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Rajiv Ranganath's company, INNVO Systems, has been involved in developing applications broadly in the embedded systems area for some time. As the market has evolved, Rajiv has re-aligned INNVO's focus to applications for two specific areas: automotive telematics devices and mobile handsets. Their customers include automotive suppliers, handset manufacturers and chipset vendors.

Vehicle telematics is concerned with the use of on-board, communications-enabled devices that provide specific functionality in areas such such as entertainment, logistics and navigation.

The telematics industry is currently in the midst of a slowdown, says Rajiv, because of a glut of investments by companies in the industry. Capital expenditure and investments in developing technologies have been high for the past few years but returns have not borne out initial predictions. Rajiv says that the market does not yet perceive compelling value in any of the current applications available except in niche areas such as logistics. Mass adoption of telematics solutions is unlikely to occur in the near future.

Another problem with the telematics landscape is that the revenue model is not as clear as in other more established value chains, such as mobile telecoms. (The value chain for the telematics industry consists primarily of car manufacturers, device makers, application developers, telecom operators and fleet owners or individual consumers, roughly in that order.) Telematics is a relatively young industry, meaning that some service redundancy exists, in that the same services are sometimes provided by more than one part of the value chain. Consolidation is therefore a possibility.

A third point to note is that telematics customers can switch very easily from one provider to another unlike mobile telephony where subscriber relationships are much more "sticky".

Although INNVO provides essentially the same services in two different industries, the mobile telecoms industry contrasts greatly with the telematics industry. Aside of being one of the fastest growing industries in Asia and having a well-defined value chain, Rajiv points out that mobile telephony has the killer application that telematics, in general, lacks: voice.

Furthermore, telecom service operators have the huge advantage of being primarily in the consumer market. This means that customers cannot easily "gang up" to squeeze suppliers, as can happen in telematics.

Rajiv says that INNVO itself is not greatly affected by these differences in the two industries since their customers are handset and equipment OEMs and not the end-users themselves.

For wireline operators, competition from the mobile industry now means diminishing growth, shrinking margins and erosion of market share. Rajiv notes that these developments are prompting changes in the industry. For instance, companies such as Reliance and Tata in India and China Telecom in China are blurring the boundaries between conventional notions of telephony by offering fixed-wireless telephony, which functions like an extended cordless phone. (This technology owes some of its development to work by researchers at the Indian Institute of Technology Madras in the area of Wireless Local Loop). More value-added services for wireline customers are also being planned by operators.

We also discussed the environment for venture capital in Singapore. Rajiv says that venture capitalists are currently being very selective with their investments. Not only are there fewer investors around, he says, the few that are in the market prefer to consider investment opportunities introduced to them by trusted references. Risk appetites of VCs in Singapore are decidedly lower than those of VCs in the US, Taiwan, South Korea and Israel. However, some investors are willing to be co-investors as long as there is an investor leading the round. Lead investors are usually knowledgeable and have a good perspective on their respective industries.

If capital is drying up in Singapore, why not approach investors in other regions? Rajiv says that, in practice, investors want to be familiar with the local market and the company's management before committing funds. Furthermore, foreign funds, even if locally present, tend to maintain regional outposts primarily to conduct regional due diligence for their home operations and to assist in the regional expansion of their existing portfolio companies.

Related links (open in a new window):

• INNVO Systems

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