Auto Companies Hope To Shift Subscription Services Into Overdrive – Product Liability & Safety – United States
Comparisons between our ever-connected mobile devices and the future of automobiles have become increasingly commonplace in recent years. The idea of cars becoming nothing more than smartphones on wheels is a vision shared by many in the auto industry. As always-connected vehicles and software-controllable features become more prevalent, automakers are eyeing a potential revenue stream from subscriptions, updates, and pay-by-use. In an increasingly competitive market, innovative pricing models and a fresh approach to vehicle design and sales are essential for automakers worldwide.
Subscriptions have become a thriving market in various industries, and the automotive sector is no exception. The convenience and instant access to services that consumers enjoy on their smartphones have set the stage for a similar model in the automotive industry. Features ranging from advanced-driver assistance systems (ADAS) to entertainment and convenience can be offered via subscription. Several automakers have already delved into this territory, with Volvo charging $200 per year for vehicle connectivity, BMW charging $20 per month for adaptive cruise control, Ford charging $75 per month for hands-free driving, and General Motors aiming to rival Netflix’s revenue with its annual subscriptions by 2030.
Mimicking Apple’s success in turning hardware into a medium for indispensable software, many auto companies aim to take advantage of the subscription model. However, to convince customers to add more services to their monthly bills, the cost must shift to a post-delivery model, and the subscriptions must offer unique and non-commoditized features. This shift requires automakers to reevaluate their approach to vehicle features, such as activating certain functionalities after delivery. While it introduces both risks and opportunities, it enables automakers to provide customers with increased utility and control over what they are paying for.
AlixPartners’ 2023 Global Automotive Outlook predicts that the subscription market for ADAS features alone could surpass $17 billion by 2030, presenting an exciting opportunity for collaboration between suppliers and automakers on revenue-sharing models. This market will be divided, with approximately $7 billion coming from Level 2+ ADAS systems, nearly $7 billion from Level 3 features, and $3.5 billion from Level 4 ADAS features in specific geofenced environments.
In a recent ADAS survey conducted by AlixPartners, it was found that consumers are open to pay-as-needed models for ADAS. For advanced systems (Level 3 and higher), 43% of consumers prefer paying per use or by subscription, while 41% prefer upfront payment. Ignoring or disregarding this consumer openness could pose risks for auto companies.
Consumer interest in subscriptions is particularly high for security and safety services, closely followed by video streaming. There is also a significant demand for subscription-based charging-station access, vehicle connectivity, heated seats and steering wheels, and improved power and battery range. However, it is crucial to ensure that consumers do not feel they have already paid for these features in the vehicle’s purchase price.
In an era where online purchases are just a click away, educating consumers about automotive subscriptions and pay-by-use pricing is crucial. Automakers, suppliers, and tech companies should consider revenue-sharing models that offer installation incentives, tiered pricing, flexible terms, and even data-sharing to entice consumers. Additionally, this revenue-sharing approach can extend to the supply base, potentially leading to higher volumes per system.
Adopting subscription services in the automotive industry represents a shift in how vehicles are designed, equipped, and sold. As automakers vie for market share and seek new sources of revenue, subscriptions present an attractive opportunity. However, it is vital to inform consumers effectively and incentivize their participation to unlock the full potential of this evolving business model. By embracing innovation and meeting consumer demands, auto companies can transform the way we interact with our vehicles, making them an integral part of our ever-connected lives.
