What can the automotive industry learn from video games?
At a glance, the traditional automotive and creative video games industries seem worlds apart with very little in common. However, when you look beyond the surface, there are many similarities between where the automotive industry is right now and where the game industry was a decade ago.
As I've been lucky enough to experience both of these industries first-hand, I wanted to identify some key ideas that the automotive industry could learn from video games.
What can the automotive industry learn from video games?
Moving from ‘deliver and forget’ to Software as a Service (SaaS)
For a long time, the automotive industry operated in a 'deliver and forget' mentality. The custom was to release a new model every couple of years and sell it as a one-off product, with minimal options for updates after the new owner received it. The only way to access new features and services was to upgrade to the next model.
One of the core problems with this approach is that it relies on intermittent revenue streams. An OEM makes a profit when a new car is bought, and that's often the end of the line until the same customer upgrades to a new model. This approach makes it challenging to gain revenue outside the initial hardware purchase. It relies heavily on the assumption that the consumer stays loyal to the brand and upgrades to a new model every few years.
All of this is changing with the advent of the software-defined vehicle.
As new car features, like Tesla's autopilot, are mostly software, looking into a SaaS approach opens up new ways to introduce consistent revenue streams and increase customer lifetime value, bringing in more cash flow in the long term.
Software is becoming a differentiating factor.
I think we all know by now that the software inside the car – the UI visuals, companion apps, virtual assistants, autopilot, navigation – have become a differentiating factor in and of itself. Many want their cars to blend into their lives seamlessly. They want their vehicle to integrate with their mobile apps and smart home setups and expect regular updates and feature improvements over the air.
For this reason, it's prudent to think of car software as a continuously evolving, living, breathing thing instead of something shipped once and then forgotten.
But what has this to do with games?
So why are we interested in games at all? Well, it all comes down to numbers. It might surprise some, but the games industry is larger than the music, movies, and home entertainment industries combined. It is even looking to overtake traditional sports in revenue in the next decade.
In 2020 games industry made a whopping 139.9 billion USD, while the music industry revenue was at 21.6 billion and movies and home entertainment at 98.3 billion. Looking at the numbers, it is clear that games have done something right in the vicious competition over people's free time and attention.
The games industry also found its most profitable avenue yet - mobile games. Mobile games dominate the market because they cater to the masses. Surprisingly to some, most of the industry revenue comes from casual games like Candy Crush, Clash of Clans, and Pokémon Go instead of high-budget triple-A smash hits like The Witcher 3 and Grand Theft Auto V.
Efficient monetization of the masses
"Ok, ok, we get it. Games make money. But how does this relate to the automotive industry and how it can boost its low-end and mid-end vehicle segments through SaaS?"
Well, funny that you asked!
Historically, games were something a consumer could only purchase alongside a device. Take 'Snake' as an example— a game that took the world by storm when it launched alongside Nokia phones in 1997.
In 2008, however, the launch of Apple's App Store revolutionized the industry, introducing a new way to distribute games. Thanks to the app store, people could now download standalone games and get regular updates on their chosen apps. The app store paved the way for many innovations like in-app purchases.
Initially, there were either free or premium games on the app store, and premium games like Angry Birds sold over a billion copies at 0.99USD. However, with the influx of several free games, people became more reluctant to pay for games up front. The introduction of in-app purchases was a way to keep games free while locking premium features behind a paywall for engaged and more serious players.
Games like Fortnite also popularized vanity purchases. Players could purchase clothing, weapons, and other assets in an otherwise free game. While none of the purchases particularly affected game progression, many users were more than willing to spend money on customizations because they felt they were getting value from it. Not surprisingly, personalization and bragging rights monetize exceptionally well.
From my perspective, the auto industry is where mobile games were when the Apple App Store launched in 2008. It's on the verge of a massive revolution with different OEMs experimenting with ways to offer better services and, ultimately, to continue to turn a profit in an environment where consumers are reluctant to purchase a new car every two years.
Monetization models that translate to the automotive industry
Luckily for the automotive industry, many learnings from mobile games can also directly apply to cars. These learnings include both winning strategies and some spectacular failures that sometimes bordered the lines of ethics and good taste.
1. DLC (downloadable content) packages
Since most new automotive innovation is in software, automotive companies can sell new features to existing customers via app stores. Features and updates could also be upsold to consumers buying second-hand vehicles. Upselling to the second-hand market could significantly increase the OEM revenue streams as they'd be able to tap a market previously out of reach for them.
Most OEMs already offer subscriptions to access features like connectivity and navigation. As OEM app stores become more popular, new doors for subscription services also open. Perhaps customers not willing to pay hefty prices on features upfront could subscribe to services like auto pilot and navigation on a monthly basis. There's also potential for offering services such as charging network and parking subscriptions in urban areas through 3rd party service providers.
3. Updates and feature improvements
Overall updates and feature improvements can also be offered as part of regular car maintenance. These may include personalized themes, visual upgrades, convenience purchases, and essential system updates.
4. Digital advertising
Ads are not something you'd want or should experience in a vehicle you pay half your annual salary to purchase. However, there are opportunities to monetize through advertisements in shared and entry-level cars to mitigate some of the upfront cost. We've recently released the Qt digital advertising platform, which has also gained traction in the automotive industry.
Not everything can be monetized.
One important thing to note is that car companies have one huge difference from gaming companies: they are responsible for their customers' lives and safety. It is necessary to make a clear difference between what is vital and what is vanity. Vital features such as security updates, new safety features, and anything that could prevent accidents and save lives should never be put behind a paywall. However, convenience and vanity features are excellent targets for experimentation.
Key building blocks for software service success
What changes should be made to the automotive development approach to make all of these possible?
Analytics and continuous optimization: Software service is continuously evolving. It’s never in its ‘final form,’ so to speak. Continuous optimization entails understanding how the customer uses the software, which involves a deep understanding and application of insights from analytics.
Fast release cycles: To continuously optimize the service, agility must be practiced right from development to shipping software. Updates and downloads must also happen seamlessly and efficiently from the customer’s end.
Flexible architecture: A flexible architecture is needed to adapt to and support the use cases of the times. Software needs to anticipate and address the market’s needs proactively, creating value for consumers.
The games industry went through massive reinventions to keep pace with new marketplaces and evolving consumer expectations. Likewise, using a SaaS approach in the automotive sector entails treating software as an evolving service rather than a static product.
To learn more about software solutions that can give your automotive company an edge, visit Qt for Automotive pages or send a contact request to our sales team.
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