|BUSINESSWEEK ONLINE : NOVEMBER 20, 2000 ISSUE|
|BUSINESS WEEK E.BIZ -- UPSTARTS
Getting You out of Gridlock
TrafficStation is moving fast, but it has to get around some major roadblocks of its own
Too good to be true? Not if the 37-year-old Halstead has his way. For two years, he has been building TrafficStation into what he hopes will become the largest provider of personalized traffic information. With TrafficStation's service, he says, frustrated commuters will be able to pick up a wireless device and get up-to-the-minute highway info when and where they need it.
First, though, the company has to get around some major roadblocks. Today, TrafficStation is eking out revenue from a few Web portal deals and a few thousand subscribers who pay $5.95 a month to receive traffic alerts on their wireless devices. And the company faces a formidable challenger in Westwood One Inc. ( WON), the New York-based company that provides traffic reports to 2,200 radio stations and 200 TV stations. It recently bought TrafficStation rivals SmartRoute Systems in Cambridge, Mass., and Metro Networks Inc. in Houston and is now rolling out its own wireless traffic-alert service.
Indeed, Westwood One is Goliath to TrafficStation's David. With decades of experience in the traffic business, and $358 million in sales and $24 million in profits last year, Westwood One is the powerhouse to beat. By contrast, the upstart is armed with a mere $11 million in venture capital and little hope of going public in a hostile market. ''It's going to be a real uphill battle to convince people that traffic is worth paying for,'' says analyst Joe Laszlo of Jupiter Research.
Halstead thinks he has the answer: People may not pay for traffic data alone, but they might open their wallets if it's bundled with other information, such as weather reports, maps, stock quotes, and more. Indeed, a 1999 study by Los Angeles-based consulting company Driscoll-Wolfe shows that only 20% of people would pay for traffic data, but 61% would pay if other services were included. ''Some people don't commute, others don't have a choice of routes,'' says Clem Driscoll of Driscoll-Wolfe. ''It's a bundle that will sell traffic.''
So TrafficStation is trying to join as many bundles as it can. It's partnering with leading wireless service and content providers--such as AT&T Wireless Group ( AWE)--that will package its data with other information. It's also in talks with the Big Three auto makers and technology companies that could build TrafficStation directly into onboard navigation systems.
Halstead is used to challenges. He and three co-founders--all friends--faced plenty of rejections from venture capitalists as they scrounged for initial funding in 1998. Their business plan ''was a little raw,'' says Paul Nadel, managing partner of EastWest VentureGroup, who initially turned them down.
In fact, Halstead and friends hardly had a business plan at all. They spent the next several months devising one. First they persuaded transportation departments in six cities, including Los Angeles and Houston, to license real-time data rather than try to collect it themselves. Then they devised a plan to form partnerships with wireless players that could deliver their data to drivers' cell phones and pagers.
''Good start.'' When they went back to Nadel six months later, he agreed to back the company and now serves on its board. With $11 million from Nadel and others, TrafficStation then went looking for more clogged streets and launched its full service in September. The company now receives traffic reports from government agencies in the 28 most congested metropolitan areas in North America. The agencies provide traffic data by the minute to TrafficStation's team of 75 data crunchers who sort and feed it into a computerized traffic-alert system. Subscribers can log onto trafficstation.com, define which highways they take, and type in a phone number or e-mail address so they can receive regular reports on how far traffic is backed up on their route. They also can check maps on the site to see exactly where the trouble spots are, with the severity indicated by numbers ranging from 1, which could mean a dead animal on the road, to 5--bad accident blocking all lanes.
Now the company is working on its marketing strategy. It aims to expand its reach through deals like the one with AT&T Wireless to offer TrafficStation data through one of the phone company's Web services. TrafficStation says the wireless carriers it has signed on so far could bring in 5 million customers by the end of 2001, out of a combined reach of 30 million cellular subscribers. But TrafficStation has barely scratched the surface of the wireless world. ''Partnering with AT&T is a good start, but they'll need to sign up one or two of the other big U.S. carriers by early next year,'' says Jupiter's Laszlo.
To broaden its content, TrafficStation is teaming with the likes of Phone.com Inc., which develops wireless content, to bring services such as stock quotes and news into the mix. As with traffic reports, customers can specify on a Web site what information they want to receive and when. Halstead predicts the new alliances will push his fledgling company's revenues to $45 million in 2001 from $1 million this year, and make it profitable in early 2002.
Further down the road, Halstead sees another spur to his business: In October, 2001, all cell phones will be required by law to pinpoint a user's location for emergency purposes. That will help TrafficStation determine a car's location and guide it away from gridlock. TrafficStation is now pursuing partnerships with companies developing the technology. ''This whole infrastructure will be built,'' Halstead says. ''And behind it will be a huge opportunity to offer position-based traffic services.''
The ultimate coup would come by being able to reach dashboards directly. That's why TrafficStation is seeking alliances with car manufacturers and companies that make onboard navigation systems such as OnStar. Mike Peterson, an OnStar product director, says the company plans to include personalized traffic information but would not elaborate on which outfit it might partner with to offer the service. The number of drivers subscribing to onboard information services is expected to jump to 11 million in 2004, from 820,000 this year, according to market researcher Strategis Group Inc. ''That's the sweet spot,'' says Jupiter's Laszlo.
TrafficStation will need to speed its dealmaking to stay ahead of Westwood One--or look for a well-funded suitor. They could be the only ways the gridlock-obsessed Halstead can keep his startup from getting caught in its own jam.
By ARLENE WEINTRAUB
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EBIZ Contents for issue dated Nov. 20, 2000
Getting You out of Gridlock
TABLE: TrafficStation's Team Strategy
ONLINE EXTRA: Q&A with Westwood One's Shane Coppola
E-Mail to Business Week Online