In-Car Technology Sharply Accelerates

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"These features are becoming incredibly important to consumers," says Phil Magney, a principal analyst with TRG.

Sync helps Ford in other ways as well. The embattled company, which announced record losses of more than $12 billion in January, is desperate to show it, too, can innovate. "There is definitely a strategic value for them," adds Magney. "It helps to have a technology portfolio that represents consumers' lifestyles."

The announcement could also help cast some positive light on a generally gloomy situation. Last November, for instance, its GPS guidance system took top honors in a J.D. Power and Associates survey of navigation satisfaction. Ford's system pulled ahead of ones found in much costlier Lexus, BMW, and Acura models. (Like BusinessWeek.com, J.D. Power and Associates is a division of The McGraw-Hill Cos. (MHP).) If Sync is a hit, it could generate more positive press from the auto media.

Microsoft's New Market

The announcement is also a coup for Microsoft, which has been after the automotive embedded technology market for years. The high-profile partnership is likely to be a boon to the software giant's initiatives. The company had yet to make such a widely reported public announcement with a brand well known to consumers.

Industry analysts say the two companies had long been expected to announce such a partnership. Ford says the two companies' agreement includes a one-year exclusivity clause from launch this fall. That means Microsoft-powered systems with similar functionality could crop up in competitors' vehicles sooner rather than later.

But, Ford and Microsoft aren't alone. DaimlerChrysler's (DCX) Chrysler Group was first out of the gate with an advanced option called MyGig, which it developed specifically for its Chrysler, Dodge, and Jeep vehicles. That system costs more, at $1,700, but comes equipped with a built-in hard drive capable of storing about 1,600 songs. MyGig combines navigation functions with infotainment functions similar to Sync's, but is only available on a small range of models—the Chrysler Sebring, Jeep Wrangler, and Dodge Nitro.

"Interestingly, DaimlerChrysler is offering its system in volume models, rather than entering through the high end," says Kar of Frost & Sullivan. "MyGig is infotainment and then some," adds TRG's Magney. "It can do more, but it costs more."

More Devices Available

Aftermarket suppliers aren't standing still, either. CES was replete with new high-tech gear meant to be sold outside of dealerships. Eclipse and Pioneer both announced audio systems with sophisticated navigation features. A raft of portable devices meant to work in hand as well as in the car were on display as well. Prices for those systems, ranging from $500 to more than $1,000, are significantly lower than conventional navigation units.

That's likely to mean a healthy dose of competition between manufacturers and aftermarket suppliers, even as total sales grow. What's more, some advanced systems were met with derision, and even outright hostility, when introduced. BMW's first iteration of the iDrive control system wasn't warmly greeted by consumers. However, upgrades helped the company move past drivers' complaints.

Still, should Sync prove popular with customers, it could help Ford on multiple fronts. "Look, consumers still buy first and foremost on styling and driving characteristics," says Magney. "But this kind of stuff could definitely be used as a convincing tiebreaker."

Click here to see a roundup of all the latest in-car infotainment systems.

Matt Vella is a writer for BusinessWeek.com in New York.