Why turning in-car apps, software into cash could be tricky

As automakers continue their digitalization efforts, more focus is shifting to the development of in-car applications and subscription services in the hopes of creating lucrative additional revenue streams.

By offering paid apps -- either by third parties or developed in-house – via a subscription or on pay-as-you-go basis, automakers believe they can develop a closer relationship with customers after they purchase the vehicle while simultaneously further monetizing their end product.

In 2021, Ford Motor projected the global market for connected functions such as the company's BlueCruise driver-assist technologies, new features and upgraded software content could top $20 billion by 2030.

GM Senior Vice President of Innovation and Growth Alan Wexler has also expressed confidence in his company's ability to develop an ecosystem of apps that would lead to annual revenue generation by 2030 on par with companies such as Netflix and Peloton, meaning up to $25 billion.

The company's OnStar service currently has about 4.2 million paying subscribers.

Stellantis, meanwhile, plans to generate 20 billion euros in software-related revenue by 2030 from services and subscription.

Despite the optimistic overtures from automakers, an April survey from Cox Automotive suggested that consumers are hesitant to pay extra for apps and subscription services.

Three-quarters of the 217 consumers surveyed said they would not be willing to pay an annual or monthly subscription fee for access to additional vehicle features, particularly when it comes to safety and comfort.

Automakers face multiple challenges as they attempt to develop and monetize a robust ecosystem of paid apps and subscription-based services.

Chief among them is designing apps and offering services that customers feel add enough value to merit the additional cost without creating the impression the automaker just seeking to squeeze more money out the customer for something that should be included for free.

BMW found this out the hard way after its push to make heated seats -- hardware already installed in the vehicle -- a subscription-based service, where owners could purchase an optional monthly subscription removing a software block for heated seats.

Following a furious online backlash and attempts to break through the paywall, BMW backed down, but said it continued to believe in the value of subscription services, including those that unlock additional performance capabilities.

Mathias Vaitl, director and head of Mercedes me and digital services, says the automaker's goal is to be an in-car software leader by combining its expertise with that of external partners.

"However, to guarantee the Mercedes-Benz quality and look and feel, we still develop the key functions and innovations in-house," he said in an e-mailed reply to questions. “We always strive to deliver the apps that are important to the customer."

He added that native integration is particularly important to Mercedes to enable the highest possible ease of use, for example, offering an app to steer vehicle functions and change settings remotely.

"It's all about convenience," Vaitl said, adding that the Mercedes me App already has more than 13 million downloads.

From his perspective, the ability to upgrade vehicle functions after the initial purchase is a great opportunity for customers to personalize the car, giving them access to certain functions if they want them.

"This also enables the second or third owner of a car to customize the vehicle according to their specifications," he said. "They can add important, useful functions as needed and use them for as long as they want. We find our customers prefer this flexibility."

He also sees customer demand for these services rising, since people are more familiar with such offers because they are also being provided by devices ranging from computers to smartphones to kitchen appliances.

Pedro Pacheco, an analyst with Gartner, said automakers are still unsure how they will push forward subscription models and paid apps, noting the backlash BMW faced after its seat-heating stumble.

"The big conundrum is how can an automaker leverage OTA (over-the-air) updates and offer the feature as a one-off payment or subscription in a way that the customer sees it as value enhancing and not a rip-off," he said. "They need to find the right way in terms of value proposition formulation, so it's seen as value adding, and something the automakers can use to drive revenue."

Volvo Deputy CEO and Chief Commercial Officer Bjorn Annwall said the revenue from subscription offerings will be more substantial in the latter half of the decade.

"The actual profitability we are banking on from selling software-related upgrades is quite limited," he told Automotive News Europe. "That's not a major part of the business."

Right now, Volvo is putting practices in place including over the air (OTA) updates and the development of a customer-facing app that will serve as the primary tool for drivers to interact with the company.

"We don't believe in asking people to pay $10 to get heated seats," Annwall added. "The things we want to sell will provide a distinct consumer benefit. Then you can charge for it."

From his perspective, self-driving capability is just the type of feature that customers would pay for because of the value it adds to a person's in-car experience.

"We will look into this kind of driver-assist functionality, where you might be able to upgrade, and then at some point we will be able to offer full self-driving in some use cases, in some locations, and that we would also charge for."

For subscription services and paid apps to be accepted, they must offer a certain level of concrete, measurable improvement to the consumer.

"More general updates to keep the car fresh are things that Volvo consumers should expect to get for free," Annwall said.

From Pacheco's perspective, automakers should focus on designing a gold-plated user experience (UX) that ties the entire ecosystem of applications and subscriptions together in an intuitive interface.

This will be the part of the human-machine interface that allows drivers or passengers to navigate through more complex features.

"If it doesn't work, customers won't use it again, and until we get to that level of intuitiveness, it's hard for the driver to fully leverage these features -- when we get there this will make a big difference," he said.

He added that there is still a lot of work to do with more intuitive menus, voice assist and other technologies that allow for better communication between driver and the car, including emotion AI.

"In the end, it's about that sense of anticipation -- the car understands what the occupant is experiencing, and the car knows what it needs to do in response," Pacheco said.

He said there won't be an overall “killer app,” but rather it will come down to the UX, and the features that the user has available to them.

"It can be a great UX but if there's nothing in there worth purchasing or subscribing too, that's no good, and vice versa," Pacheco notes. "You need to bring the two together."

Annwall said he is still waiting for a "snowball effect" where more innovative applications are on offer through Apple's or Google's ecosystems.

"I believe there is still so much more innovation to be done in terms of having more apps," he said.

-- Douglas A. Bolduc contributed