By Kevin Susman, Vice President Brand and Communications, MATRIXX Software
If you’ve been to one of my innovation workshops around the world, there’s a good chance you’ve heard me name-check former US Secretary of Defense Donald Rumsfeld. “You go to war with the army you’ve got, not the one you wish you had.” Regardless of what you think of him, his politics or his policies, there is a truth to this statement that is brutally applicable when it comes to innovation.
For companies chasing the dream of transformation, eager or even desperate to reinvent themselves, wanting your company to be further down the innovation path than it is doesn’t make it so. Believing your company is capable of operating differently won’t make it the reality.
Which brings me to BMW, which recently launched a Heated-Seats-as-a-Service (HSaaS) subscription offering – because nothing says modern and tech-savvy like selling anything-as-a-service. For those who missed this news, here’s a capsule summary. Instead of buying a fully fabricated car, you’d be buying a platform with seat heaters pre-installed but only functional if the owner subscribes to the heated-seats-as-a-service that activates them.
Let me be blunt – this won’t work for two simple reasons. First, when it comes to a SaaS buying model, consumers expect their subscription will make the product they own today better and more feature-rich than the one they bought yesterday. The BMW seat-warming hardware will not evolve. It is static, leaving any improvements in the butt-warming experience to software (and I am very skeptical that they can improve the seat-warming experience via code as to make it substantively better).
Second, selling subscriptions is really hard. BMW used to just have to worry about loyalty and “churn” every few years. Now, they’ll be worrying about it daily. But that’s just the beginning. They now need to start regularly marketing the service to existing customers to drive conversions and keep the service top of mind. And even if they do succeed with keeping it top of mind with customers on a particularly cold day, they still have the daily cost-benefit analysis for their customers – are my buns cold enough right now that I’m willing to buy a monthly subscription to the warmers? Not to mention, we should assume everyone will cancel in the summer. So, you must bring them back in again when temps drop. All that effort without even touching the obvious need for omni-channel, instant-gratification buying journeys will hurt. Ouch.
It can be easy to think that BMW’s announcement is just about trying to compete for sales with Tesla. But that is too narrow a view. Sure, they want to sell more product. Yes, they want to be market trend-setters, again. But that’s not what’s driving the urgency among incumbent players. So, what is this really about? Enterprise value, of course.
The markets handsomely reward those businesses with new commercial models and punish those that don’t. Don’t believe me? Consider that Rivian, with its $95 million in revenue (at the time I wrote this), is valued at over $30 billion. In contrast, BMW, with its $122 billion in revenue, is valued at close to $56 billion – meaning that the legacy brand is priced at a greater than 50% discount compared to the startup. Further proof that, like so many other parts of our culture, Wall Street is youth obsessed.
I’m not naïve. BMW is in a tough spot. The army they’ve got is an analog vehicle with lots of disconnected technology and a buying journey that, at least currently, is pretty much a big bang purchase. They want to change and deliver a motorized platform that unifies all that disconnected technology in order better monetize it over time. Their all-too-familiar challenge is that no matter how much BMW wants to create new revenue from subscriptions, they still must deliver an “Ultimate Driving Machine” experience that customers will love so they’ll make a purchase to begin with. They must grow revenue, not cannibalize it. They must maintain loyalty and feeling loved, while also innovating their commercials. If you think that sounds difficult, you’re right.
The fact that HSaaS was their latest attempt is one of two possibilities. Option 1, their team is incompetent, which many people assumed when this news broke. Option 2, generating new revenue from a Platform-as-a-Service strategy is remarkably more complicated than it sounds in a PowerPoint presentation. As you may have guessed, my money’s on option 2.