About a decade ago, Doug VanDagens, a senior executive at Ford Motor Company, raised his hand at a board meeting and asked a fundamental strategy question: Why go proprietary when the world is moving to open-source?

At the time, Ford was concerned about its Detroit rival GM. At issue was GM’s OnStar, the successful in-car communication device offering emergency alerts, stolen-car tracking, and a built-in phone for an annual fee of $199 (plus cellular-minute charges). The OnStar business had two million subscribers and an 80 percent share of the car communications services market, and it was valued at over $4 billion.

GM was raking in profits, and Ford was struggling to play catch-up. It had hired 250 people and plowed over $150 million into a spin-off called Wingcast that was building a me-too answer to OnStar. But VanDagens thought the era of closed, black-box solutions was drawing to a close. The number of cell-phone subscribers was growing quickly. So was the ability of phones to communicate with other devices. “The writing was on the wall,” recalls VanDagens, who today is Ford’s director of connected-services solutions.

After an internal battle, VanDagens was given the job of shutting down Wingcast and laying off its staff. By the fall of 2007, Ford had instead launched Sync, a system developed with Microsoft that works with drivers’ own cell phones and MP3 players. It uses Bluetooth to connect these devices to buttons on the car’s stereo and steering wheel, so that drivers can make hands-free calls or have Twitter updates read aloud. No matter how fast new models of phones are introduced, they still work with Ford cars. 

Sync isn’t unique—Mercedes has a similar system, as do other automakers. All the same, Ford’s early move to a more open technology platform has given it an edge over its crosstown rival (last year, GM announced MyLink, a Sync-like infotainment package), and it has helped turn the 108-year-old automaker into the coolest technology company in the Rust Belt.

That’s important because, increasingly, digital technology sells cars. This week at the Detroit Auto Show, and simultaneously at the Consumer Electronics Show in Las Vegas, auto companies will be showing off their cars’ electronic gadgetry, downloaded movies, and music, not just their engine muscle. For most consumers, navigation systems and entertainment are now a top reason to pick one car over another.

K. Venkatesh Prasad, whose title is senior leader for open innovation at Ford, explains it this way: “The car was once a product. As customers focused more on services, leases, we evolved into a ‘services company.’ In this iPad era, we are transitioning to an ‘experience company.’” The definition of what a car is has expanded, he says. Ford, which buys many parts for its cars from third-party suppliers, now sees the Internet as an additional channel to procure components. The new mantra is “Buy it, build it, or beam it,” says Prasad.

Cloud-Connected Car

As lead evangelist for Ford’s digital technology efforts, Prasad is responsible for making sure Ford does not repeat its Wingcast mistake and that it pursues a “democratic” approach to technology with what he calls an “Apple-like” fervor. When I visited Ford’s headquarters in Dearborn, Michigan, in December, executives wore jeans and spouted jargon like “open-source,” “UI,” and “services-oriented architecture.” And it goes beyond talk. Some of Ford’s latest patents, like one covering a system to check a driver’s health, are basically complex network diagrams in which it’s hard to spot an engine block or an axle.

Many of Ford’s ideas for the future of the automobile were on display in August, when the company unveiled Evos, a prototype of its “cloud-connected” car. The flashy red sedan is a designer’s mock-up—complete with flip-up gull-wing doors that will never make it to a production line. Inside, Ford imagined glowing 3-D displays for live music feeds and real-time traffic updates, and also sensors that could monitor the driver’s heart rate and alter the car’s performance accordingly.

“With Sync we empowered the driver. Our next leap is into empowering the vehicle. With the cloud we can certainly do that,” says Ryan McGee, a technical expert in Ford’s Vehicle Controls Architecture and Algorithm Design research group.

An image from a Ford patent application for monitoring a driver’s health.

McGee believes the computing power available on the Internet will allow cars to become smarter. Last spring, at the annual Google I/O conference in San Francisco, McGee announced a deal to use the search giant’s prediction algorithms—online software that analyzes large data sets to spot trends. Ford’s idea is to send data from your car to Google’s data centers, which would then predict where you are headed every time you key the ignition. Google might predict, say, that there’s a 59.24 percent chance you’re headed over to Bob’s house. A hybrid car might use a map of low-emission zones to determine when to switch to battery power as you drive. Or the algorithm could pick a fuel-efficient path with few hills, no rain, and the least traffic.

“Fuel optimization depends on the topography, traffic patterns, and how a customer drives their car,” says McGee. “The cloud will allow us to use these three data points that historically were not aligned in real time.”

McGee says Ford has already developed beta versions of its prediction software. And real-time weather and map programs are currently two of the top three kinds of apps used on smart phones, according to ComScore. However, don’t hold your breath waiting for the prediction technology to reach the dashboard; Detroit’s product cycles are still longer than those of Silicon Valley. A Ford spokesperson says the rollout of the prediction software in Ford cars is “in the four-to-eight-year range.”

Vehicle-to-Vehicle Communications

Also propelling automakers’ interest in digital technology are upcoming tests of wireless communication between cars themselves. Starting next August, Ford and other automakers will take part in a yearlong field trial of vehicle-to-vehicle communication. The study, undertaken in conjunction with the University of Michigan Transportation Research Institute and the U.S. Department of Transportation, will track 3,000 cars able to broadcast their position, speed of travel, and direction to other vehicles over a Wi-Fi network.

Vehicle-to-vehicle communication—known as “V2V” in the industry—is eagerly anticipated because it could help reduce crashes. The Wi-Fi signals, which go out in all directions, would act like an alert passenger, warning the driver that another car is about to run a red light or that there’s a motorcycle in the blind spot. U.S. government researchers estimate that V2V would let drivers avoid or make less serious around 80 percent of collisions. Depending on the results of  studies like the upcoming field trial, the government could start developing rules next year that would require all cars to have V2V systems, just as it previously mandated seat belts and front-seat airbags.

Prasad says V2V technology is currently “about safety.” But he predicts major changes as networking unlocks the computing power already present in most cars. Many recent models have 60 or more electronic control units that manage the transmission, antilock brakes, and other features. Until now, all those processors have been isolated. “The first billion vehicles in this world are like [un-networked] desktops—each doing their own little thing,” says Prasad. “The next billion cars should talk to each other and share intelligence. Think of how the World Wide Web changed the world. The automotive sector is ripe for a similar change.”

Ford’s flashiest effort in that direction to date is a deal, announced in September, with New York City’s Bug Labs to launch OpenXC, a programming interface makes that makes vehicle data available to developers. Ford’s idea is to treat a car a bit like a smart phone, letting outsiders write apps, develop new car gadgets, and test connectivity concepts.

While there are already three million cars that use Sync, it remains a “top-down” technology under Ford’s control, Prasad says. With OpenXC, Ford is experimenting with something far cooler: crowdsourcing modifications to its cars. Prasad calls it “a disruption, a mash-up of IT and the automobile technologies,” that would let anyone “co-create with the manufacturers.”

A prototype “plug and play” USB for a car dashboard. Ford 

developed the design in collaboration with Bug Labs.  

Currently, OpenXC gives access to 19 different signals from the car’s central switchboard (known as the controller area network), including engine speed, whether the windshield wipers are on, and the position of the accelerator pedal. Bug Labs demonstrated what can be done with such data by developing a solar-powered meter that records fuel efficiency and then uploads the data to a website where a driver can compete with friends to see who saves the most gas. Bug says it built the prototype in six weeks.

“The notion of hacking in automobiles has been around for decades—‘modding,’ or modifying, where people tinker with the engine, say for turbocharge,” says Peter Semmelhack, CEO of Bug Labs. “It’s a revolutionary idea to open up the car as a platform. But you also need a revolutionary approach to ensure widespread adoption.”

How far Ford will go is uncertain. The company says this month it will send OpenXC kits to three universities, MIT, Stanford, and the University of Michigan. Will Ford open an app store and let developers write apps and hardware makers modify the car? Although that is the spirit of OpenXC, in practice things are more complicated, says Jim Buczkowski, Henry Ford technical fellow at Ford Research & Innovation, and a former software developer. “Every point of integration is also a potential point of failure. Systems integration within the automotive arena is challenging,” he says, “but we see these opportunities to build platforms.”

What is certain is that Detroit and Silicon Valley are drawing closer. Last week, on the eve of the annual Detroit Auto Show, Ford announced it would be opening a research center in San Francisco, its first on the West Coast. “Silicon Valley represents a deep and dynamic technology neighborhood,” Prasad said in a press release that Ford sent to journalists Friday morning. “And [it] is far from Dearborn.”