Car Subscriptions Explained

Car Subscriptions Explained

This story was originally published by and written by Ken Gratton.

Vehicle ownership will give way to subscription in years to come, industry expert argues.

Subscription to any sort of service is a well established concept. We subscribe to mobile phone plans, magazines, gym classes, public transport and even pushbike mobility – although that last application hasn’t worked out too well in Melbourne.

Few have considered subscribing to a car-based mobility service, but Volvo is known to be toying with the introduction of its Care by Volvo subscription service to Australia. Other vehicle subscription services that are yet to come Down Under include Audi On Demand, Access by BMW, Mercedes-Benz’s Car2Go and Porsche Passport.

Indeed, the first automotive subscription services are likely to be offered at the luxury end of the market, given the costs of early trials range between about $2300 and $3800 a month, which sounds expensive but may be less than the total ownership cost of many premium vehicles.

According to multinational firm Zuora, there are numerous advantages to subscribing — as opposed to leasing — a vehicle. A subscription service for cars would mean always getting around in something near new, flashy or reliable – whatever the customer’s preference.

You can’t say that about a vehicle that’s leased. By the final year or two of the lease term the car may be looking dog-eared and it may no longer suit the needs of the driver if the family has grown or shrunk, for example.

Zuora states that leasing is actually a “simplified” form of subscription, one that doesn’t allow the customer the choice of different vehicles for different occasions and, more often than not, places the onus on the driver to maintain the vehicle.

Zuora is what’s known as a B2B (‘Business to Business’) concern, providing the online means for companies such as Ford and General Motors to reach out to customers with a new business model.

The company “provides a cloud-based monetisation platform for subscription businesses,” according to Zuora’s General Manager for the Asia/Pacific Region, Iman Ghodosi.

Ghodosi, a graduate of the University of Newcastle, explains that ‘“Zuora makes money through its customers’ subscription-enabled success.”

“It uses its subscription-based software to help businesses expand, become more efficient and make the most of customer data to better inform business decision making.”

Not just cars
Ghodosi says of the Zuora platform that it “functions as an intelligent subscription management hub that automates and orchestrates the entire subscription order-to-cash process, including billing and revenue recognition”.

So it appears to be sort of an advanced, online cash register for subscription-business transactions.

“Ford is reinventing itself… investing in more flexible payment options and a seamless automotive experience,” says Ghodosi.

“Zuora has helped Ford with this shift towards consumption through services and ongoing customer experience instead of through physical transactions, enabling the company to offer a personalised Ford ID for each individual user, hassle-free subscriptions and additional transport services.”

In Australia, Zuora supplies its services to non-automotive clients such as Deloitte Private, Energy Australia, Fairfax and Cancer Council NSW. The company was established in 2007 and its business model can be applied to the automotive trade as readily as any other business.

In fact, the business model takes the subscription idea to new heights, not only making subscription viable for client companies and their customers, but even charging those client companies on a subscription basis as well, to use the Zuora platform.

Ghodosi says that the platform “enables any company in any industry to successfully launch, manage, and transform into a subscription business, allowing businesses to focus on what they do best, leaving the finer details such as billing and payments to Zuora.”

US investment banker Morgan Stanley has already welcomed the migration from outright vehicle ownership to subscription, with these words: “A move from a vehicle ownership model to a transport/experience subscriber model could expand revenue opportunities by nearly an order of magnitude.”

Buying a car is a financial hurdle, but the subscription model could be much more affordable, or appealing for other reasons.

Morgan Stanley asserts that “the market for mobility alone will reach a total addressable market in excess of US $10 trillion, compared to the current US $1.7 trillion size of the global auto industry.”

Australia next in line
Ghodosi believes that Australian consumers will latch onto the subscription model in next to no time.

“Although geographically isolated, Australians are by no means slow adopters. The Australian automotive market has struggled recently however, and larger car manufacturers… are reluctant to offer subscription-based car services to the Australian market without first test driving these services in the US.”

Volvo is one of those manufacturers, Ghodosi says. But as careful and measured as car companies are when it comes to serving a subscription business model to Australians, the bandwagon is already rolling, Ghodosi states.

“There is clearly demand for ‘usership’ with recent Deloitte research finding that Aussies would rather cut back on core essentials like groceries in favour of services such as Netflix, Spotify and UberEats take-away.

“This clearly highlights the appetite for subscriptions in Australia and the automotive industry is already beginning to experience this shift.

“Add to this the exorbitant prices Australians are expected to pay for cars compared to their global counterparts, and it is no wonder the industry is now trying to keep up with demand for cheaper transport-as-a-service and subscription-based car services.”

Chicken and egg
Older Australians may find it hard to reconcile the whole idea of subscribing to a mobility service, and for many the idea is antithetical to everything we’ve ever known about vehicle use.

Ghodosi believes that Aussies will take it on board — but it will likely be driven initially at least by the automotive industry rather than by consumer sentiment.

“The automotive industry is in the midst of a broad, systemic shift away from transactional sales towards recurring services,” Ghodosi says.

“Globally, automotive companies are beginning to realise that the key to surviving in the subscription economy is building long-term, personalised relationships with consumers.

“This means constant iteration and product offerings based on data-driven insights into what consumers want now and what they will want tomorrow.

“Subscriptions also alleviate the hassle of owning a vehicle — registration, insurance, maintenance –and allows drivers the flexibility to change cars based on their needs while being able to show off the latest, most up-to-date model to their mates.

“It’s not that people will stop buying cars all together — we still need cars to drive us from A to B, and obviously these cars need to be owned by someone.

“But we’re starting to see signs that private ownership will decrease — and many car companies are already planning for this shift – as more people elect to subscribe to vehicles and transport services instead.”

A word from the founder
The following is an excerpt from Subscribed, a book by Zuora’s founder, Tien Tzuo.

Isn’t a vehicle subscription just another word for a lease? Well, no. A lease still binds you to a specific vehicle, whereas a subscription can potentially offer you access to a range of vehicles.

“Simply flip between vehicles via the app as your needs change,” says Porsche on their website.

You’re signing up with the company, not the car. Another difference: with subscriptions, all the potentially annoying aspects of owning a vehicle (registration, insurance, maintenance) simply go away.

With leases, you still have to get your own insurance. Also, many car subscriptions give you the option to subscribe on a month-to-month basis.

As Christina Bonnington of Slate notes: “You could theoretically not have a car for ten months of the year when you’re working and using public transit and then get a car subscription for two months when you’ll be travelling more often.”

Subscriptions also don’t offer the option to buy when they conclude, which I view as a huge positive — that means that it’s in the car maker’s interest to keep their vehicles in great shape, not yours.

Excerpted from Subscribed: Why the Subscription Model Will Be Your Company’s Future – and What to Do About It by Tien Tzuo with permission of Portfolio, an imprint of Penguin Publishing Group, a division of Penguin Random House LLC. Copyright © Tien Tzuo, 2018.

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