INTRODUCTION TO THE REPORT

This report is the second of four that, together, examine the technologies, applications, markets, and industry of road-based intelligent transportation systems (ITS) within SRI Consulting's Intelligent Transportation Systems multiclient program. Report One provided an evaluation of the strengths and weaknesses of ITS technologies and applications with us today and under development. Reports Two and Three examine the markets for ITS applications in the next 15 years, comparing those of North America, Europe, and Japan.

• Report Two: Traffic management and control (including urban and freeway advanced traffic management systems [ATMS] and electronic toll collection [ETC]) and fleet management (including management of commercial vehicle operations [CVO] and public vehicle transportation management systems [PVTMS]—comprising buses and emergency fleets)
• Report Three: In-vehicle applications (including driver information and navigation systems and vehicle safety systems), as well as a limited assessment of the market potential of automated highway systems.

Report Two has two parts. Part 1 describes, evaluates, and assesses the major markets' structures and size up to the year 2011. Part 2 explores our assessment of the value chains of each application area and the likely business models necessary for industry players to achieve success.

Even though we confine the geographic markets of this study to North America, Europe, and Japan, we are aware that with the sometimes slow deployment of ITS in these geographic regions many companies are seeking and finding good markets for their technologies in other parts of the world, especially South America and many Asian countries other than Japan. This refocus by many companies for active markets is understandable, but is not distracting the industry from the still very large markets developing in our three geographic regions. The ITS industry is gaining good experience, credibility, market partners and revenue from its activities elsewhere in the world while it waits for home markets to develop. Our research shows that in the next five to ten years some of these home markets will grow considerably, and companies with global experience and proven competitively priced products will be in a strong position to dominate their markets. A third area of focus is also emerging—one with huge ITS potential in the long term: the densely populated countries of India and China. Although the markets are still future markets, companies are positioning themselves to address these countries' major traffic problems and consumer markets when the time is ripe.

THE STRUCTURE OF THIS REPORT
Report Two, Part 1 considers the markets of four major areas of ITS by geographic region: traffic management and control of both urban and freeway roads; electronic toll collection; commercial vehicle operation fleet management, including freight, local delivery, and taxi fleets; and management of public vehicle transportation fleets, including buses and emergency vehicles. These four application areas have common features in that the end products—whether they are roadside or in-vehicle units—are reliant on sophisticated supporting infrastructures that are designed to collect information about a large number of vehicles and to use that information to enable more efficient travel by those vehicles, through improved control of traffic in general, of fleets, or of individual vehicles. With electronic toll collection, the vehicles are not controlled by the ITS systems, but their passage through a toll area can be nonstop, and therefore more efficient.

For the most part, funding of the applications also provides a common theme. In applications where the results of more efficient traffic flow is of benefit to the public (such as more efficient public transport or less congested cities), the installation of the infrastructure is the responsibility of public authorities. As such, it is reliant—to a greater or lesser extent—on public funds. Where the benefits are partly or wholly to the advantage of a commercial enterprise, funding is partly or wholly private. Much of the infrastructure necessary for the operation of the ITS applications in this report relies on some or complete public funding, which, as a result of the financial encumbrances of most of the countries in this market study, provides a heavy weighting in determining the scale and timing of these applications' deployment.

Much overlap of data collection and information dissemination exists throughout the many ITS applications, and although some of the applications in this report provide information to vehicle users, we have in the main excluded (for inclusion in Report Three) those areas whose specific purpose is to provide in-vehicle travel, traffic, or safety information. In this report's application areas, the information provided to drivers is a secondary feature. The primary feature is to manage the movement of vehicles on a road more efficiently.

The structure and dynamics of each ITS market are complex and vary for both the different type of applications and the geographic region under consideration. Consequently, our presentation of the different markets also varies. The structure and dynamics of a market depend on a wide range of market development issues—each having different importance in different countries. Although financial considerations are key, they do not tell the whole story. Public and private company interactions, political priorities, private versus public transport preferences, and the perceived benefits to end users (from local transport authorities to individual drivers) also differ from city to city and country to country. We considered a wide range of market development issues for each market when building our market scenarios and estimates of market size and timing. We present our findings, including illustration of the similarities and differences of each geographic region within the individual application sectors, through as common a structure as is possible given the variation between application areas.

Each of the four application sections of this report provides a description of the market structure and major development issues, followed by a macrolevel market forecast. We describe the assumptions we make about market development issues when building each scenario—how we have constructed our market forecasts—within each section before presenting the market figures:

• Market Structure. This section provides a description of the market and its components.
• Market Development Issues. This section describes the issues determining the deployment and growth of the market for each sector, including, where relevant, funding issues; political issues; benefits; public perception and marketing; legal, regulatory, and institutional issues; technology; interoperability standards; project plans; public-private cooperation and systems integration; industry inertia; and societal changes. We use our evaluations of the importance of these issues in driving or holding back growth of commercial application of the four ITS areas covered in this report to provide a basis for the two scenarios of our market forecast.
• Market Forecast. Our forecast section builds the scenarios we see shaping the markets of the four application areas and provides estimates of equipment sales from 1996 to 2011. We have built two scenarios: a realistic scenario that we think is likely given our view of the market development issues and an optimistic scenario that is plausible only if certain barrier issues are resolved earlier than our realistic scenario suggests. All figures are in 1996 U.S. dollars for single-year sales in 1996, 2001, 2006, and 2011. Where possible, we describe in text annual growth rates, installed equipment bases, and five-year cumulative annual sales for 1 January 1997 to 31 December 2001 and, similarly, 2002 to 2006, and 2007 to 2011. The section is structured either by geographic region or by type of application, depending on what we considered to be the most appropriate means of developing the market forecast for each of the four ITS application areas.

Following the four application sections is a summary of our research findings, giving an overview of the market of each application by geographic region and reviewing how the major market development parameters and issues specific to those regions will define ITS sales and market dynamics in the coming 15 years. By North America, unless otherwise specified, we mean the United States and Canada. By Europe, we mean the 15 member states of the European Union and Norway and Switzerland.

MARKET ESTIMATE METHODOLOGY
We have set out to do more than estimate market sizes in the two market reports of the ITS multiclient program. Many often overly optimistic total market size estimates in the public domain appear in the press and within the ITS industry (for example at ITS conferences) in order to bolster the image of a fast-growing industry whose technologies will undoubtedly affect the transportation facet of everyone's life in the near future. That the markets are growing is indisputable. However, we are often cautious about the rate of growth and final sizes of the market, given the sometimes cumbersome bureaucracy of governments and authorities that slows implementation of sometimes politically sensitive and costly changes. Our main reason for seeing delay in implementation of most of the ITS applications in this first market report is that a need exists for considerable government support and funding to invest in new infrastructure— which will become available only when individual governments and local transport authorities are able to reach consensus and act on the assumptions that:

• Traffic congestion is a major problem requiring prompt attention in some locations.
• The building of new roads is not the only answer to alleviating both today's and tomorrow's road congestion.
• ITS technologies can provide an alternative and cost-efficient solution.

Companies, governments, and other institutions have their own sales figures and forecasts of the way the various types of ITS applications will develop. But our experience suggests that within organizations more than one set of figures frequently exist: a realistic set for those teams building their business models and a more optimistic set for those teams seeking R&D funds or marketing the technologies/products either internally or externally. No one wants to back a loser, and this latter set of figures fuels the industry optimism' all too often repeated in the industry literature and public press.

We set out with no preconceived idea of market assumptions or size. We have evaluated each major ITS market from a logical perspective given the structure of that particular market and associated industry, including its major financial and political issues, the type of targeted customer (both government purchasing authorities and users) and the benefits they might expect, and the likely development of constituent technologies. Different approaches to estimating the market size are appropriate for the different ITS applications. Where an application (such as urban and freeway traffic management and control systems) is heavily dependent on government funds to develop, we have based our market estimates on a top-down analysis of the likely availability of public investment. Where more of a commercial driver exists toward deployment of an ITS technology (such as commercial vehicle fleet management), we have built our market estimate from the bottom up, establishing the number of vehicles likely to benefit from installation of the technology and the likely rate of uptake of the technology into those vehicles. Within both these and the other areas in this report are overlap of public and private funding and mixed benefits for passengers and road users, fleet operators, and transport authorities. We have taken into consideration the importance of each of these factors and their interplay—and others—within each examined area. A separate rationale for each section defines the market we are evaluating with the key issues faced by industry or governments building these markets.

Market estimates can be only estimates. However, a carefully researched and constructed market hypothesis should provide a model that enables useful conclusions about the shape, size, and dynamics of a market. If data for that model change, or if new data emerge, the model should be able to accommodate the change. This ability to accommodate change has been the aim of our research for Report TWO, and in providing the assumptions for our market scenarios we also enable others to stretch the model according to their data.

For our research, we made full literature searches and examined the knowledge resources of SRI. We then undertook an extensive series of interviews within the commercial industry and with government authorities and end users in order to understand the shape and size of current markets and the likely factors that would contribute to the growth or decline of the market. Armed with data and assumptions from these interviews, we held internal discussions and workshops to establish market scenarios. We revised and refined our data and scenarios over the period of rescarch and writing, with additional interviews with industry and government experts to aid the revision of our conclusions. We set a cutoff date for new information at l August 1996.

We built two scenarios for each application: a realistic scenario given the many obstacles that must be overcome before many ITS applications achieve full deployment, and an optimistic scenario that we believe is unlikely but still plausible if some of the barriers to implementation fall ahead of the time that we expect. In the main, the differences in our scenarios for Report Two are dependent on two factors: availability of government funds and the acceptance of application benefits by transport authorities and road users. Equipment cost is a major influence on both these factors, and both the factors dominate as directors of market timing and rate of growth. Within each section, we explain our assumptions about the building of our scenarios (including the systems we include or exclude and, where appropriate, whether they migEt be new installations, retrofits, or replacement systems) and the reasons for estimating particular growth or stagnation at different times over the 15 years covered by our market study. We are open to discussion about the actual market figures we estimate, but our explanations for each section should make clear to the reader how we derived them.

Our scenarios, based on our interviews and internal workshops, are paramount to the thesis of our market estimates. We are aware that different data or a change in financial, political, or technical parameters changes the model appreciably. For this reason we explain our assumptions and different method of estimating each market within each section. Readers should view the final market charts only with these assumptions in mind. The descriptive part of each section has as much importance as the final figures, if not more.

SRI'S MULTICLIENT PROGRAM
SRI's 18-month Intelligent Transportation Systems multiclient research program will assist companies and government agencies in the ITS industry to receive a global and independent view of the commercial prospects of intelligent transportation systems. Clients will learn— through four focused reports—how the technologies will undergo R&D and be applied in the various ITS sectors, how the markets will develop for these sectors in the next 15 years, and how companies are positioning themselves to take advantage of this new dynamic industry. The program's research focuses on:

• Traffic management and control
• Fleet management
• Driver information
• Vehicle safety and control.

Although much technology and practical overlap exists between these sectors, the transportation industry recognizes these sectors as the key areas addressed by ITS, and the sectors provide useful categories by which to view this large industry. The results of our research will appear in four key reports:

• Report One: technology and application evaluations
• Report Two: traffic management and control and fleet management markets
• Report Three: driver information and vehicle safety and control markets
• Report Four: leading company activities and strategies.

The nature of the industry demands some overlap between these reports: An understanding of the market requires some understanding of the way the technologies are developing and vice versa. Although the reports can be read as stand-alone volumes, readers will benefit most by following the arguments we propose from one volume to another.