Despite the ongoing narrative around feature and software-driven revenues being the yet-realized economic engine of automaker software-defined vehicle programs, the industry knows the subscription game. General Motors was the first OEM to introduce the idea of a connected services subscription with its OnStar service in 1996, priced at a whopping $799 per year.
While an ecosystem of connected services subscriptions offered by almost every automaker has grown in the intervening 25 years, very few OEMs have been able to turn these into major economic engines within the company, providing only fringe boosts to margins and top-line revenues after considering the costs to offer and operate these programs.
Cue the Software-Defined Vehicle (SDV).
Cars that once did not offer anything new after the original point of sale are now suddenly offering the promise of tabula rasa, a blank canvas through which new capabilities and a bigger value proposition can be offered to customers throughout the lifetime of their car.
This promise naturally appeals to an industry that historically struggled to achieve anything close to a double-digit profit margin. While the average consumer expects the car they buy to always get them to their destination safely, the prospect of adding richer, more personalized experiences and services along the way could offer a panacea: a scalable, software-driven platform that provides a new channel for value-add features and experiences.
While, in the midst of constricting economies, subscription fatigue may narrow the opportunity window in the near-term, automakers must now understand the combination of features and experiences that create true new value over time.
In this Insight, we will explain our approach to this analysis leveraging our world-class research into connected services, software-defined vehicles, and user experiences – the voice of the customer. In doing so, we discuss the history of subscription services in the automotive industry, and the impact SDVs will have on the value proposition of these services.
Here, we correlate software-driven revenue targets with the need to create a better value proposition for vehicle subscription services, before examples from other industries help theorize what will appeal most to consumers within subscription packages. Finally, we spotlight emerging automaker programs that are implementing this idea and provide links to more detailed SBD Automotive resources for research on this topic.
Software Targets
In developing their subscription services, many automakers are eying bullish targets for software-driven revenue creation underpinned by future product roadmaps led by SAE L2+ hands-free driving features, streaming content and media, personalized experiences and new, richer features for fleet owners and drivers.
However, the path to achieving these targets is becoming murkier by the day. Delayed SDV launches create a drag on the adoption of new in-vehicle technologies that enable the release and update of these value-add features and experiences. At the same time, consumers are starting to push back against the connected vehicle more broadly, sharing concerns around data privacy and AI, added costs, and tighter spending habits globally.
Ultimately, to hit these targets, any automaker pursuing or launching a connectivity subscription service must think carefully about its roadmap and packaging strategy, as well as its ability to deliver new value across subscription packages more broadly.
Creating a Value Proposition
Tautologically speaking, people won’t buy things they don’t value. Today, most automakers are struggling to get more than 20% of connected vehicle owners to actually pay for connected services, based on an assessment of historical performance of connected vehicle programs, and our own consumer survey data.
The software-defined vehicle presents the perfect opportunity for these automakers to re-think the value proposition of a subscription service. This opportunity has been realized by the most successful subscriptions in the world that provide the customer with multiple pathways of value:
Amazon Prime enables 2-day delivery, Prime Video access, and a host of other Amazon service-centric benefits
Music streaming services like Spotify offer music, podcasts, and audiobooks within one monthly package
Personal cloud services like Apple’s iCloud offer a variety of data hosting and backup services, alongside online collaboration tools at different storage spending tiers
According to Forbes, the most important types of subscription services to the average American consumer are those relating to entertainment (music, news, live TV) and lifestyle (delivery, security). To create a value proposition that automotive customers will want to buy, it can’t be boring – it must integrate almost seamlessly into their day-to-day lifestyle and provide multiple pathways to “sticky” features – the things people will miss when they cancel.
Prioritizing the hygiene first
Customers will also lose interest in services that do not continue to add value or solve real-world problems for them. Consistently delivering over-the-air updates to features while adding new capabilities is a requirement for keeping subscription churn low, although automakers who lack mature product development teams that know how to deliver OTA capabilities will struggle to help the business meet these commercial objectives.
It's important to get the “hygiene” right before attempting to create new subscription options. By this, we mean ensuring the right processes, tools, and platform are in place to properly scale out product development across a given connected car parc. A re-shuffling of existing connected features – or worse, attempts to monetize features that were previously offered as standard in the vehicle – will have either no effect or net-negative effect on paying subscribers and the overall impression of the brand.
This lines up with Maslow’s Hierarchy of Needs – before we can really talk self-actualization (commercialization), there’s a host of underlying dependencies, like those noted above, that must be fulfilled. If this topic is of interest to you, we will be speaking on this in more detail at the Vector North America SDV Symposium in September – and registration is free.
Moving Forward
Historically, OEM connected service subscriptions have had a wide variety of pricing tiers and feature bundles. This may not be the way of the future, however (with OEMs now being incentivized to keep their cars connected for as long as possible, while offering safety-related connected services for ‘free’ can facilitate a boost in the number of active connected vehicles in any given car parc).
For most consumers, the personal vehicle is simply a tool that enables mobility – it is not the gateway to their digital lifestyle. And while the brand they choose may represent something about what they value, what people may ultimately value the most is the combination of features and experiences that make the usage of that tool as safe, secure, sustainable, and seamless as possible.
Rarely does one individual feature, or even a small subset of features, provide enough value to warrant widespread uptake in a paid service. What may prove the most attractive is the idea of the “premium” experience – a collection of features and personalized services that together provide a wholly elevated driving experience from what comes off the lot.
As an example, Rivian is offering a new Connect+ subscription program. Launched just this week, the paid subscription service isn’t just a suite of connected features (these are offered at no cost), but a host of connectivity-enabled features such as Apple Music, satellite imagery, Gear Guard Live Cam, and more.
This echoes Tesla’s Premium Connectivity package – a single paid tier that enables a host of connectivity features. A package like this will appeal to more consumers, not only because of the lower price point at which it provides these features ($14.99/month), but also because it is logical to the end consumer: the added data costs the company money, and that needs to be recovered over time.
However, we suspect that automakers will add even richer features to these packages over time, and for customers, aligning more with an Amazon Prime-like value proposition. You may not use every service every day, but there’s enough value in there to keep coming back for more, and this value grows over time as additional services are added.
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