The Secrets of Microsoft's Sync
Microsoft (MSFT) has spun its wheels for years attempting to craft an in-car computer, but the company may be primed for pole position with its latest effort to weave software into auto design.
The system is called Sync, and it lets motorists control car stereos and mobile phones with voice commands. Sync was featured in a keynote speech by Microsoft Chairman Bill Gates at the International Consumer Electronics Show in Las Vegas (BusinessWeek.com, 1/7/08), and it's available exclusively from Ford Motor (F).
The automaker has sold more than 100,000 vehicles with the Sync system since it was introduced in November, says Martin Thall, general manager of Microsoft's automotive business, with 70% of those sales coming in 2008. Ford expects to sell a million Sync-enabled cars by early 2009, when the system will be available in 85% of its cars.
Why Is It So Cheap?
Part of the reason for the popularity is price. Adding a Sync system to a Ford, Lincoln, or Mercury adds only $395 to the sticker price, while adding similar features for controlling music and cell phones to other cars can cost as much as $800.
Researchers at market research firm iSuppli probed under Sync's hood for a closer look at how Microsoft and Ford managed to keep the price so low. The makers use inexpensive chips, for one thing. A teardown analysis by iSuppli found that the six major chips used in the system cost a grand total of $25. Of those, the most expensive component is an $8 applications chip from Freescale Semiconductor, the privately held former chip unit of Motorola (MOT). A second Freescale microcontroller chip costs $5.
Add in $4.80 worth of memory chips from Micron Technology (MU), a $3.80 flash memory chip from Samsung, a $1.75 Bluetooth chip from Cambridge Silicon Radio, and a $1.65 audio chip from Cirrus Logic (CRUS) and you've got most of the hardware for the system, says iSuppli automotive analyst Richard Robinson. "The secret about this system is that there's no real secret to the hardware," he says.
Adding to the cost are the licensing fees for Microsoft's software, and the voice-recognition technology from software maker Nuance Communications (NUAN). Between hardware and software-licensing costs, and assuming the markup of three to four times cost typical to the automotive electronics business, Robinson figures the system costs $100 to $150 to make. ISuppli researchers didn't conduct a full teardown, leaving out lesser components, circuit boards, wiring, and other parts. Nor does the analysis include costs of final assembly, marketing, distribution, or packaging. Thall declined to comment on iSuppli's cost estimate.
The Sync's price is low enough that rival automotive electronics companies such as Delphi, Alpine Electronics, and Denso may look for ways to replicate its more successful features. Other automakers may also be interested in Sync when Ford's exclusive 18-month deal to carry the system ends, Robinson says. Other cars sporting Microsoft's technology probably wouldn't hit the market before the 2010 model year.
Sync works not only with Microsoft's Zune digital music player, but Apple's (AAPL) iPod and players from Creative Technology (CREAF) and SanDisk (SNDK) among others. Say the name of a song, and it starts playing. Sync also controls Bluetooth-ready cell phones: Say the name of a contact, and the phone dials the number. Ford advertises the technology in a humorous commercial featuring a passenger who calls out the names of artists, such as Michael Bolton, whom the driver would rather not admit to liking.
Years in the Making
Sync builds in part on the Blue&Me system that Microsoft designed for Fiat. While Microsoft handled the design of the software and the basics of the hardware design, manufacture was handed off to Germany's Continental, the 137-year-old company, best known for its tires, that has in recent years been absorbing auto-technology operations of companies such as Siemens (SI) and Motorola.
"Microsoft has really changed the game with this product," says iSuppli's Robinson. "Most people aren't willing to pay $700 or $800 to put Bluetooth in their cars, and frankly in most cases it's not very good. This is a $400 system that connects to iPods and phones, and it works. It's going to have other manufacturers scratching their heads for a while."
The Sync system is also a big success for Microsoft's automotive business unit, which for years has been toiling away on various ideas for bringing Windows to the car, with no real successes to its credit prior to the Fiat Blue&Me system. "This isn't an easy market to be in," says Robinson. "It takes years to build up the relationships with the carmakers, but once you've done, it can be worth the effort."
Hesseldahl is a reporter for BusinessWeek.com.