In the early years of this century, you knew when you bought a mobile phone that you were stuck with the built-in software functionality for the entire lifetime of the phone. If you needed a browser or specific calendar features, you had to choose a phone that offered these features out of the box. If your needs changed, you generally had to buy a new phone. In the middle of the first decade of this century, Blackberry started to sell phones which allowed users to install additional software after purchase. The big change came in 2007 when Apple released the iPhone. Users realised that they could install apps providing additional functionality after purchase and that this meant that their phone would be able to meet their needs for years to come. Based on its existing music download ecosystem Apple set up the App Store, which has delivered ever growing revenues from the sale of third-party apps ever since. In 2008, Google climbed on board with the Android ecosystem for smartphone apps.
Nowadays, apps are not just limited to phones. They have also become an integral component of TVs, sat navs, food processors and fitness equipment. Users benefit from new device functionality, device manufacturers from new business models and revenue streams.
Consumer electronics and automotive sectors showcase revenue potential of apps
The automotive sector is also catching up. By using software to add more and more functions, cars have moved away from being dumb lumps of machinery with minimal software. For electric vehicles in particular, software updates can now be used to enhance driving performance even after purchase. When a model is first launched, the batteries and motor operate using a standard set of parameters. After launch, the manufacturer is able to collect large volumes of operating data under a range of environmental conditions and to use this data to work out where and when it is safe to increase the load on the motors, batteries and motor electronics without running the risk of causing breakdowns and warranty claims. With the Tesla Model 3, for example, customers were able to pay $2,000 (€1,800) to increase vehicle acceleration, reducing the time taken to accelerate from 0 to 100 km/h from 4.4 to 3.9 seconds. Another interesting feature, introduced in 2019, is Dog Mode (which Tesla has since made available free of charge). To prevent overheating on hot days, it enables car owners to leave the air-conditioning on if they want to leave their dog in the car. The range of additional functions might also include unlocking existing hardware. Where, for example, heated seats are installed as standard in a vehicle but not activated, manufacturers could allow customers to pay to have them activated after purchase, which would then see seat heating controls added to the user interface.
In 2021, Volkswagen announced that it would in future offer an autopilot function as a paid-for feature. Unusually they proposed that, rather than paying a large one-off fee for the use of this feature, drivers would be able to pay for it on a pay-per-use basis. The carmaker is combining digital features like apps with novel revenue models. It’s innovative revenue models like this that are driving the market cap of companies like Tesla to such heights.
Apps have huge potential, and this potential can also be exploited in the industrial sector, delivering benefits for both customer and manufacturer.
App-based updates as a USP
Would you be able to market a mobile phone that couldn’t be updated and couldn’t install apps today? There are plenty of sectors where it’s taken as read by customers that the product will mature further after purchase. It’s now normal for products to be furnished with software updates that deliver new features or make them faster, more stable and more secure. Knowing that a product can be updated after purchase makes it more appealing to customers and enables it to be sold at a higher price – even where a competitor product that doesn’t support updates offers more features out of the box. Customers are happy to pay for this future-proofing.
Manufacturers from the DACH countries in particular are known for selling high-quality, long-lasting machinery and devices. Particularly with high-end products like these, many customers are keen on the idea of a product that reduces their investment risk by adapting to changing needs over the lifetime of the product. Updates to enable continued use of capital goods might be needed for a variety of reasons – new regulations, for example, or new areas of application. Using updates to prolong the lifetime of or extend the range of uses to which a machine or device can be put certainly makes economic sense.