FYI: Automakers aiming for recurring revenue through subscription services face consumer resistance. Volvo’s CTO, Anders Bell, shares insights on what works and what doesn’t in this fast-evolving industry.
Subscription Services in the Automotive World
Car manufacturers have increasingly turned to subscription models in pursuit of recurring revenue. However, this trend has met with resistance from consumers, especially when companies charge for features that involve no ongoing costs. BMW notably overstepped consumer tolerance by asking customers to subscribe for heated seats, despite the feature’s hardware being pre-installed in the vehicle.
Consumer Resistance and Volvo’s Stand
Volvo’s Chief Technology Officer, Anders Bell, addressed these issues during a media roundtable. In contrast to the less popular approaches of some competitors, Volvo recognizes that consumers are more amenable to subscribing to services that warrant ongoing expenses and provide continuous benefits.
“There’s obviously a limit to the viable subscription revenue,” Bell stated, referring to a reality that certain services justify a subscription fee due to their continuous operating costs. This is particularly evident with live traffic data for navigation systems, which come with recurring costs akin to a phone data plan.
Learning from Competitor Missteps
Other automakers, such as Tesla and Rivian, have faced backlash for offering features that necessitate paid unlocks despite the hardware being present in the car. Tesla, for instance, has offered battery "upgrades" through software that simply unlock new capacities of an already installed battery pack. Similarly, the much-debated Full Self-Driving feature is available as both a fixed purchase and a subscription, though it still requires human oversight. Rivian has adopted this model too, recently moving music streaming apps, like Spotify and Tidal, behind a paywall, thus limiting functionalities like in-car streaming without an additional subscription to Rivian Connect+.
“You won’t see us pursuing pay-to-unlock models for existing hardware,” Bell announced. “It’s essential that consumers feel they’re getting real value for their money, which isn’t the case when they know they’re just unlocking features that their car already has."
The Path Forward for Automakers
Auto manufacturers must tread carefully when trying to monetize their vehicles’ software capabilities. General Motors, for instance, charges for continued use of its Super Cruise hands-free highway system, after a three-year trial. Even though the system requires periodic updates and map maintenance, it initially costs over $2,000 with a subsequent $25 monthly fee for extended use.
All these instances highlight that subscription models can only be justified when there’s a real, ongoing cost involved. BMW’s attempt to monetize heated seats, which naturally don’t incur recurring costs, sparked significant backlash. The move was reversed after minimal uptake and substantial consumer outrage. This incident underscores the importance of gauging consumer sentiment and offering genuine value.
Volvo’s Balanced Approach
By observing competitors’ missteps, Volvo aims to avoid similar pitfalls while still leveraging successful opportunities within the subscription economy. The automotive industry is no stranger to high-margin optional features, but it must exercise caution not to overextend consumer patience.
Volvo’s approach has been informed by extensive market observations and customer feedback, driving a strategy that seeks balance and fairness. Bell’s candid recognition of the subscription model’s complexities points to a thoughtful and promising path forward for the Swedish automaker.
Conclusion
The automotive world is at a crossroads with the subscription model. As Anders Bell from Volvo illustrates, success lies in balancing consumer preferences with genuine value offerings. By learning from industry missteps, Volvo hopes to strike the right chord with its approach to subscription services.
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William Kouch, Editor of Automotive.fyi