Take a ride in any late-model luxury car and one thing is clear: Wireless gadgets are quickly becoming the star of the show. Cars have become rolling Wi-Fi hotspots, with access to Facebook and Google — if still in limited form. By next year the automotive category will be one of the fastest-growing connected-device markets. And research firm ABI estimates that by 2016, 210 million cars will have Internet access. All those cars will require a vast amount of hardware and software — hundreds of sensors, processors, and apps each. Not surprisingly, electronics companies, telecoms, software makers, and other suppliers are rushing to stake their claim. “We see it as one of the largest opportunities worldwide,” explains Glenn Lurie, head of emerging devices at AT&T.
Connected cars come in two flavors. Fully integrated systems, such as GM OnStar and BMW Connected, hard-wire all the hardware and software to connect to the Internet in the car. Ford’s Sync, on the other hand, uses a smartphone’s connection to go online.
Equipping a car sold worldwide with a wireless connection can be tricky because of varying standards. AT&T, for one, is selling its single worldwide SIM cards directly to automakers for in-factory installation, allowing for connections wherever a vehicle is sold.
Mercedes-Benz became the first carmaker to offer in-car Facebook integration last January. Others have followed suit, creating car-specific social media apps. Mercifully they can be operated only via voice commands or when the car is at a standstill.
It’s not just telecom providers and app makers rushing in: Intel recently revealed it was investing $100 million in a “connected car” fund. The company’s Atom chips will power the infotainment systems in certain 2013 model-year Nissan and Infiniti models.
By now maps are the granddaddy of smartcar technology. But automakers have been improving them. Audi, for example, incorporated Google Earth in its cars, overlaying a bird’s-eye satellite view of the surrounding terrain onto the old navigation screen.
Drivers have long accepted that the electronics in their new car will remain static for the life of the vehicle. (Hello, cassette player!) Updatable software — much like that of a desktop PC — has made its way into autos. The systems can be upgraded wirelessly or via a USB key.
Some industry experts envision a day when a car’s dashboard software is stored not in the car but on a driver’s phone. The Chevrolet MyLink system, for example, exists largely to import apps, maps, music, and contacts from an individual’s handset.
Automakers from Cadillac to Tesla are beginning to ditch analogue gauges in favor of customizable digital instrumentation. Ford’s Evos concept car, a glimpse of the future, has a program that monitors the driver’s heart rate, watching for info overload.
This story is from the May 20, 2013 issue of Fortune.