Tesla’s innovations are widely known and respected. From making an electric car that is fast, fun, and practical to attempting to change energy infrastructures to integrate Tesla batteries to store electricity, these innovations are sweeping and consequential. Likewise, Tesla regularly innovates in product development.
Elon Musk’s “masterplan,” released via blogpost in 2006, consisting of constructing an expensive sports car, using the coinciding funds and lessons learned to build a less expensive car, and then finally using that to build a mass market electric car, has become common parlance in product development. Meanwhile, other production changes once seen as ludicrous, such as the construction of Tesla vehicles in a large, automated, and expensive U.S. “giga-factory” are becoming increasingly common in discussions from boardrooms to the oval office. Against the backdrop of such innovation, it is easy to miss one of Tesla’s more important proven contributions to product development: seamless software to hardware innovation.
Tesla reports that its vehicles “regularly receive over-the-air software updates that add new features and functionality” in addition to those that the vehicle was purchased with. This represents a sizable opportunity for companies typically associated with hardware, such as vehicles, to both improve customer experience and add revenue streams to their products.
Tesla rolled out the ability to update its vehicles with the Model S and her biography of Elon Musk, Ashlee Vance notes that Tesla regularly repair and improve such S “overnight.” The immediacy of such improvements in service in addition to its relatively low cost to hardware repairs suggests that the company can be much more dynamic responding to customer complaints. It also guarantees that consumers will receive additional functionality from older hardware in much the same way that the owner of the previous generations iPhone still benefits from a software update. This keeps customers invested in the company as well as constantly involved in the product.
Likewise, software offers an opportunity for to sell the same product at vastly different prices to consumers depending on their willingness to pay. Tesla owners can buy the lower priced 60 and 70 Kilowatt-hour models with the option to remove a software block and upgrade to the full 75 KWh capacity of the batteries for an additional price later, much like the wildly lucrative revenue stream for in game purchases on apps. Such upgrades can cost thousands of dollars but improve range by 30 to 40 miles according to Fred Lambert at Electrek.
Such a system generates additional revenue by charging differentiating between the customers who willing to pay for the base vehicle and those willing to pay significantly more for an upgrade. It then provides a product that has the same hardware but limits the cheaper version behind a paywall. This adds both an incentive to purchase the higher priced vehicle as well as the ease to make the additional purchase later after the user is a member of the Tesla ecosystem.
While Tesla might pioneer the use of this technology to improve customer experience and generate additional revenue in large pieces of hardware such as cars, it is easy to see the implications of such innovation in a world connected by the internet of things. As every aspect of our lives become more software dependent, from our cars to refrigerators, expect to see many more models like Tesla’s to both improve customer experience and provide opportunities to upgrade – for a price.