DEARBORN, MI – Listening to Microsoft Corp. CEO Steve Ballmer address the first annual Microsoft Automotive Executive Summit this week, it’s clear that at least one company still has big plans for telematics – or what he refers to as in-vehicle services.

Steve Ballmer

It’s been two years since Scott McNealy, president and CEO for Sun Microsystems, boldly predicted that future vehicles would be “web browsers on wheels.”

But the automotive telematics industry hasn’t exactly taken off. A tough economy, difficulties in getting industry players to agree to wireless standards and questions of driver distraction have forced those early expectations back down to earth. Many would-be suppliers have exited the market as the expected large profits from telematics failed to materialize. (see related story: Suppliers Rethink Telematics)

Microsoft isn’t listening to the naysayers, however. “The consumer wants any information, anywhere and at anytime,” says Ballmer. “And that has to extend to the vehicle.” As commute times increase, people are going to need real time access to information, he argues.

Sports scores, stock updates, e-mails, phone calls and traffic updates are only part of what he says consumers want available in the vehicle. Imagine going through a McDonald’s drive through and not having to take out the wallet because the money is automatically deducted from your bank account.

Microsoft executives refer to such a world as the “connected car,” which they say is about providing the same level of connectivity inside the vehicle as what is available in the office and home.

Microsoft already has the technology says Ballmer. Cell phones that act as PCs and PDAs are two examples he cites. “It’s the same technology reshaped and repackaged for the vehicle.”

Its Windows Automotive 4.2 platform will connect the various telematics devices – such as cell phones and PDAs – with the vehicle and with various Web services applications.

Microsoft points to Toyota Motor Corp.’s G-BOOK system, introduced in Japan last year, as an example of the “connected car.” G-BOOK, built on the Windows platform, allows drivers access to personal and digital media information.

Windows Automotive 4.2 natively supports voice-enabled Bluetooth, a set of wireless technology protocols that is predicted to become the industry standard. Bluetooth technology allows for hand-free usage of the cell phone and communication among the various telematics devices.

Vehicles outfitted with Bluetooth are becoming more common as OEMs begin to recognize the potential. One recent study predicts 20% of all new vehicles will have Bluetooth as early as 2007.

Despite the big plans, Ballmer admits there is still a long way to go. “There is still some fundamental architecture work to do inside the vehicle. And I think there is still inventions that will come.”

It’s still not clear either exactly what the consumer wants and is willing to pay for. Earlier, at the same conference, General Motors Corp. Chief Technology Officer, Tony Scott, cites a study showing only 3% of consumers actually want e-mail access in the vehicle.

He does say, though, the industry is moving from an “on demand” model of vehicle connection to the Internet to an “almost always on” model.

Another major hurdle is the disparate lifecycles of software applications and vehicles. By the time a vehicle gets through design and production, the software applications intended for it could be obsolete. The industry needs to find a way to sustain software applications throughout the life of the vehicle.

“I think four years from now we’ll agree there has been great progress,” Ballmer says. But that may only be 10% of the vehicles equipped with true telematics ability, he acknowledges.