Subscription Wariness

A couple weeks back, people noticed that BMW has been trialing a subscription service to enable heated seats in their vehicles, which caused all manner of outrage for car enthusiasts. Since BMWs would already have the hardware components installed, the feature would be remotely controlled by software, toggled on-and-off depending on whether the owner enabled the feature for that month. The company’s argument is that it adds flexibility for the consumer, and that it potentially reduces manufacturing complexity by reducing the variability of parts that’d have to be installed.

The customer is encouraged to think about the feature holistically, but of course that’s not how it’s playing out in reality—while we’re conditioned to pay for hardware, software is simply supposed to be the topmost layer enabling functionality and not an additional cost in and of itself. On top of that, consumer software subscriptions have evolved into a complex value proposition: sometimes they’re justified by the computational and storage resources needed to keep a connected service running1, sometimes it’s to keep developers employed, and other times it’s actually priced to express the ongoing value provided to end users.

That last pricing scheme is probably the hardest one to pull off; it’s what BMW is running into with these subscription heated seats, and before them Tesla and their Full Self-Driving package, which they’ve been trying for years to get customers acclimated to think about the cost as the value they receive from the capability and not just as a checkbox someone enables at the service center2. Fundamentally, it transforms ownership into rental property, nevermind the costs of maintenance and upkeep. Even for something as defined and well-understood as keeping a car over time, the difference between a subscription service and reoccurring maintenance costs is wide enough that manufacturers who’ve tried to equivocate the two didn’t get very far with their car subscription offerings.

Outside of cars, the same wariness is showing up in other software, be it apps with monthly/annual subscriptions or gift boxes or—increasingly—video streaming services. Compared to subscription businesses built for enterprises, consumers are a much more fickle bunch; coupled with the drive towards cheap, disposable apps, and it’s been hard to crack this nut of providing enough perceived value to be worth a subscription cost when the default expectation is just free. In the consumer world, the true cost of developing and maintaining software ends up hidden, and is often subsidized by associated hardware or via advertising.

That said, branding is an effective strategy to capture consumer attention, and it has the added benefit of obfuscating costs by employing a luxury premium—making it a viable approach for software subscriptions. That lines up with the movement in premium features and apps applying this subscription strategy: gating app icons, fancy UI animations, more in-depth integrations and other elements beyond a paywall of a couple bucks per month3. Maybe the most illustrative example here is comparing watch faces on analog watches versus digital smartwatches. Mechanical watches are considered luxury goods and quality watch dials fetch a high premium. Watchface apps are one of the handful categories of smartwatch app that can charge money, but here we’re talking about something like a $5 app with $0.99 watchfaces—most of which are digital recreations of the aforementioned premium dials.

The other option may be get around the knee-jerk reaction against paying for software by leveraging bundles to obfuscate its true costs. This is akin to car manufacturers differentiating cars by trim level, bundling multiple features—mostly hardware, but sometimes software as well—into higher model trims with correspondingly higher MSRPs. Or it can copy from the Amazon Prime strategy, leading with some sort of strong consumer value proposition and tacking on a myriad of additional features, none of which by themselves are super-compelling but in aggregate are good enough to keep customers subscribed. Something perhaps like Setapp or the Humble Bundle membership…just with more killer apps.

  1. I.e., someone has to foot the server bills.

  2. To be fair, they’ve faired better here than with their attempts at locking battery capacity behind software.

  3. This is still consumer software, and the price anchoring of free has pushed everyone down to these prices.

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