Are Software-Limited Features Like BMW Heated Seats Or Tesla Limited Batteries Good For The Customer?

There’s been some uproar over BMW’s recent offering of heated seats in your car for an $18/month subscription. There was even more uproar when TeslaTSLA
recently software limited the battery in a 90kwh car to 60kwh, because the original owner only paid for 60kwh and Tesla has mistakenly not applied the limit after a battery swap. (Tesla later relented.)

Customer emotional reaction to this has been strong and there are many fascinating issues to unpack when it comes to the question of software enabled features in hardware — and even in software. Companies are naturally greedy, and want to get as much revenue from customers as they can. Customers want to pay as little as they can as well, of course. The idea of paying extra to use something you already have seems inherently wrong. But it might not be.

1. There are aspects to software-enabled features that make producing the vehicle (both with and without the feature) cheaper, which can benefit both parties.
2. In many cases, this is yet another example of differential pricing, where companies get different customers to pay different prices for the same product, usually driven by ability to pay or desire to pay.
3. We face the tough question of whether we own what we buy, and can modify it to enable new functions (even against the will of the vendor) or if we no longer own them or control what we own.

For the heated seats, BMW puts the heating elements in all cars, and the computerized switch that can turn them on. However, for some buyers, they don’t get the ability to activate that switch. Buyers who subscribe (or pay a one time fee) get to enable the switch and have heated seats.

Part of this is just the company wanting every opportunity to get more money. All companies will naturally do that, and competition is the primary factor which stops them, and switches their thinking to “provide the most value to the customer so they prefer our product over the others.”

At the same time there are economics of scale in car production. Making two models of the car, one with heated seat wiring, and one without, would actually be quite expensive. To make all the different variations of options would greatly complicate the supply chain. To install heating wires in seats at the dealership would be vastly more expensive than adding them in the factory. There’s no question that if many customers will want heated seats, and it’s cheap to add the wires, that you just do it in every model. From there, the company can declare that heated seats are standard in all vehicles (as most companies do) or they can enable them in software — either when the car is bought, or later, or with a subscription.

Today, when you buy a car, you usually choose between 2-3 trim levels, and there may also be an options package. The options package, if you buy it, may contain one thing you really want, and a bunch of things you barely want or don’t care about at all. There’s no way to just pay for what you want, though. For the carmaker, especially ones selling cars a continent away, it’s hard to unbundle and customize each car as desired. To do so would add long delivery days — you would never find a car configured just as you want on the lot, but also add complexity and cost. The car OEMs don’t mind you paying a bunch extra, either.

Differential Pricing

Differential pricing is the act of charging different customers different prices for the same basic product. In some cases, it’s the exact same product. In others there may be minor variation. The classic example of this is the airplane seat. Dave Barry has joked that “federal law requires that no two passengers paid the same price for their seat.” Airlines constantly change prices based on their predictions about load, competition and what they think customers might pay. While there are already large differences between first/business and economy class, there are also large differences between the prices of economy seats, even seats with identical rules on things like changes.

There’s no question we tend to hate these changing prices. Well, we hate them when we get a high price, and love them when we get a low one, though we may not love the hoops needed to get the lower prices. The airline wants as much revenue as it can get, but it also has a basic amount it needs to keep the planes flying and to compete.

What this means is that the only reason you can get a seat for $200 on some flights is that somebody else — usually somebody richer — paid $600 for their seat. If all the seats were the same price, the business passengers and richer passengers would feel happy for a bargain while the lower income people wouldn’t fly at all — and that means the plane might not fly which is no good for anybody. The business class passengers up front with beds and 4 times the room pay 8 times the price as some coach passengers, and thus allow the plane to fly. They try to make it a bit like taxes, charging as much as each passenger can afford.

The differences are lower but the same applies in a car. It might cost just a few dollars to add heating wires as a standard feature, and it’s not practical to add them as a custom feature. The people who really want them pay enough to justify that cost. I’ve had heated seats in my cars for 25 years and used them 3 times. I might be very happy for a way to pay for them only when I drive somewhere cold, and let others who use them every day pay the lifetime fee.

Tesla Battery Story

The Tesla battery story is a bit of an outlier. Tesla sold the car with a 60kwh battery and that’s what the buyer paid for. Later, the battery needed to be replaced under warranty. They didn’t make a 60kwh pack any more, so they put in a 90kwh pack and forgot to software limit it to 60kwh, which is what they would do because the customer only paid for 60kwh. Perhaps they should have just given the customer the full pack overtly, but they didn’t — but the customer assumed they did. The car got sold twice as a 90kwh car. It certainly seemed like one. If anybody was wrong here, it was the first seller, who got a 90wkh pack by accident and didn’t tell the buyer that it’s really only supposed to be 60kwh. He/she probably didn’t know. Tesla later updated the controller, and reset the car back to 60kwh which it was always supposed to have. They told the new owner that if they wanted a 90kwh pack, they needed to pay the standard $4500 upgrade price. That owner thought they bought a 90kwh car, and the intermediate seller thought they sold such a car.

This is a pretty unusual situation which Tesla should have perhaps just wisely resolved by figuring that their mistake of not limiting the pack at the start caused a chain of confusion which left the new owner understandably upset and created some bad press. People wrote that Tesla was holding the extra 30kwh for “ransom,” which is a bit over the top, but within a couple of days, Tesla re-enabled the capacity.

We have a psychological problem with this sort of software limiting of a hardware feature. After all, the car had a 90kwh pack in it. We’re used to the idea of owning our car, and to carry around such an important thing as an extra 30kwh and own it but not be allowed to use it because an earlier owner didn’t pay for it seems very odd. (I would love the chance to upgrade my battery with a software switch. It’s otherwise completely impractical.)

Tesla had decided it just wasn’t worth making 60kwh packs any more. It’s a bit surprising, but they found it was still worth selling that as a product but doing it by providing a software limited 90kwh pack, which cost them as much as a non-limited pack. Customers had to pay $4500 to flip the bits. This is differential pricing — Tesla finds they can get more money from richer customers, and less from those willing to pay less. In a competitive market that can help customers as well as buyers, by letting people who can’t afford the market rate for a 90kwh still get into the car.

(The software limited pack is a good deal, because you get longer battery life and you don’t stress your battery by charging it to 100 or taking it to zero. You do pay to carry extra weight. You can also change your mind later for a lot less than it would cost to take your car apart and change the pack. But this is for people who choose to buy it, not those who get it in a warranty repair.)

Owning what we own

There’s no doubt that we like to feel we have full control over what we buy. In the BMW, it’s possible to hack the car to turn on those heated seats without paying them, and little seems wrong with it. It’s possible and popular to hack the ignition systems of many cars to get better performance — but by making the car violate emissions standards. A few years ago Tesla discovered a way to get more performance out of their motors with new motor control software. In spite of a history of giving updates for free, they charged $2,000 for this one, and people paid it — it was actually pretty cool to get a faster car just by putting new software in it. People didn’t get bothered by that because you were paying for some new software they wrote. They are more bothered by cars where you can pay to flip a bit to get performance they always knew the engine had.

Many of the software we buy for our computers comes as the same download no matter what version of the software you buy. The code is all there, it just won’t use it unless we pay, and we’re fairly used to that. Our mind changes a bit for services and more for hardware.

Tesla offers a subscription called “premium connectivity.” For $10/month you can do various things over the car’s mobile data account, like web browsing and streaming. Nobody has a problem with that, and they can also create a hotspot on their phone and the car will do these things. A bit more unusual is the download of traffic data. The car always downloads traffic data, even if you don’t pay, and uses it to choose routes in navigation. If you pay, however, you get to see the traffic data on the screen — a purely software feature.

Debate over this won’t end any time soon. Companies will continue for ways to charge different amounts and extra amounts, as well as ways to streamline and simplify the supply chain, and customers will not like it any time it seems they are paying for what they already have.