By now, you likely have heard of BMW’s play for a subscription model on its heated seats in some international markets. Like it or not, the auto industry is making its play for subscription revenue. Buckle up. (Too much?)
Who’s on first?
BMW’s entrance into the field may have been the loudest, but they certainly aren’t the only ones. GM expects $2B of subscription revenue this year and is launching a software platform Ultifi to help them achieve their goal of $25B of subscription revenue by 2030.
When asked, consumers show resistance, but based on a study from Cox Automotive, they also show some willingness to subscribe to newer features. Possible upside could include only paying for heated seats in the winter, and other decisions that could save them money over time.
I’ve seen this movie before
BMW’s decision also points to the overall trend of micro-transactions, which we’re already seeing in the software world. I was just charged $1.99 because I’ve avoided cleaning up my Gmail, I get continual notifications to subscribe to iCloud, and my kid’s apps are a whole other story.
In the B2B world, many companies have begun transitions from paying a one-time license fee for software (like Windows or Microsoft Office), to annual per-user subscriptions. Does this point to a shift in pricing for hardware functionality as well? See: Porsche Drive Subscription.
Can I get a witness?
BMW is getting negative press since this is perceived as incredibly unfair to the consumer. It’s much easier to roll pricing like this out for new functionality such as AI software that enhances self-driving, vs a hardware feature that’s been around for 40 years. The strategy opens up excellent possibilities for manufacturers (think: people with more spending flexibility loading up on features with easy micro transactions, while increasing a company’s valuation because of the recurring revenue).
The downside? Oh right - the consumer experience and feeling nickel and dimed. How irritating might it be to have the technology within the vehicle, but it’s not activated? You might’ve guessed, whispers of hacks are already catching wind.
The open road ahead
For the auto makers, potential lifetime revenue is higher from purchasing customers in this frame. There is also a lifetime of purchase decision opportunities (for current owner and future owner) as opposed to just the first day. Brilliant.
Despite still having an option to purchase heated seats outright, BMW seemingly botched this as the perceived price has gone up, but the perception of value has not. The value isn’t clear, and companies have work to do to articulate the value to consumers and get the message over the wall.
There’s always a plan
BMW has previously attempted to generate subscription revenue by charging $80/year for Apple CarPlay and was met with a myriad of complaints since they once again lacked the perception of value. Perhaps they wanted to pass along integration costs to the customer, but the message was unclear.
In this case, I’d hypothesize BMW saw an untapped market – either new car buyers that declined to purchase heated seats and now wanted them, or 2nd hand buyers that sought heated seats. They are testing to see if the potential revenue outweighs the costs.
The lesson here is that price models are more than a simple revenue – costs math equation. At each juncture, value must be apparent to the buyer.
