Shulou(Shulou.com)11/24 Report--

"the boundaries of software are constantly changing, which is why the industry is always exciting." Microsoft founder Bill Gates once described the importance of software.

Bill Gates single-handedly promoted Microsoft's Windows system to become the mainstream system of personal computers, resulting in Microsoft's leading position in the software industry. More importantly, he led the industry to gradually separate the software, and formed a relatively obvious boundary between hardware and software.

Tesla is both a software company and a hardware company. " Despite several famous debates with Bill Gates, Musk, the founder of Tesla, is clearly a loyal believer in the software.

In 2012, Tesla Model S implemented an OTA (Over-The-Air) upgrade for the first time in the automotive industry, opening a new story of "software-defined cars" and making software paid subscriptions possible.

Now, after a decade of exploration, Tesla has formed three major software subscription services: Autopilot FSD fully self-driving option package, OTA paid upgrade and advanced car networking features, and makes software paid subscription an important source of profit growth.

Morgan Stanley analysts even believe that the value of Tesla's regular software income may exceed the value of his hardware business in the future.

It is better to sell software than to sell cars. Tesla's market value is rising under the blessing of record sales and software business, which far exceeds the market value of traditional car companies. This business model of backbone software upgrade makes vehicle companies suddenly realize that software revenue relying on the stock market is likely to become the core source of sustainable profits for car companies.

Therefore, in recent years, some whole-car enterprises have explored the paid subscription model from different angles.

Among them, new car-building forces such as Lai Lai and Xiaopeng cut in from the autopilot system to provide differentiated smart travel services through paid subscriptions, which received approval votes from consumers.

However, some car companies charge for the traditional basic functions of cars such as 10 °rear wheel steering, seat heating and steering wheel heating through subscription system, which raises some questions.

Qi Baishi has a famous saying, "those who learn from me live, and those who resemble me die." With the development of intelligent new energy vehicles, software paid subscription has become a trend, but different car companies have gone out of different business routes and achieved very different results, which also makes paid subscription controversial.

Aiming at this topic, this paper attempts to answer the following three questions:

1. How on earth did paid subscription develop?

2. For car companies, is paid subscription honey or arsenic?

3. How can the paid subscription model achieve sustainable development?

1. At the beginning, there is no need to return to the factory, no wiring, unconsciously, your vehicle can achieve a reborn change. Before 2012, if someone introduced the selling points of vehicles in this way, there was a good chance that they would be treated as liars.

At that time, even if the car owner had to make a simple navigation map upgrade, he had to drive the car to the 4S store and upgrade it through the equipment of the 4S store. It is inefficient and slow, and there are very few functions that can be upgraded.

In 2012, the advent of a full-car OTA changed all that.

In June of that year, Tesla Model S went offline, and the first OTA push was carried out three months later. Through this way of aerial upgrade, Tesla launched 1.9.11 version of the software to more than 100 users, embarking on the road of self-evolution of continuous optimization.

Since then, Tesla has kept the software updated at a pace ranging from one month to three months, covering in-car entertainment systems, driving aids, battery management, acceleration, braking, and even the optimization of potential problems and the repair of software BUG.

A series of practices of Tesla made people realize that smart cars began to break through the physical boundaries of traditional cars, and software-driven hardware became possible.

Specifically, the vehicle OTA is divided into firmware upgrade (FOTA) and software upgrade (SOTA). Through firmware upgrade, we can improve the performance of intelligent vehicle system, in order to have the ability to carry more applications; through software upgrade, we can constantly enrich the "product matrix of application mall", so as to improve the application ecology of automobile.

In the continuous exploration, Tesla found that in the era of automobile intelligence, one of the experiences that users value most is the software that can be continuously improved, developed and enhanced. Using the way of software + OTA, users can provide value through the software ordered or purchased regularly, and get a steady stream of income in the process.

This means that car sales will no longer be a "one-shot deal", and car transactions can shift from a traditional one-time delivery to a SaaS-like business model that relies on subscription payments. Compared with traditional hardware, the gross profit margin of software is obviously higher, which will change the profit model of car companies and bring unparalleled business value.

At that time, Tesla, who was plagued by the problem of profit, naturally would not let go of this life-saving straw. Since 2019, Tesla has been trying to upgrade OTA for a fee, offering differentiated upgrade projects.

On the in-car entertainment system, Tesla car owners can purchase entertainment and practical software updates for $9.90 a month to obtain advanced car networking features, including real-time road conditions, Carla OK, streaming media and other services.

On autopilot, Tesla launched the Autopilot FSD fully autopilot option package on the basis of the "pre-embedded hardware + paid unlocking software" model in 2021.

New users who want to experience the active cruise control, auxiliary steering, automatic lane change, automatic navigation and driving, automatic parking, intelligent summoning and other functions included in Tesla's FSD will need to pay $199 a month.

Although the price of $199 is not cheap, it is more flexible to subscribe on a monthly basis than FSD's original one-time buyout model, which is the industry's first monthly charge for self-driving service.

"Tesla has what other companies don't have, we can OTA FSD, even if [the vehicle] profit margin is very low, OTA to FSD is very valuable." In an interview, Musk swore that "autopilot software will become Tesla's most important profit point."

The data confirm Musk's point of view. According to Tesla's financial report, Tesla's operating income from services and other businesses, including self-driving software, reached US $3.802 billion in 2021, an increase of 65 per cent, accounting for 7.06 per cent of its total revenue.

Some analysts predict that Tesla's software subscription service is not only promising, but also the primary driver to maintain its rising share price. Tesla's software subscription revenue will reach $5 billion by 2025 and $14.5 billion by 2030.

2. popular in the "new four modernizations" and digital era, 5G communication, big data analysis, artificial intelligence, cloud computing, virtual reality, human-computer interaction and other technologies are widely used in the field of automobile service, driving great changes in automobile service.

According to Morgan Stanley, the current value composition of cars is still dominated by hardware, accounting for 90%. But in the future, that proportion will fall to just 40 per cent, while the remaining 60 per cent will be dominated by software.

Under this logic, paid subscription will open up a new profit space for car companies and open up the market's imagination for the future growth of the automobile industry.

In an interview, Richard Peberdy, head of KPMG's UK car business, said bluntly that Apple's profit on software-based services was 70 per cent, about twice as much as iPhone hardware. "traditional car companies are used to 10 per cent profit margins, but the new company wants to make some changes."

Tesla is like a catfish, stirring up the software subscription market at once. Following in Tesla's footsteps, more and more new car-building forces, traditional car companies and cross-border car-building technology giants have discovered the gold mine of paid subscription.

Among them, in recent years, car-building new forces Lai, Xiaopeng respectively based on NIO Pilot, Xpilot3.0 to provide paid subscription services. Take Weilai as an example, Weilai ET7 provides high-level NOP navigation assistance and NAD autopilot function, but users need to pay 680 yuan per month to use this function.

Traditional car companies are not to be outdone. Cadillac proposes to launch a monthly subscription model of Super Cruise super intelligent driving system for its models abroad, and Volkswagen plans to try lane assistance and ACC safety system software payment model in Germany.

However, some car companies have taken a different route on paid subscriptions, which has caused some controversy.

This year, for example, BMW launched a subscription service with some in-car features in South Korea's Connected Drive store, including seat heating, steering wheel heating, Apple CarPlay, driving safety aids and lighting.

Mercedes-Benz is also "unwilling to be left behind" by launching an annual subscription program of "10 °rear wheel steering". The project, developed for Mercedes-Benz's pure electric flagship car EQS, will upgrade the rear wheel steering angle from 4.5 °to 10 °and shorten the turning diameter to 10.9m.

It's also a paid subscription, but consumers don't seem to buy it.

Some consumers leave messages in the car forum, compared with paid subscriptions for functions such as self-driving, this kind of subscription is limited by car companies for some of the traditional hardware functions of vehicles, and the technical content is really not high. Second, the hardware price of these functions has been apportioned to the price of the vehicle, and consumers should not pay for it again.

3. The research report "Cross-border Fusion and New Power of Automobile Industry" launched by Border car think Tank points out that with the completion and maturity of vehicle OTA capabilities, smart cars will usher in an "ecological definition" period, and their business model will also change from traditional hardware sales to the value enhancement of "hardware + software" charges, in which software revenue includes profit models such as revenue sharing of application products, advertising fees and so on.

Especially in the future, after fully self-driving becomes a reality, smart cars will become mobile intelligent terminals, deriving immersive Internet entertainment experiences such as social interaction, music, video, games, consumption, AR and VR applications, and evolve into the second largest Internet ecology and service integration platform. Just as the emergence and popularity of smartphones detonate the mobile Internet economy and the smart home market, the in-car Internet and service ecology is expected to burst into huge market potential.

It is generally accepted that the paid subscription model has a bright future in the context of "data determines experience, software-defined car".

First, lower the threshold for software payment. For some autopilot functions that would have cost tens of thousands of dollars to buy out, users can experience them for a few hundred yuan a month. Subscribing to goods at a relatively lower price greatly reduces the cost of trial and error for consumers and lowers the threshold for new user experience-related software.

Second, let users have more autonomy. Users can subscribe or cancel monthly according to their own needs without having to worry about wasting money for some useless features.

Third, enhance user stickiness. OTA can continuously upgrade the vehicle experience to make the vehicle drive better and better. "every time you do OTA, it's like changing a car." Through paid subscription, consumers can experience the new function or improved performance of the vehicle for the first time, which enhances the stickiness of users.

At the moment, however, there is also a lot of controversy over paid subscriptions. Car think tank believes that paid subscription is not a panacea for car companies to increase profits. For paid subscriptions, car companies should be cautious enough to not arbitrarily delimit the scope of paid subscriptions, but should provide value-added services and differentiated value for consumers through paid subscriptions. In this process, there are the following points to note:

1. Define the boundaries of paid subscriptions. From the perspective of users, car companies should promote technological progress and provide consumers with more personalized and functional services, such as self-driving or advanced car networking content. On the other hand, car companies should not turn the function of universal adaptation of cars into a function of paying for unlocking, which in disguise increases the cost of using cars for consumers.

2. Adjust the iterative thinking of products in the automobile industry and master the ability of rapid product definition. Whole vehicle enterprises, parts enterprises and service enterprises should master the rapid definition ability of intelligent automobile products and services. On the one hand, define user experience by mining rich application scenarios, and then design new product functions according to user experience; on the other hand, by collecting a large number of user behavior data for analysis and calculation, constantly iterate and increase product functions, download to the car side to give new use experience.

4. In the end, Ouyang Minggao, academician of the Chinese Academy of Sciences and vice president of the China Electric vehicle Association, said bluntly that traditional fuel cars can rely on brands and supply chains to practice value recovery, but new energy vehicles "may be difficult to achieve." He pointed out, "the great value of new energy vehicles is to be generated in the following services, so this gives us a very new topic, that is, how to tap the value of services from an intelligent point of view."

There is no doubt that for paid subscriptions, long-term doctrine is more important than short-term profits. At present, the paid subscription model is still in the exploratory period, car companies should continue to launch new high-quality subscription content to create a sustainable paid subscription model. Only in this way can we really give full play to the value of paid subscription service users, so that "data determines experience, software-defined car" can be implemented.

[full text reference]

[1] "Automotive Software subscription Model Analysis report", Tiger sniff think Tank

[2] "selling cars is not as good as" selling software ". Paying for software is the future? "Future Automobile Daily, Su Peng

[3] "Tesla's subscription is paid, but car companies can't learn", new knowledge of science and technology, camphor rice

This article comes from the official account of Wechat: che Bai think Tank (ID:EV100_Plus), by Cheng Honghe.

Welcome to subscribe "Shulou Technology Information " to get latest news, interesting things and hot topics in the IT industry, and controls the hottest and latest Internet news, technology news and IT industry trends.