The story that sparked my interest in the automotive industry is the ridiculous example of BMWs heated seats subscription. The concept is very simple. You purchase your brand-new BMW, fully equipped with the standard hardware for high-end vehicles: Safety cameras, in-car entertainment and seat heating. The catch is that you cannot use these features, unless you subscribe to them in the brand-new BMW digital store. With one simple microtransaction you can unlock the luxury features of your car, which in practice is software unblocking the already existing hardware features. (Vincent, 2022)
This is a textbook example of versioning of course. First, BMW has designed a highly versionable product. A high-end vehicle is sold to consumer. It includes all the necessary hardware to deliver a luxury experience. However, to actually use these features, users have to subscribe to them on the digital store, which in essence allows for a highly customizable experience for different consumers using the same car. As such, they self-select themselves into the exact level of luxury based on their separate willingness to pay.
So, what makes this example so ridiculous? It certainly feels like a waste to have expensive hardware installed into a vehicle, for it potentially always to be blocked by a line of code a software engineer wrote. It is easier to see the ‘waste’ of this price discrimination with tangible goods as a car, but important to remember is that information firms have been applying this strategy for decades. Software packages have been slowed down, lowered in resolution and made less user friendly on purpose, just so that consumers would be tempted to purchase the premium versions. This example in essence thus shows that automobiles are starting to look more and more like information goods (McKinsey, 2021).
But why are we seeing this in the automotive industry – a seemingly mature industry, dominated by powerful incumbents due to its high barriers of entry? The one sentence answer to this is that the increased digitization by recent entrants has shifted these industry dynamics (FutureBridge, 2020).
In my next post I will explore these industry dynamics, introduce the concept of high-end disruption, and delve into the future implications of this.
Reference list:
FutureBridge. (2020). Digitalization in Automotive Industry. [online] Available at: https://www.futurebridge.com/industry/perspectives-mobility/digitalization-in-automotive-industry/.
Vincent, J. (2022). BMW starts selling heated seat subscriptions for $18 a month. [online] The Verge. Available at: https://www.theverge.com/2022/7/12/23204950/bmw-subscriptions-microtransactions-heated-seats-feature.
www.mckinsey.com. (2021). Mastering automotive software | McKinsey. [online] Available at: https://www.mckinsey.com/industries/automotive-and-assembly/our-insights/when-code-is-king-mastering-automotive-software-excellence.
