In-vehicle consumer services are reshaping the industry

Cian O’Cuinneagain argues that automakers need to identify what digital services customers are willing to pay for and educate them on their existence

In 2023, BMW adjusted its ‘heated seats on subscription service’ after receiving feedback from numerous drivers who expressed dissatisfaction with having to subscribe to features that were originally built into the hardware. Instead, they expressed a preference for subscription options that further enhanced their driving experience.

A 2023 S&P survey found that, though fewer than 30% of users are willing to pay for heated seats, they are prepared to pay for services that they consider value-add. This provides a huge opportunity for the automotive industry to shift its focus towards value-driven services that truly resonate. According to McKinsey, seven in ten of the most valuable companies in the world generate billions in profits from data-based services. OEM challengers such as Tesla and Nio already make considerable income from recurring consumer software-as-a-service (SaaS) features and the challenge and opportunity is on how to capitalise on these.

BYD interior
Consumers are generally willing to pay for services that they consider value-add

Another McKinsey study found that 38% of US drivers are willing to switch brands for better connectivity, rising to 51% in the battery-electric vehicle (BEV) market. 80% of drivers consider prioritising safety features crucial when choosing a car. These features include electronic stability control, high-beam assist and driving-video recording, followed by more sophisticated navigation systems and infotainment.

The heated seat debate highlights how features once expected in luxury cars become less valuable when offered as subscriptions. The rationale being that most software-defined vehicles (SDVs) are already at a premium price-point and challengers like BYD could bring more affordable options.

Beyond value-added services, SDVs offer a major advantage in the form of over-the-air updates. Looking at several high profile recent ‘recalls’, it becomes clear that these aren’t recalls in any historical sense of the word. Instead, the OEM in question pushed a software-update to the vehicle, updating millions of cars in minutes without inconveniencing the driver at all. With more than one in four customers unaware of or not offered these services at the time of purchase, improving education and marketing efforts at the point of sale is crucial for category growth.

connected services
Consumers are less likely to renew a service if they have the same offering on their phone

There is a strong likelihood for subscription renewals, with 82% of trial users considering them again. This aligns with the finding that 45% of respondents activated services at dealerships, often including free trials, which S&P highlights as a key factor in growing subscribers due to high renewal rates. With 85% satisfaction rates, users said they’d recommend their service to a friend.

By 2030, it is projected that 95% of newly sold cars will be SDVs. The challenge for OEMs is three-fold. First, they need to recognise the value-add services that drivers are willing to pay for (and those they are not.) They also need build these features into their vehicles that elevates the driver’s user experience. A crucial factor here is to avoid duplication with services already available on the customer’s phone. 38% of customers’ leading reason for not buying or renewing a software service is that they already have a similar application on their phone. Lastly, it’s educational: letting new purchasers know that their car has these features and then persuading them of the benefits.

The opinions expressed here are those of the author and do not necessarily reflect the positions of Automotive World Ltd.

Cian O’Cuinneagain is Chief Product Officer at Cubic

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