Ford, Microsoft Find They're in ‘Sync’ with Young Buyers

By Michelle Krebs April 9, 2008

By Dale Buss Sync240

One of the few highlights of the industry’s dismal sales picture in recent months has been the Ford Focus.

In an otherwise dismal month and quarter for industry sales, March retail sales for the Focus marked their highest level for any month since August 2005 – with retail sales up 36 percent in March and 35 percent in the first quarter compared with the same periods a year ago. Counting fleet sales, Focus sales were up 24 percent in March and 23 percent for the quarter.

The reason for higher retail sales, Ford says, is in large part because younger consumers were flocking to buy Sync, the in-vehicle connectivity system that has been featured lately in marketing for the subcompact car.

Also available on 11 other Ford, Lincoln and Mercury models so far, the joint technology package with Microsoft apparently is giving Ford a much-needed boost not only in actual sales but also in consumer perceptions that it’s on the cutting edge of something important. Voice-activated technology that allows users to dial phone numbers, send text messages, and play songs by speaking, Sync potentially represents the biggest development in passenger-compartment electronics since OnStar.

“It’s a feature that has the power to put Ford on people’s shopping lists, and we’re starting to see that,” said John Emmert, Sync marketing manager for Ford. Sync sales topped 30,000 in 2007 after the release of the device in the final quarter, and Ford says it’s on track to reach one million sales by early 2009 as it expands Sync availability to include at least seven more products this year.

An automotive consultant and Sync user agrees about its allure. “It’s probably the best value out there right now in terms of options on vehicles,” said Erich Merkle, vice president of forecasting for IRN Inc., an automotive market-research concern in Grand Rapids, Mich.

Indeed, about the only apparent cloud on the horizon for Sync is, although co-branding with Microsoft has been one of the most arresting aspects of Ford’s marketing of the device, November brings the expiration of Ford’s exclusive deal for the technology underlying the system. At that point Microsoft is free to work with other OEMs, which are likely to try to catch up quickly and deploy their own Sync-like systems.

Build-in vs. Bring-in

But for now Ford alone is riding the crest of an early wave of interest in the technology and, more broadly, of the growing supremacy of the approach to in-vehicle consumer electronics Sync represents.

Since General Motors introduced OnStar in 1996, the auto industry has waffled on two major issues with its consumer-electronics offerings, each of which has two significant poles. The most fundamental issue has been: Exactly what kind of electronic capabilities do American consumers really want in their automobiles?

The goal of OnStar and other early “telematics” offerings was to establish consumer confidence in the communications link between the vehicle and OnStar for bringing in important, customized information from the outside world, beginning with a navigation service. A key part of the early vision was to make OnStar a rolling Internet node drivers would find vital to their functioning in and outside the vehicle.

But this idea simply has never caught on with OnStar users or anyone else. OnStar has gradually built a base of five million subscribers for its safety and security services, but its Internet-based Virtual Advisor service never amounted to much. Ford planned essentially to copy the OnStar idea in 2000, but its joint venture with Qualcomm, called Wingcast, dissolved just two years later.

Part of the reason is consumers can interface with the Internet on their PDAs. And in any event, they simply aren’t looking to automakers to provide them with an online gateway nearly to the extent that the industry had predicted.

“Far and away,” said Velle Kolde, a product manager with Microsoft’s automotive business unit, what consumers most want from in-vehicle consumer electronics is “a really rich hands-free experience in the car” and media-player integration. “Everything else you can think of — including navigation, e-mail and the Internet — were distant third and worse in our research with consumers.”

The second issue for the industry was whether to try to provide the kinds of electronic content consumers desire via wholly integrated in-vehicle systems, such as OnStar, or in ways that would accommodate PDAs, cell phones, iPods and other portable devices consumers already were bringing into automobiles.

OnStar has stuck with using largely oral interaction between drivers and its customer-service representatives to access many of its features, through an electronics system that is completely hard-wired into the vehicle. But after the failure of Wingcast, Ford “took another look at the future, and that’s when we switched off to bring-in versus build-in,” said Ford spokesman Alan Hall. “And that’s what led to Sync.”

Keeping Up with Consumer Electronics
Actually, the entire industry has swung toward a “bring-in” philosophy. One reason is consumers have been choosing mobile phones, PDAs and MP3 players without much regard to their compatibility with car-audio systems; largely, that means they have to put up with using auxiliary connecting devices once they’re in the vehicle. Auto OEMs have been struggling to accommodate them with halfway measures such as built-in MP3 docking ports.

“People have become accustomed to the experience and the peace of mind that these devices give them anywhere they are,” said Kolde. “But as soon as you get into the car, you have a challenge because those great devices were never really designed to be operated or manipulated to your preferences while driving a car.”

But as iPods and Bluetooth invade every pocket and earlobe, American consumers are looking for convenient, safe and fully functional ways to transfer operation of them from person to vehicle.

Beyond consumer preference, the auto industry has come to acknowledge the obvious: Consumer-electronics product cycles are lightning-fast compared with how long it takes to come out with new vehicles and even to make major changes in existing models. So the auto industry simply can’t hope to deploy hard-wired systems that keep up with the pace of change in consumer electronics.

“Consumers want the flexibility to take their devices in and out of the car,” said Steve Koenig, senior manager of industry analysis for the Consumer Electronics Association. “They also want to be able to switch out devices easily as technology shifts and advances.”

'Play Michael Bolton'
Based on Microsoft Auto software, Sync enables consumers to bring into their vehicles nearly any Bluetooth-enabled mobile phone or digital media player and operate it using voice commands or steering-wheel or radio controls.

More than that, Sync converts cell-phone text messages from cell phones to audio and reads them aloud, including translating commonly used expressions including “LOL”; users can choose from 20 predefined responses. Among the system’s many other features is one that keeps Bluetooth connections uninterrupted as users enter and leave the vehicle.

Sync debuted on Focus, Fusion, Taurus, Edge, Taurus X, Explorer, and Sport Trac; Mercury Milan, Sable and Mountaineer; and Lincoln MKX and MKZ. It is standard on higher-end vehicles and a $395 option on others. With the Focus, for example, Sync isn’t offered on the entry-level S version, is optional on the mid-level SE, half of buyers of which choose to include Sync; and standard on the highest-end SEL version, which has accounted for about 30 percent of all Focus sales since last fall.

“We understood early on that what we had with Sync was a game-changing feature, because some of our early research showed us that consumers had a high interest in the functionality,” said Ford’s Emmert. “It’s something unique — no one else has it.”

Ford has cleverly conveyed the possibilities inherent in Sync through at least one humorous TV ad for Focus, in which a twenty-something passenger — catching on to how the voice activation works — reveals crooner Michael Bolton is on the playlist, to the embarrassment of his friend the driver.

The company also has emphasized training dealership personnel to be able to pitch and explain Sync to showroom visitors. Each dealership is urged to have a “Sync specialist” on hand, each of whom has gone through a full day of training just on Sync. All other front-line sales and service reps undergo a half-day of training on Sync.

For those reasons and others, Ford believes Focus and Sync are helping it get “back in the game” with younger consumers, said Jim Farley, group vice president of marketing and communications. Buyers aged 16 to 35 accounted for 32 percent of retail sales for the 2008 Focus compared with 28 percent of the previous model, through February.

One Brand, Two Backers
When it comes to marketing, Sync represents another significant departure for Ford: co-branding of a single vehicle feature. Like other OEMs, from time to time over the years Ford has highlighted the presence of certain brand-name items in its vehicles, such as iconic audio systems. And, of course, it has co-branded entire versions of certain vehicles, such as the Eddie Bauer take on Ford Explorer and the Harley-Davidson edition of the Ford F-150 truck.

“But this kind of thing with Sync has never been done before,” Emmert said. “Partnering with one of the industry leaders in consumer electronics gives Sync lots of credibility.” Syncgates240_2

Russell Pangborn, Microsoft’s director of trademarks, said Ford “wanted to make sure consumers realize there’s some real technology behind” Sync. “And the Microsoft name brings a level of cachet that consumers will realize.”

Actually, the stakes are big for Microsoft too. Sync represents the company’s important re-entry into the automotive-electronics market in the United States (it already has been offering a Sync-like system in Europe through the Fiat Alfa group). Thus, Microsoft has been helping the cause with its own advertisements for Sync, including during February’s Super Bowl broadcast.

Microsoft has been dabbling with in-vehicle systems since 1995 and even introduced its own aftermarket dashboard computer, Auto PC, in 1997. The stereo-like device ran Windows software and offered voice commands and speech recognition, updated traffic alerts via wireless navigation support, and an optional global positioning system. Automakers including Mercedes-Benz, Volkswagen, Nissan and Hyundai added Auto PC to a few models.

But within a year Auto PC was going nowhere. “It had a lot of features and functions that were ahead of their time,” Kolde said, “but automakers wanted systems that were more deeply integrated and used automotive-grade components that could better handle vibration and thermal variations. It was a neat product for techie geeks, but not the mainstream consumer.”

Second Chance for Microsoft
This time around, starting with Sync, Microsoft is trying to make itself as mainstream in the vehicle as it is in the PC. For starters, Kolde said, with Auto PC — the software platform underlying Sync — Microsoft “resisted the temptation to go into our big warehouse of technology and build what amounted to a super-cool science project. We could have put full Internet capability and WiFi chips in there, and big hard drives that could have supported gaming platforms in the car — pretty much anything.

“But we focused on what customers really want in a car and how much they’re willing to pay for it. (Sync) had to be easy to use and really intuitive and not require a 150-page manual to figure out how this thing works. Common tasks had to take very few steps.”

Another important aspect of Sync is, being software-based, it is highly updateable. Sync customers can update to the next-generation phone or iPod, for example. Ford can add services as well: In January, the automaker announced the addition of a “911 Assist” feature that will enable Sync to connect with emergency assistance in the event of an air-bag deployment.

And Sync will be the conduit by which Ford will become the first automaker to offer Sirius Travel Link, a new navigation system that will provide up-to-the-minute information and entertainment content — including local movie shows and times, real-time traffic information for 78 markets, and current gas prices from an estimated 120,000 filling stations nationwide.

All Good Things Must End
But given the success Sync has had in the early going, competition clearly is looming.

For one thing, a handful of aftermarket systems already do nearly everything Sync does. Parrot Inc. has a system priced at $299, plus installation costs, that offers all the functions of Sync except voice-activated text messaging, said Mike Hedge, vice president of marketing for the Southfield, Mich.,–based company. Such devices could catch on much as portable GPS-based navigation systems have proven a hugely popular alternative to automakers’ built-in nav devices, he said.

Hedge also said Sync works with only a few dozen specific models of cell phones, according to a Ford Web site, but Parrot systems are compatible with more than 1,000 phones. “Some manufacturers getting into hands-free telephony don’t realize what’s required behind the scenes to serve all the customers of yesterday and today,” Hedge said.

The bigger concern for Ford might be that its exclusive lock on using Auto PC, Microsoft’s underlying technology, expires in November. At that point Microsoft will be free to work with any other automaker on Auto PC applications, and rivals are likely to begin trying to cherry-pick what Sync has shown about the marketplace. “The competition will gravitate there quickly once the exclusive is gone,” said Merkle, the IRN analyst.

But Ford's Hall noted it would take rivals a while to catch up with Sync, and meanwhile, Ford will continue to update and improve its own highly adaptable system. “We,” he said, “have the lead.”

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