our identity and culture -- more so than they already are. At the very least, it represents a completely new revenue stream for Ford, GM, and other automakers -- as well as companies like Sprint or AT&T.
Buckle up. I think it's about to be a wild ride.
Fool contributor Daniel Miller owns shares of Apple, Ford, and General Motors. The Motley Fool recommends Apple, Ford, General Motors, Google, and Intel and owns shares of Apple, Ford, Google, Intel, and IBM. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.