Digitization is on everyone’s lips, with one conference after another, but when the pandemic hit, it became clear how little Germany, for example, had digitized. There are plenty of failed examples, and I even compile them in the LinkedIn group Digital Doof DACH (digital stupidity in the German speaking region).
If you don’t understand digitization, you like to copy examples from others, even if you don’t always understand them. Tesla’s electric cars, often referred to as iPhones on wheels, demonstrate what digitization can look like with over-the-air updates, software-driven functions, and even subscription models. And that’s bringing imitators along for the ride. But first, slow down. How does Tesla do digitization?
Tesla Functions
Teslas in customer hands receive software updates via the Internet every few weeks via so-called over-the-air updates (OTA). Often these are only minor improvements, but occasionally they include completely new functions. The dog mode, in which the air conditioning in the car can remain switched on, or the sentry mode, in which a kind of surveillance system records the vehicle’s surroundings through the built-in cameras, were only added later. The hardware was already installed and these functions did not exist before. With a software update, it could now be used.
Additional functions can also be activated that are not included in the basic equipment but are already built into the car’s hardware. For example, the heated seats on the rear seats are already installed, but not activated in the base model. Additional range could also be purchased, as more battery cells were already installed in the delivered car than were unlocked. And the Full Self Driving software (FSD) can be used later for a (meanwhile quite slim) surcharge.
While these features were added later for free or for an additional charge, there are also subscription models. For example, one can use traffic information and streaming services with a monthly fee of $9.99. Tesla insurance also uses features of the vehicle to dynamically elicit adjusted insurance rates based on one’s driving style.
Already hinted at, but not yet available, are other digital business models that Tesla wants to introduce. One is an app store, similar to what we know from smartphones. Once there is one, it is expected that apps can be purchased and in-app purchases can be made. This will create a whole new revenue stream for Tesla.
Tesla also offers its own Supercharger network, which was only available for free charging in the early days of Tesla. In the meantime, these Superchargers, which were previously only accessible to Tesla, are also being opened up to other electric car brands in more and more countries. Another digital revenue stream.
With the planned robotaxi service, which Tesla plans to operate as soon as the FSD is fully developed, Teslas will be able to take cab rides while the owners are otherwise occupied. Why have the car parked in the company parking lot when it can make money for me? And here again Tesla cuts in, coordinating the central robotaxi service and calling off the cars accordingly.
BMW Subscription
BMW is also trying to jump on the digitalization bandwagon, and in doing so, it’s immediately upsetting its customers. In recent days, for example, a subscription model has been making the rounds in which the heated seats installed in the cars can be used for €18 per month or €180 per year.
The reactions came quickly – and they were definitely negative. “Why should I pay again for a part that is already in the car?” asked one owner. Another wondered what would come next: “Will I have to pay to use the turn signal in the future, too?” Most commenters feel duped and said that BMW no longer has its customers in mind.
Possible reasons for the negative reactions
Why is the reaction so strong? Why are other models accepted, but BMW’s seat heating subscription predominantly received negatively? What exactly distinguishes a seat heating subscription from a subscription for a streaming service or for electricity?
First of all, we see no problem in paying a price for telephone, electricity, water or gas. This is based on consumption, for example. Call minutes, kWh, liters or cubic meters. This is not a fixed price as in a subscription, but is based on consumption. And customers can control this to a certain extent.
But what about subscription streaming or traffic services? Here, customers get fresh content all the time. The latest news in the newspaper, the latest traffic situation, the latest music(s), TV series or movies.
The one-time payments to unlock more features, even if they are already in the car, also seem less problematic because they bring real functionality.
Volkswagen, on the other hand, is thinking of charging for autonomous driving on an hourly basis. If you use it, you pay. If you don’t use it, you pay nothing. This is a consumption model that customers are more open to.
Necessity, Convenience or Fun?
BMW’s model, however, seems to be exactly the wrong model for this function. Moreover, it is a function that is more for comfort than a necessity. I can drive a car with a cold butt. And then for a vehicle where many buyers are willing to pay a premium precisely because of the comfort, it seems to them as if BMW views them as a milk cow to be milked.
It would have been different if BMW had offered a subscription for different driving modes, for example. A sport mode could certainly convince some to pay money for it monthly. That falls under fun.
At first glance, heated seats and sporty driving mode are no different, because the car is already prepared for both functions. One is comfort, the other fun. While people are willing to pay good money for both and book the better seat on the plane or the bigger suite in the hotel, or spend more money for a better seat at the concert, here it seems excessive. After all, you don’t buy the whole plane just to have to take out another subscription for your own business class.
Premium and Basic Functions
If a feature was brand new, such as an elevator or Internet connection in the hotel, then it was explicitly listed as a feature in travel guides. And people were willing to pay extra for it. A few years later, the situation changed. Then travel guides explicitly mentioned that this hotel did not offer an elevator or internet connection. The feature went from being a premium to a basic feature that was expected.
Heated seats today are considered basic equipment, especially in a premium vehicle that costs accordingly. Now suddenly having to pay for it is seen as unreasonable by customers, when even much cheaper cars offer seat heating at no extra charge and without a subscription model.
Fine Line
So you can see it’s a fine line to get digitization and business models right in your own product world. The reactions to BMW’s model seem to show that it is the wrong model. But then we remember similar reactions when other companies changed their model. Microsoft or Adobe moved away from a licensing model to a subscription model for their software. Or when Facebook introduced Timeline, many users protested. Today, it’s hard to imagine it any other way. Time will tell.
As far as the turn signal subscription is concerned, we won’t have to worry about that. Safety-critical functions that are absolutely essential for driving will not be able to be packaged into alternative digital business models just like that. From a legal perspective, a defective (or unsubscribed) turn signal makes a vehicle unfit for safe driving. Other road users cannot be informed of one’s own driving intentions, and this can endanger others.
But I’m afraid BMW is already thinking about it anyway.
Did I pique your interest?
If you want to know more about digitalization and the difficulties with it, then I suggest two things: on the one hand, just subscribe to the LinkedIn group Digital Doof DACH (don’t worry, it’s free), on the other hand, take a look at my book Future Angst: Wie wir von den Innovationsvordern zu den Innovationsnachzüglern geworden und wie wir die German Angst überwinden können. The reviews on Amazon so far, with ten 5-star ratings, should show that you’re not buying a pig in a poke….
