Freemium as the business model of the future? What cars can learn from computer games.
Seriously, let’s play.
What would a world without graphics cards look like? A present without animated videos, digital film effects or 3D models for science, design and architecture? We have computer games alone to thank for the fact that it hasn’t come to that. The success of first-person shooters like Doom or Wolfenstein in the 1990s spurred graphics card manufacturers on to their highest achievements. But it is not only the technical developments and trends of the computer games of yesterday that are impacting our everyday lives today; their innovative sales models are as well.
In the beginning, there were two ways to successfully market games: selling them or giving them away. A little while later, two other sales options were invented. One of these was the demo, a free version intended to tempt people to buy the complete game. The other option was a subscription function, which became established with the rise of online role-playing games. With the subscription model, people pay a monthly fee and can use the game without restrictions.
These sales strategies are also well known in the automotive industry. The full versions are the vehicles that have been found in car dealerships for a hundred years. A test drive at the dealership is the demo version of a car. People can have short-term subscriptions with sharing services, medium-term ones with rental cars and long-term ones with leasing models. But in the world of computer games, an entirely new business model has developed that does not exist yet on the car market: freemium.
Little money – huge success.
Freemium means that a basic product is offered for free. Functions that enhance this simple version must be purchased additionally, either individually or in packages. The freemium strategy has proven to be particularly profitable for cell phone games. A few months ago, MacStories researched 200 of the most lucrative programs in Apple’s US App Store. Two thirds of them were freemium games. All of the sales were made through so-called in-app purchases, in other words purchases made within the computer game. Generally, these are very small amounts of money ranging between one and ten US dollars, but they generate total profits that can amount to millions. It is true that the game apps can be used free of charge from beginning to end. But people who want to complete a level more quickly or who want exclusive upgrades or individually designed gear for their own game characters need to pay for them with real money.
The study shows that this business model is incredibly successful. So what would the freemium business model look like for cars?
Freemium for cars?
Imagine a brand-new S-Class standing right in front of your door. You get in the car and drive off – at no charge whatsoever because you are using the basic version. The car is ready to drive, and all safety-related driving assistants are available, but the air conditioning, sound system and seat heating remain deactivated – and you cannot drive faster than 110 km/h. So that you as the driver can use additional functions and services, the features of the car need to be individually configured like a character in a computer game. For small surcharges, you can synchronize your own Spotify account on your smartphone with the Burmester sound system in the car for the length of the drive. To install the 3D bass as well, you will also need a premium update. Of course, all of the features can be activated using an all-round package. If you choose a platinum bundle like that, all of the features and functions, including the maximum speed, will be available to you without any further restrictions. Additionally, the system has a few exclusive surprises in store: special fragrances for the air conditioning system, film previews a week before they officially air on Netflix, and a cappuccino flat rate at your favorite coffee shop.
The airline model.
Just knowing that you could easily get a breathtaking upgrade is an irresistible thrill. A thrill that is fun and that challenges us to enjoy life to its fullest now – a couple of cents is no big obstacle. We don’t want to win sometime; we want to win right here and right now.
Airlines apparently know their customers very well. Our gut says: let’s go to London now, not Berlin. For five euros, we can book a flight with a budget airline and make our wishes come true immediately. But without all the bells and whistles: no luggage, no drinks, no food – that is what they call no frills. But we still reach our destination safe and sound. Budget airlines like Ryanair pursue this concept with great success. Based on the number of passengers, the Irish airline is the largest airline company in Europe – even larger than Lufthansa. 117 million passengers can’t be wrong. What’s more, Ryanair doesn’t just let its customers pay for all the extras. It goes one step further: in 1994, the entire fleet was converted to the aircraft type Boeing 737, an aircraft that apparently meets everyone’s demands.
If we apply that principle to cars, that would be one car fits all. Differentiation takes place only as the result of in-car purchases made by the driver and special features on demand. Fiction or reality? Welcome to a brave new world...
Authors: David Menzel, Jean-Paul Olivier and Leo Burkhardt