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Trends in Software Payment and New Business Models in the Automotive Industry
The first paid software that the author, 隔壁老猿, encountered was QQ membership. In addition to an identity badge, it offered privileges such as accelerated level upgrades, a red nickname, priority rankings, and more. In other words, QQ is free, but if you want to achieve higher levels faster and differentiate your QQ account from others’, you have to pay for membership.
Another example is space membership or QQ music membership. If you want to post original videos in your space, you must purchase a space membership. And for QQ music, many songs can only be listened to in their entire version and downloaded with a membership.
The most commonly encountered type of paid software is professional tools, such as Ps, Pr, and AE (of course, most individual users choose the cracked versions). These all fall under software payment, where you must pay to use these tools.
In the field of intelligent new energy vehicles, software payment is beginning to become popular. Why do car manufacturers promote software payments? What affects users’ decision to pay for software? Today, the author 隔壁老猿 will discuss these two questions.
Why do car manufacturers promote software payments?
The first thing that needs to be mentioned about software payment is “software-defined cars.” The automobile industry has basically reached a consensus on this issue. As the hardware of intelligent automobiles becomes more uniform, when hardware cannot be differentiated, the task of differentiation changes from the ability to assemble parts to the ability to run countless lines of code combinations.
Software payment will become one of the major profit models in the future. According to McKinsey’s predictions, the proportion of software-driven products has increased from 7% in 2010 to 10% in 2016, and it is expected to reach 30% by 2030. The increase in the value of software in cars is the greatest. Pure electric models will grow from $0.23 million in 2025 to $1.82 million in 2030, a sevenfold increase. There is a $50 billion market space in the next decade.
From this perspective, software payments have become a hot trend in the current and future automotive industry. The response and actions of current automotive manufacturers are also confirming this trend.
The pioneer of automotive software payment in this new era is undoubtedly Tesla. Since October 2016, all Tesla models have been pre-installed with Autopilot hardware, and users can choose whether or not to pay to activate the driving assistance software based on their personal needs. Currently, Autopilot comes as standard on Tesla, and advanced EAP and FSD features require payment to activate. The price of EAP is 32,000 yuan, and FSD is 64,000 yuan. In addition to Tesla, the new Chinese car companies are also following this route.In April 2020, NIO renamed “NIO Pilot Full Function” to “NIO Pilot Full Package” with an optional price of 39,000 yuan. At the same time, they launched the new “NIO Pilot Elite Package” which removed NoP, Lane Changing Assist, and Basic Driving Assist, but retained Adaptive Cruise Control and an automatic parking system that uses visual fusion technology. The corresponding price was lowered to 15,000 yuan.
In January 9, 2021, NIO announced that they will launch NAD assisted driving on the ET7. The payment plan for NAD only supports a monthly payment of 680 yuan per month, and old car owners can use the 40% off for the Elite Package and 70% off for the Full Package privileges.
Also in January, XPeng Motors launched XPILOT 3.0 assisted driving on the P7, which requires separate purchase (except for the Wing Edition). The standard price is 36,000 yuan, payable in three years. Users can also choose to pay the full amount at once, at a price of 20,000 yuan.
In September 2020, Wei Jianjun, the CEO of WM Motor, stated that WM will use hardware pre-embedded payment features and open payment functions to users through OTA. This includes new cars with level 4 autonomous parking functions to be delivered next year, which have already done hardware embedding. If users want autonomous parking, they can pay for it anytime.
Of course, in addition to these new car-building forces, traditional car companies such as Ford and BMW are also exploring the software payment model. As a result, Tesla confirmed deferred revenue of $283 million for FSD in 2020. Therefore, if the new software payment profit model is feasible, future profits for car manufacturers can be expected.
The key to software payment is experience and price. However, this model is not easy to implement, especially in the domestic market. Although Tesla achieved $48 million in FSD-related deferred revenue in 2020Q2, at the Q4 earnings call, Elon Musk said that the FSD selection rate in China may be as low as 2% or even 1%, much lower than other markets. Therefore, Tesla still needs to improve the experience of FSD. According to the results of testing by a user, Tesla’s strongest features are AP and Lane Changing Assist, but NoA’s localization is not very good. Commuting efficiency is lower compared to driving oneself, and NoA’s reliability still has room for improvement. The user experience of the automatic parking and intelligent summoning functions is also not very good. If the experience is improved, user stickiness will increase, and as user stickiness increases, the possibility of users choosing to pay to unlock some advanced functions also increases.After experiencing it, the main concern for consumers is the price. To attract more buyers, the price must be lower. For example, for those who buy the standard range version of Tesla Model 3, the price of FSD already accounts for 25.6% of the car price. If you have the money, why not spend it on something else or just save it?
At the beginning of this month, Tesla launched a cheaper EAP-enhanced version of automatic driving. It has a retrofit price of 32,000 yuan and adds automatic lane change, automatic navigation, automatic parking, summoning, and smart summons, which is the same as the features currently available on FSD in China.
Once the price was announced, some of the monkey’s friends actually bought it because it was half the price of FSD and they could enjoy all the current FSD features. They also believed that the user experience of EAP could be improved through OTA updates. However, most Tesla owners around the monkey still did not buy EAP, preferring to wait for the subscription function of FSD.
In December 2020, Elon Musk revealed that Tesla will launch a subscription service for FSD in early 2021. After pushing out the FSD Beta version, the price of FSD also increased to $10,000. Compared with a one-time purchase, the subscription service gives car owners the chance to change their minds. If they use it for a month and find that it doesn’t meet their expectations, they can cancel the subscription. If they just want to try it out, they can buy it for one month. For car owners who want to hold FSD for a long time but don’t want to pay in one lump sum, they can pay for the subscription on a monthly basis.
Therefore, the monkey believes that the basis for paying for software is still the experience and price. Judging from Tesla’s strategy, more car makers will definitely follow suit in the future, and this will diversify the way software is paid for until it reaches a range that most users are willing to accept. At that time, the business model of paying for software will truly be established.
Conclusion
Although paying for software has become a major trend, each manufacturer still has its own technology barriers. The monkey believes that the future trend of paying for software will move towards an open platform, although this time may be long, it will definitely come. For example, Apple’s App Store, when more developers develop on the same platform, developers can achieve their own income while the platform can also benefit.
In the end, there may only be a few software platforms left in this market, just like iOS and Android now. At that time, paying for software will usher in a new era. For car makers who need “vitality,” the trend of paying for software is already a fixed path. So, who will be the first to enlarge this market?
This article is a translation by ChatGPT of a Chinese report from 42HOW. If you have any questions about it, please email bd@42how.com.