Machine-to-machine technology revs up with the connected automobile.

Machine-to-machine (M2M) technology has been used in the trucking industry almost since wireless networks were invented. Onboard computers started to appear in vehicles in the 1980s and it didn’t take long for companies to connect them to cellular and satellite-based wireless networks, helping companies with huge fleets of vehicles track shipments, monitor driving and comply with government driving regulations.

Now after decades of use in the enterprise space, the technology appears poised for a major move into the consumer market, opening a new range of M2M technologies suited for the needs of everyday drivers.

Cars already are being outfitted with high-end entertainment systems, mobile television, engine performance monitoring systems, even modules that track driving habits to proactively adjust insurance rates. Companies that manufacture the individual components for the in-vehicle systems are already benefitting from the trend, with sales of in-vehicle technology topping $9.3 billion last year, according to estimates from the Consumer Electronics Association.

Car manufacturers and major players in the wireless industry envision a future where cars, especially hybrid electric models like the Prius, will be an extension of the mobile experience, with content and applications from the handset weaved into in-car navigation, entertainment, security and safety.

“There’s two things Americans love. The first is television and the second is their cars,” says Steve Hilton, an analyst at Analysys Mason.

Hilton says the U.S. market is prime territory for connected vehicles because of the amount of time Americans spend in their cars compared to other countries. “Commute times are outrageous and public transit isn’t all that,” he says. “I like the idea of more connected technology in the car.”

Nokia and Alcatel-Lucent also like the concept. Both have announced initiatives to extend mobile technology into the car. Alactel-Lucent says its LTE connected car concept, developed through the ng Connect program in 2009, is a smartphone on wheels. Billing the concept car as a “powerful new category of mobile device,” the infrastructure giant integrated entertainment, security, navigation and vehicle performance into a Prius, and it’s all connected wirelessly through an in-vehicle Wi-Fi network and LTE.

Nokia’s Terminal Mode specification, developed this spring with the Consumer Electronics for Automotive working group, aims to be an industry standard that can be used to link smartphone apps to in-vehicle computers. The technology integrates content on Nokia devices with a car’s dashboard system, including turn-by-turn navigation. The technology also allows smartphones and vehicles to exchange information.

The move towards a smarter car is being driven in part by hybrid electric vehicles that use more computer technology than their combustion engine counterparts. Hybrid electric vehicles like the Prius incorporate computers in all areas of the vehicle to maximize energy efficiency, from determining whether the engine should use battery power or gasoline to rolling down the windows.

Running consumer applications on top of this existing computer power is the logical next step for car manufacturers, says Yankee Group analyst Dmitriy Molchanov. “This is a growing space and I certainly think five years down the line, consumers will be asking for embedded technology,” Molchanov says.

Automakers are priming the pump by rolling out cars with sophisticated entertainment systems and already use wireless technology, including apps and Flo TV’s mobile television service.

“Most car makers are introducing a combination of connected systems and services in lower vehicle segments and embedded solutions in the luxury and near-luxury segment,” says Roger Lanctot, an automotive analyst at Strategy Analytics. “Every car maker that I know of is preparing to launch telematics systems.”

Ford’s Sync technology has been installed on 2 million vehicles, with a million of the installations happening in the past year alone. The company says one-third of its customers who own Ford vehicles with Sync say the technology was a key part of their purchase decision.

Sync lets drivers use voice commands to operate MP3 players and Bluetooth-enabled phones, and also lets users plug their mobile USB dongles into the car for Internet connectivity. The service allows drivers to access information ranging from their vehicle’s health report to real-time traffic information.

Jim Buczkowski, a director for global electrical and electronics systems engineering at Ford, says the company launched the product in response to customer demand. “As phones get smarter and smarter, people want to use their phones to bring content into the vehicle.”

Ford created Sync as part of an effort to make it safer for people to access mobile content while driving and plans to expand the service to smartphone applications later this year through a product called AppLink. The service will allow drivers of the 2011 Ford Fiesta to control three apps for Android and BlackBerry devices, Stitcher, Pandora and Twitter app Openbeak, with voice commands and vehicle controls.

Buczkowski says having the infrastructure in place to support mobile content in vehicles, such as the ability to integrate Sync with devices and offer cloud-based content to drivers, has opened up Ford to a whole new realm of technologies. “You can only imagine what will be possible,” he says. “Ultimately, we’re trying to do the market research and determine what has the best value for customers.”

M2M IN CARS: THE TOP LINE IMPACT
The use of M2M technology will have an effect on the top line of module vendors, wireless operators and content providers, but the impact could vary widely depending on whether consumers end up favoring content streamed on cellular networks or content streamed from devices to in-car systems over Bluetooth.

For now, the industry seems to be leaning toward systems that transfer a phone’s existing media content to in-car screens using Bluetooth at no additional cost to the user. This means content providers won’t necessarily benefit from in-car entertainment systems and also cuts out the need to stream bandwidth-intensive content over cellular networks, shutting a potential future revenue stream for operators.

On the other hand, demand for Internet access in vehicles will generate additional traffic for operators and some companies are betting the live content model will win out in the long run.

Already, Ford’s Sync lets passengers plug a USB dongle into the car’s center console, which creates an in-vehicle Wi-Fi powered by cellular networks. The deployment of 4G networks could positively affect consumer demand for streaming content as well. Alcatel-Lucent’s forward-looking LTE concept car banks heavily on streaming content with the integration of live content from Atlantic Records, Kabillion’s video-on-demand service and Chumby’s Internet device.

THE COST OF CONNECTIVITY
How this in-car wireless connectivity is going to be paid for is still a matter of debate. Industry analysts believe that consumers will be hesitant to add another subscription onto their wireless bill to add Internet access to their vehicles.

Molchanov believes that wireless connectivity in cars could be subsidized by advertisers and insurance companies. Insurance companies may offer subsidies on in-car wireless service in exchange for drivers agreeing to install a tracking module onto their cars. The module would track driving habits and allow insurers to raise premiums if they determine a car is being driven dangerously.

Hilton disagrees with Molchanov on the viability of the insurance model because of the amount of information drivers have to disclose to insurers. The module used by Progressive in its MyRate program tracks several different driver behaviors, including acceleration, deceleration and how fast a car is moving, through a module drivers voluntarily plug into their car in exchange for insurance discounts if the tracker reports safe driving habits.

The company says it has signed up 100,000 people for the service since it launched in 2008, but Hilton doesn’t think it’s a viable model for other applications. “I’m not convinced Americans are willing to divulge that much information,” he says.

By the time connected cars become ubiquitous, carriers may offer plans that bill customers based on their data consumption across a range of different devices instead of current per-device subscription models.

Wireless connectivity also could be subsidized through value-added services for cars, particularly around security applications. Insurers, car dealers and owners are willing to pay for the ability to track the location of a stolen vehicle or have the car automatically call for help when the airbag is deployed, such is already being done with Ford Sync and OnStar, argues Hilton. “I see an easier return on investment for a solution like that,” he says.

In a future where everything is connected, from appliances to the electric grid, embedding wireless technology into cars is a logical extension of the smartphone experience. It could be years before the mass market sees smartphones on wheels, but they’re definitely coming.