Software continues to eat the world. Cars will be next on menu.
“Pay $9.99/month to turn on Sport Mode” will not be Utopian in near future.
Cars have been a physical good sold as-is. There’s a new version launched every year; includes changes/upgrades to design, color, interiors, infotainment. But what rolls out the showroom is all you get. Every “upgrade” we can think of are physical changes to the car aesthetics or utility.
Tesla paved the way Tesla broke these assumptions with the introduction of software unlocks and updates that can unlock car performance improvements. The much awaited FSD (still in beta) is also a software unlock (onetime fee OR subscription).
Few tried,more will follow BMW famously tried to foray into microtransactions with their cars charging $18/month for heated seats.
A screenshot of BMW’s UK digital store, with subscriptions for heated seats and engine sounds. Image: BMW
Sounds ridiculous at first, but a bet that other car manufacturers will also make. And when everyone does it, becomes ridiculously normal that none of us will complain anymore.
Hyundai recently announced that they intend invest into software developments for their cars.
Hyundai has set a lofty target for software-driven features to make up 30% of future profits
But why?
EVs last longer on the road
The inevitable future of cars is to move away from combustion engines to EVs. Early data suggests that EVs last longer on roads. Which means people don’t need to swap out their EV cars as frequently. For car manufacturers, today they make money only when you buy a new car from them. This clearly forces them to change the business model to build services on top of the hardware.
Story oddly feels close to iPhones lately doesn’t it? Not coincidence.
Giant smartphone on wheels
To change perception of what a car is and can do, I think it’s better to think of it potentially being like a giant smartphone on wheels. This opens up our minds to notion of this hardware requiring software upgrades, an platform with first-party subscription services (think Apple Music, Apple Arcade etc.) and potentially 3rd party apps (think an app store).
Hardware products like gaming consoles, Echo, Google Assistant have long been subsidized hardware products sold at cost or at a loss to make money on Games, subscriptions and ecosystem lock in.
As the new business model matures, it’ll be interesting to see how far down car prices drop and curious how far high the subscription costs pile up?