Once again at CES, automotive stole the show. Now the spacious new West Hall is teeming with cars from all over the world – autonomous, EVs, and concepts.
Much of our tour curated for radio broadcasters last week was made up of automotive stops, including Microsoft Touchcast's version of a car dealership in the metaverse.
Everywhere you looked, there was automotive innovation: AI and AR, heads-up displays, pillar-to-pillar dashboard screens, and a host of other features designed to continue America's ongoing love affair with the automobile.
The show-stopper may have been the color-changing technology introduced by BMW for their Vision Dee concept:
But there was one innovation that flew well below the CES radar. It wasn't officially on display on the show floor or in a simulator. It wasn't discussed by the many fine marketing people working for the OEMs (auto manufacturers) or their Tier 1 suppliers. But it buzzed all over CES.
It's not a new technology, but some say it already represents a $5 billion market.
If you're a regular player of video games, you know all about the financial art of continuing to charge consumers well after the initial purchase.
One of the best articles I've read on the topic comes from Shop Writer Jonathan Roth. Its title tells you all you need to know:
He defines thiss new revenue generation category for the car companies as “payments that gamers can make after they've started to play a game, to purchase purely cosmetic digital items or to purchase items that will give them an advantage over other players.”
Video game aficionados know that when new games come out – like “Hogwarts Legacy” or new titles from Ubisoft's “Star Wars” series – they are likely to include microtransactions.
This recurring revenue model has revolutionized the gaming industry. And if the automakers get their way, it will be a game-changer for companies desirous of making a lot more money well after their products leave the assembly line.
How big a market are we talking about?
A new study from BIS Research, released at CES 2023, estimates global in-vehicle payments are expected to reach nearly $26 billion by 2031 – 5x the current revenue.
In case you missed it, the current wave of microtransaction exuberance began last year when BMW rolled out monthly subscription fees for once standard features, including heated seats and a heated steering wheel. In the case of the former, BMW is now pricing this microtransaction at $18/month in some parts of the world
For buyers of Beamers, that's a mere pittance. But as many analysts point out, it's very likely the beginning of a Pandora's box car of upcharges and extras, designed to help automakers better monetize their vehicles beyond what's printed on the MSRP sticker.
As an automotive expert explained to Paul and me when we were first getting educated about the car business a decade or so ago, the OEMs are generally frustrated with a business model that has endured well more than a century.
Once their vehicles leave the factory, they are sold to dealerships all over the globe. And that's the last time car companies are able to generate any revenue on vehicles they designed, tested, built, and marketed.
Once in showrooms, consumers make our best deal on a purchase or lease. But smart dealerships are able to accrue extra income on oil changes, maintenance, repairs, tires and brakes, collision work, and even after-market accessories. For the OEMs, the bucks stop at the factory doors.
Until now, that is. Microtransactions provide auto manufacturers with a cash flow model that has eluded them for decades and decades. In other words, a gift that keeps on giving.
Vindicia's Jesus Luzardo minces no words. He refers to 2023 as “The year of recurring revenue.”
He explains this current trend has been predicated on the larger subscription economy I have often written about these past few years. While content companies such as Netflix, Disney+, and Spotify have built their businesses on subscriptions, credit SiriusXM with melding radio programming with auto companies – a relationship that has now thrived for decades.
Back in 2016, the New York Times reported the satellite radio company pays approximately $1 billion in “subsidies and revenue splits” with the OEMs. That amount has no doubt grown as SiriusXM has expanded its footprint. And it's an item on the spreadsheets of car companies that is positive and ongoing.
But it's more than just the money. Microtransactions open the door to long-term relationships with car customers. It's not just about revenue – it's about engaging with car buyers by providing them with the ongoing ability to personalize and customize their vehicles. And in the process, the auto companies gather mountains of data on their customers they will no doubt be able to utilize internally or sell to others.
There's a world where all cars and trucks will be loaded with every conceivable feature when they're initially manufactured. The OEMs can then flip the switches to the “on” position for each one a consumer is willing to pay extra for.
Special credit goes to Elon Musk and the Tesla model, the first that successfully utilized over the air updates to upgrade (or downgrade) his vehicles. Whether it's the AutoPilot feature or what's known as the Radio Upgrade ($500), owners can customize their Tesla to include FM radio, thanks to the flexibility of the microtransaction.
So what does this mean for radio?
The Consumer Technology Association's VP/Research Steve Koenig (pictured) and Jacobs Media tour guide was quoted last week on his view of where microtransactions are headed.
A story last week in wifi hifi by Christine Persaud published a Koenig observation that caught the eye of Inside Radio's Paul Heine. Speaking on transportation and mobility at CES, Koenig discussed microtransactions – or its other name FaaS – features as a service. Here's how Persaud covered it:
“Koenig doesn't think it would be out of the realm of possibility for car manufacturers to begin a charging a few, for example, for access to AM and FM radio stations in the future.”
Addressing our tour attendees at dinner Wednesday night, Steve reiterated this observation, noting “we shouldn't be surprised” if AM and/or FM radio became a microtransaction, right along with heated seats.
He explained that in the (not-so-distant) future when we make our purchase or lease deals, after getting the monthly payment where its workable, the next step may be filling out a checklist of FaaS, each accompanied by a monthly fee.
Shop Press' Roth included a microtransaction price sheet from Kia Connect that illustrates exactly how this automotive business model will likely look:
For the moment, these microtransactions – especially the BMW FaaS – have not been rolled out in the U.S. Perhaps there's a wariness about whether American consumers will put up with paying for features that once came standard in most of their models. My hunch is that after an initial period of whining and social media outrage, car buyers will fall into line.
Think about it. AM/FM radio as a FaaS.
Will car buyers check off that box to pay $X/month to listen to your radio stations and the others in town? That is the question.
There is so much excitement and energy surrounding cars, and coming off CES 2023, it's hard to not to feel that innovation vibe.
Cars and trucks are doing so much more than transporting us from Point A to Point B. More and more, they are becoming personalized reflections of who we are, accounting for our feelings and moods.
For as long as any of us have been alive, that radio in the center of the dashboard has been part of that experience.
What happens when consumers get to make a choice? What can we do as an industry – as operators, as employees, as consultants – to ensure radio is along for the ride?
Will radio be nickel and dimed to death by the OEMs?
Or will it step up to remind the automakers – and consumers – why it merits a permanent place in the dash?
Attend our free webinar – “Backstage at CES 2023” on Thursday, January 19th at 2pm ET. Register here.
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