Why this is interesting: just as automakers try to bring their subscription dreams to life, consumer belt-tightening might bring them to an early end
If you’ve been reading the financial news, it won’t have escaped your attention that things are a bit shaky.
The markets are down, tech stocks have taken a particular drubbing and many of the subscription economy darlings are plumbing new depths. Peloton, trading at over $171 over a year ago, was recently trading at $11.25 a share thanks to tanking revenue and the small matter of a $1.6 billion loss in the first three quarters of their fiscal year. And Netflix shares dropped 40% last month on news that it’s losing subscribers.
As people face in to successive waves of uncertainty - the ongoing war in Ukraine, rising interest rates, increasing living costs and - <checks notes>… monkey pox? - we can expect to them to continue to cut the non-essentials to keep their finances under control.
Further challenges for subscription models are set to come from regulators. In the US, Europe and the UK, they are honing in on dark patterns that roll over subscriptions without consent, or make it hard for people to unsubscribe altogether.
All told, it seems like a pretty sub-optimal time for yet another car maker to start banging the drum for subscription services of their own.
Most recently, it’s General Motors, which expects that customers will pay up to $135 a month for supplementary in-car services.
Now, for a manufacturer, the rationale for creaming more from their customers is understandable. Squeezed by higher development and manufacturing costs, driven in large part by the transition to EVs, they want to get as much margin out of their offer as possible. Indeed, GM reckons that can squeeze between $20 and $25 billion in revenue per annum but 2030.
For the customer the proposition doesn’t seem anywhere near as attractive, and research from Cox Automotive and Strategy Analytics bears this out. Cox found that three-quarters of the consumers they surveyed would not be willing to pay subscription fees for most items on their car: consumers said that safety and comfort features should be included in the up front price. And Strategy Analytics, in a study of people’s willingness to pay for in-car wifi, found that “consumers in the US and Western Europe are unlikely to be willing to pay a higher monthly fee and instead would utilize their existing smartphone data plan.”
Speaking of smartphones and the consumer software-as-a-service models they popularised: these things, unlike the vast majority of cars, get miraculously better over time. Bugs get fixed, the user experience gets refined, and valuable new features are introduced. In return for bolstering the developer’s revenue, the customer gets more value in return. And sometimes, customers even get to experience this improvement either for free (Apple’s OSs and apps for example), or in exchange for their data (Google Maps and any number of social apps).
But when it’s a heated seat (BMW), a remote start key fob (Toyota), or even rear wheel steering (Mercedes-Benz), the hardware is already built in to the car, and it’s not going to get better. And the software services that OEMs do offer tend to be duplicative (Audi), less sophisticated (any mapping service, and OEM UIs in general) than what we can get through our phones, and much more likely to be neglected by the manufacturer as time passes (GM).
Unless subscription services meaningfully improve the vehicle over time, in the current climate especially, it’s going to be hard to get consumers to subscribe to much of anything.
Thanks to: @derekviita
Image: GM