Subscriptions suck – part two
As I blathered on in my last post, me and the vast majority of connected car owners reject subscriptions for OnStar, for BlueLink, for Honda Link, for CarNet, for Safety Connect, for Lexus Enform, for Teleaid, for ConnectedDrive, for CarWings, for UConnect, for all of them.
There is simply no value for a vehicle owner to subscribe to these services. There. I said it. Got it off my chest. Now for the rest of the truth.
The real value for a connected vehicle program is from the data derived from the vehicle. And I don’t mean, where you have been driving data, although I acknowledge that could be valuable one day as well. But sticking with strictly non-creepy scenarios, the truth is, it is very good for OEMs, servicing dealers, and vehicle owners to know exactly what is going on with engine and vehicular performance, to know if something needs to be fixed, and keep track of fixes that have and have not been made.
I call this Remote Vehicle Information.
While cost avoidance is not revenue, there is no doubt that when an automaker can quickly identify a problem, diagnose it, determine how systemic it is, come up with a fix, and implement it, the more money that OEM will save. And the more lives can be saved. And the more valuable the vehicle will be for the owner and the second owner. Everyone wins.
Warranty reserves costs OEMs millions upon millions of dollars. Every time an automaker sells a car, it has to set aside some monies to cover potential costs associated with fixing that vehicle, over a period of many years. Obviously, money held in warranty reverses has opportunity costs. Big ones. Figures for 2013 indicate that some $14 billion is set aside for warranty reverses. And given that GM alone has recalled over 30 million vehicles this year, expect to see warranty reserves climb. At the end of August, NHTSA estimates 46 million vehicles have been recalled this year.
46 million vehicles!!!
While NHTSA fines automakers for not reporting problems in a timely manner (Hyundai was just slapped with a $17 million fine), they have no way to compel an owner to actually get the fix done. NHTSA estimates that 25% of vehicles need to be fixed some 18 months after the recall. That means that in 2015, there will likely be more than 11.5 million known dangerous vehicles on the road.
This is not solely the OEM’s fault. The OEM simply has no way of knowing who the owner of the vehicle is, especially a second owner. Vehicle owners have no reason to tell the OEM who they are, where they live, or how to best contact them.
So why would an automaker take one of their most value tools for monitoring engine performance and identifying problems and stick it behind a subscription wall? Talk about missed opportunity and stranded investment. A telematics control unit (TCU), the heart of the connected vehicle, is a cell phone. Yes, a cell phone. You know, that thing that can send and receive data. Why, in the goddess’s name, are not every single OEMs using the embedded cell phone to tell vehicle owners they have a recall on the very car they are driving? I know several OEMs are attempting this, but no one besides Tesla is doing this for every vehicle because not every vehicle has embedded TCUs. Hell, with an embedded TCU and a programmable screen, the OEM doesn’t even have to know who owns the car, just which car needs a fix.
This really is madness. And it doesn’t have to be this way.
The reason OEMs have subscriptions for connected vehicle programs is because they have fallen afoul of the retail mobile network operator lie: the lie that you have to have monthly minimums to get any sort of connectivity.
This is simply not true. An OEM could choose to have an embedded TCU solely dedicated to RVI and only pay variable costs. Think about how revolutionary this really is – the OEM only pays for the wireless data they use. No monthly charges, no minimum commitments. This is not the future; this is now.
The wireless costs can easily be recouped from warranty reserve reduction via a more efficient system and/or selling service leads to participating dealers. THAT is where the real value and path to monetization lies.
But wait, there is more. Being connected and knowing there is a problem is only two steps forward. The big third step forward is sending fixes over-the-air. I know that not all recalls are for software fixes and obviously many vehicles require new parts. But as an example, Ford recalled 850,000 vehicles on Sept. 26th for a software glitch.
And there is the use case.
Imagine if Ford had a dedicated TCU that monitored all their vehicles software performance (anonymously, of course). When they saw a pattern emerge, they could perform a deep dive and figure out there was a software glitch that could prevent the airbags from deploying. They craft a fix and now instead of issuing letters to all the owners of the Fords they are able to find or “have on file”, they could wirelessly, over the air, send new code directly to the vehicles needing it. Of course, the owner would have the ability to accept the software download and schedule the download for a convenient time, just like Tesla does today. Furthermore, Ford could track what percentages of the 850,000 cars were updated. NHTSA would have better information on how many unsafe cars are the road because of that particular problem and then take targeted actions to get those specific vehicles fixed. The Ford owner is happy because a once tedious and anxious trip to the dealership is eliminated, their asset has retained its value, and it won’t potentially kill them (for that particular reason, at least.)
If Ford’s CFO can’t figure out the value to the whole company for covering the variable wireless transport costs for that scenario, he isn’t trying.
So, what I’m saying is this – leave entertainment apps to the smartphone makers, they are a distraction from the main, critical, and important point. OEMs, please start installing dedicated TCUs reserved only for airbag deployments, stolen vehicle location, remote services, remote vehicle information, and over the air updates. Don’t sell wireless minutes and Wifi plans off that embedded TCU, that is crazy making. Build the cost of the hardware into the price of the vehicle. Cover the variable wireless costs by lowering overall operational costs and selling service leads to your dealers. For the remote services that don’t use much data, but could be used frequently, include four years of service in the warranty period. Take a risk, try something new. If the OEM monitors usage, they will know very quickly if they are getting upside down and can adjust future pricing and offerings. Take a page from Silicon Valley and get it out there and refine it later. Then after 4 years, if the owner wants to keep remote services, charge a nominal fee to cover wireless costs. There should be enough intelligence about how remotes services is actually used to set accurate prices.
This is not rocket science. But it does require the industry to stop being delusional. And to take calculated risks where it’s not super critical. And apply sound logic where it is super critical – making safer cars and saving lives.