Sources at Reuters claim that the next major version of Android, which it calls "Android M," will support being used as an in-car infotainment OS. The outlet says the OS would be built right into the car's hardware and would have the full suite of standard infotainment features.
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The project sounds a lot like the Android-based infotainment system Harman was building along with Google's help. Harman is one of the world's largest infotainment system suppliers and was building the system for General Motors. The Reuters report never mentioned the Harman product, so it's unclear if the two projects are related. Harman's CEO indicated that GM would have exclusive rights to the newest version of their OS, so it may be a separate project or something based on this Google-developed OS.
The move also sounds similar to Android Auto, Google's currently announced car interface, but Android Auto isn't an operating system. Like Apple's CarPlay, it requires a smartphone plugged into a compatible vehicle, and then it takes over the car infotainment screen. Both projects require an underlying OS to function and can't access car functions like the radio, cameras, or air conditioning. So for your in-car Android options you have Android Auto, this new Android M-based OS, and the Harman project, which may or may not be based on Google's official Android M infotainment system.
Google's infotainment OS will probably look similar to Android Auto, thanks both to Google's Material Design guidelines and the need to have the interface approved by various safety groups around the world. The interface would have to be a lot more comprehensive than Android Auto, though, which only supports calls, navigation, music, voice queries, and texting by voice.
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Today the platforms for in-car OSes are usually Blackberry's QNX, Windows CE, or a custom-built Linux-based OS. Android—which is also Linux-based—has a ton of affordances for touch, notifications, and app support, so it seems like a natural fit for an infotainment OS. Just like in the smartphone industry, though, car manufacturers want to control the OS their products run and see it as a differentiating feature. Nearly everyone we've spoken to in the industry has confirmed this—car makers are reluctant to cede control of their connectivity options to Apple and Google. The problem for consumers is that, also like the smartphone OEMs, software is not the expertise of a car manufacturer, so the results are often not very good.
A Google-built in-car OS would have a good shot at beating the current low bar set by infotainment systems. It would also give the company a big leg up over Apple's CarPlay. Android is purpose-built to be integrated into something like car infotainment hardware. Android's hardware support allows it to run on nearly all computing hardware, while Apple's tight integration of hardware and software means iOS just isn't built to run across a big swath of hardware. So Google would have an in-car OS able to access all the car's features and sensors (and data!), and Apple would still just have a "projected" interface running on someone else's operating system.
Just like Harman's CEO, the Reuters report said that Android's startup time will need to be greatly improved in order for it to be a viable car infotainment OS. The report also gave a time frame for release: Android M, along with infotainment support, is expected out "in a year or so."