It doesn't seem like it's an attack on Sirius XM Radio (NASDAQ:SIRI) at first.

Later this month, Sirius-installing partner Chrysler will begin selling a $499 car-mounted router that will provide secure online connectivity for everyone in the car. Like most EV-DO subscriptions, access won't be cheap. However, at $29 a month, it's a relative bargain compared to the EV-DO wireless card plans that will set you back roughly twice as much.

In the idyllic scenario for Chrysler's Uconnect Web service, the family road trip will never be the same. The driver will pay attention to the road, of course, but the spouse can use a laptop to check on weather and email, and to fire up the occasional road-mapping website. The kids in the back can check on their Facebook profiles, jam along to free Internet radio, or stream movies.

This should be an "uh-oh" moment for investors in premium auto-related products. If you're Garmin (NASDAQ:GRMN) or TomTom, your clunky dashboard gadgets will become less marketable. If you're a satellite radio provider like Sirius XM Radio, you now have to compete for subscribers who have more alternatives than terrestrial radio.

Innovation creates challenges
I have been a Sirius subscriber since 2004, and an XM listener since 2006. I can't imagine going cold turkey on either subscription for the less polished ways of Internet radio exclusively. However, the moment that someone forks over hundreds of dollars to have the equivalent of a Wi-Fi router installed in his car, adding an extra $13 a month for satellite radio to the $29 he is already paying for complete connectivity will be a difficult upgrade.

It will be even harder for Sirius to push its Backseat TV product, offering three family-friendly networks that stream on existing backseat monitors for an extra $7 a month. Why bother, when a Slingbox costs half as much as the Backseat TV installed hardware, yet provides access to a driver's entire home cable programming through a Uconnect connection?

I was wary of Ford (NYSE:F) promoting its Focus car line with voice-activated hard drives last year, but that is a bigger threat to CDs and digital media players like Apple's (NASDAQ:AAPL) iPod or Microsoft's (NASDAQ:MSFT) Zune. Satellite radio competes with terrestrial radio, offering a premium live programming experience. In the end, though, these are all appliances competing for the same set of eardrums. There are only so many premium monthly subscriptions one can amass before realizing that some are redundant.

If Sirius is going to compete, it's going to have to raise the bar yet again.

Innovation brings opportunities
Chrysler's move is spunky. Now that former parent Daimler (NYSE:DAI) sold off Chrysler, the orphan is willing to take chances to get noticed. Wi-Fi-enabled cars will be the wave of the future, even if the high prices and empty pockets make this a slow-moving revolution.

This doesn't surprise me. I put my wannabe visionary cap on six months ago, taking a time-traveling trip to see what Sirius would look like come 2010. I did pretty well, predicting both the eventual merger approval and the automotive Wi-Fi trend. I also turned heads in predicting that Sirius will be a market-beating investment between now and then.

Why was I ultimately bullish on the company's prospects despite the competitive threats? The real potential rests in the company improving its receivers to make its service even more indispensable to radio fans. Here's some of what I wrote at the time:

The latest generation of satellite-radio receivers is responsive. If you're hearing a song you would like to own, a simple button push buys you the track in digital form. Advertisers pay more for airtime on the commercial channels because interested listeners can push a button to receive more information.

It may sound crazy to you in the passive 2008, but one of the more popular channels on Sirius XM is a shopping channel. Who would have thought e-commerce could work in an aural format? The key is in the product mix. Folks gravitate to the category-specific broadcasts, especially the monstrous closeout deals that are sometimes available during the Overstock.com (NASDAQ:OSTK)-sponsored Overstock Hour. A PIN-verified button push later, and that discounted Bose speaker system or Lost: Complete DVD collection is on its way to you.

See, we're still in the early innings of automotive leisure technology. With stingy gas prices likely to encourage more people to carpool, we're moving beyond the lone commute. More people in the car will require more alternatives. Satellite radio will have to try that much harder to stand out, but the ability to paddle more streams than simply subscription revenue or what has been diminishing ad revenue will inspire innovation.

Yes, innovation is a wick that can be lit at both ends.

Other Sirius XM Radio programming notes:

Garmin Ltd. is a Motley Fool Global Gains recommendation. Microsoft is a Motley Fool Inside Value selection. Garmin Ltd. and Apple are Motley Fool Stock Advisor recommendations. Try any of our Foolish newsletters today, free for 30 days.

Longtime Fool contributor Rick Munarriz is such a big satellite radio fan that he subscribes to both XM and Sirius. He does not own shares in any of the companies in this story. He is a member of the Rule Breakers analytical team, seeking out the next great growth stock early in its defiance. The Fool has a disclosure policy.