Just last week, news leaked from South Korea that BMW would start charging for heated seats, but the Bavarian automotive manufacturer never expected the response to be so sour. This rocky start with introducing subscriptions to fans of the “ultimate driving machine” was met with disagreement from a united front of publications, consumers, and car enthusiasts alike. But the conventional wisdom is wrong here. In the next few years, subscriptions are definitely coming to vehicles, but the debacle with BMW’s heated seats clearly illustrates that the how is just as important as the why.
The unbundling of the automobile is already happening, but not because of heated seats. It has been for a few years now, with the introduction of over-the-air updates, or adding features via paid software unlocks, and more. The how is because the in-car ecosystem could become an $86 billion industry by 2025, according to Juniper Research. And that’s just the beginning.
The next decade of the automobile industry will be its most disruptive in generations, due to connectedness and electrification. Why is electrification a game changer? Because cars built on electrical platforms are more like computers with wheels. This gives auto manufacturers a clean slate on how to design their cars, and enables them to do what Apple and Android phones have done over the last 15 years. And you can bet they are excited about the idea of earning revenue on a recurring basis. And there will be wider access to private mobility, in the form of scooters, bikes, and other vehicles.
Subscriptions are Coming…
By 2030, over 95% of cars sold globally will be connected, up from about 50% today, according to McKinsey. Connected cars will have subscriptions, we know this. That’s not to say there won’t be obstacles. A recent Cox survey that asked potential car buyers whether or not they’d pay for in-car subscriptions, and 72% said they’d rather not. The problem is the question the car companies are asking today is: which of a car’s internal systems gets monetized? But that is anchored on current expectations. Contrary to what BMW might have been thinking, 92% of drivers surveyed in the Cox survey said they expect heated seats to be part of the purchase price. It’s not a great idea to charge for something people are already used to getting.
Instead, Tesla’s in-car systems are a good example of what you should monetize: fully integrated systems that can be unlocked with software (Full-Self Driving Beta), charging-as-a-service (the Tesla SuperCharger network), and even on-demand performance upgrades (Tesla Acceleration Boost). These are all value-based features that add to the overall experience of driving the vehicle, can be skipped over entirely without compromising the customer’s experience.
But Tesla isn’t the whole automotive industry. This year, Ford began shipping its first all-electric F-150 pickup truck across the United States, and it’s becoming increasingly obvious that electric vehicles are here to stay and are gaining traction. The electric F-150 doesn’t have any available subscriptions that let you improve performance, but the better question is, what if it did? Ford would be able to learn more about its truck owners. This new generation of vehicles will, for the first time, grant manufacturers true insight into the owner(s) of a given vehicle via the data points made available by subscription services. Better insight into how drivers use their vehicles, what features they use most, and when, can help better guide original equipment manufacturers (OEMs) towards making informed decisions about what to charge for and what not to.
There’s A Generational Divide (Don’t Piss Off Your Customers)
Okay, so we’ve established that subscriptions are definitely coming to cars and that BMW made an error by thinking customers would want to pay for a feature they consider part of the core experience. So, if you’re head of BMW, what should you be thinking about right now?
How to monetize without pissing off your customers, naturally!
I believe that the features within a modern vehicle are like apps on a phone, especially in electric cars where most features become digitized or are available via touchscreen. With a phone out of the box, you can pay for the features (apps) that you really want, or you can just take basic photos and make calls.
BMW forgot that sitting down, feeling comfortable, and experiencing warmth in the winter months is not a feature, it’s a necessity. Having HD radio stations or mobile hotspot on-demand is more in line with a recurring subscription. It’s time to go back to the drawing board and understand what is non-negotiable with the consumer. Thankfully, in a series of tweets it looks like BMW’s marketing team heard the disagreement from customers loud and clear.
Reduce Costs While Increasing Available Features
Despite paying for more features and services, automotive-as-a-service can still help the consumer by driving down upfront costs. By prebuilding and lowering upfront prices on premium features in the base car, then gating those features behind subscriptions, manufacturers can earn back the lost revenue. The consumer ends up paying for the personalized driving experience that they want, without having to buy a higher-end vehicle or trim, because the equipment within the vehicle is fully equipped. Both sides win and no one is roasted on social media for hiding gimmicky features behind paywalls.
The car buyer from a decade ago wanted a car that was “fully loaded” (all optional features installed), but the buyer of today wants the latest driving and performance technology with the ability to connect to your smartphone. The specific features desired are different, but the search for a car with an experience unique to you is still the same.
It’s also worth noting that the features that older and younger drivers will be willing to pay for on a recurring basis depends on their age. Research from Deloitte this year shows that younger drivers tend to expect experience-based features, like better smartphone integration, heads-up displays, and smart driver assists. Whereas older drivers expect more vehicular-based features, like blindspot detection or roadside assistance.
The Car-As-A-Platform Is Real and Can Be Indispensable
The car is already becoming a platform, some people, like Tesla and Rivian owners are already living this lifestyle. It is going to be one of the most profitable business transformations for the automotive industry ever, centered around creating a customer ecosystem that is compliant and safe, while developing functions and services that add to the lifecycle of the car, rather than charging for an extension of features and functions of the vehicle.
Adding value-based services under subscriptions will allow the OEMs to potentially generate double the revenue selling the same number of vehicles. For the first time, it will also allow automotive OEMs to learn about their drivers (data mined from subscriptions), even after cars are resold to new drivers, they inevitably will need to pay up in order to use in-car systems that are subscription-based. By then, maybe BMW drivers will warm up to the idea of paying for heated seats as a subscription. Comfort can be made indispensable, after all.
The future of the automotive industry is all about going fast and far, thanks to electrification. Your next car will be more like your smartphone, with features you can add via subscriptions, and bug fixes that can be addressed with over-the-air updates. The consumer of the future will have to be informed and ready for these changes in car usership, but it’s the automotive manufacturers that are tasked with building these systems internally, securely, and with cost-effectiveness in mind.
After all, the car of the future is just a smartphone with four wheels that you can’t put in your pocket.
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This article first appeared in www.subscribed.com
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