In-App Purchases Are Taking Over Your Car

I may cover automated vehicles (AVs) as an analyst but I still love to drive. Rolling down a country road in my 30-year-old MX-5 Miata as the evening sun fades never fails to put a smile on my face. I also enjoy playing racing simulation games such as Gran Turismo and Real Racing 3. But those games illustrate why the newly announced partnership between NVIDIA and Mercedes-Benz is indicative of a fundamental change in the automotive business model.

I own that Miata, and I never have to send another dime to Mazda to keep driving it as long as it remains functional. Mazda has created several newer generations of this car and while they are just as lovely to drive, I don’t have to buy them to continue enjoying the first-generation model I have. When Mercedes-Benz announced it was teaming up with NVIDIA to develop a new electronic architecture for its vehicles from 2024 and beyond, the two companies spoke about the transformation to the software-defined car. But what they really meant was the in-app purchase (IAP)-defined car.

Cars Use Software More Now Than Ever Before

For the past 4 decades, the car has been getting increasingly software-defined. Since the 1970s, most exhaust emissions from engines have been reduced by more than 99% because of electronic controls. Cars are safer than they have ever been because of the software that controls active and passive safety systems and the software used to design modern crash structures.

When it debuted in 1989, the Miata was described as a classic British roadster with Japanese quality and reliability, in large part because of the electronic fuel injection and ignition systems. That software hasn’t changed since long before either of my adult children were born.

I’ve been playing Real Racing 3 for more than 7 years and have never spent any money on it. But over the past year or two, the developer has been making it difficult to progress in the game without resorting to IAPs. You have to play for a much longer time to earn coins to buy cars or upgrades or just purchase the coins. That’s because continuous development has a cost associated with it. Software is no more free than hardware.

The same is going to be true for our vehicles. When I started my engineering career developing software for anti-lock brakes, we refined as much as possible up until the deadline to ship the vehicles, and that generation of product never changed. We then moved on to the next generation. We got paid for what was shipped, then we worked on a better version to ship the next model year.

Tesla turned that model around by shipping incomplete software and pushing updates to customers who were no longer paying. Just as it wasn’t sustainable for Electronic Arts to continue developing Real Racing if no one paid for IAPs, automakers need new revenue to fund ongoing development.

The Future of Cars Develops

AVs will need continual development for many years to reach a sufficient level of maturity. During the Mercedes-Benz/NVIDIA announcement, a major part of the discussion involved the ability to update the software of vehicles in the field over-the-air with new and improved functionality. They claimed this would bring joy to customers when they wake up to an updated vehicle and new revenue opportunities.

Manufacturers and service providers will have to be careful with pricing to make sure paying for updates doesn’t end up increasing the cost of ownership. Will customers be any more willing to pay for these than I am for IAPs in my game, and will it really bring more joy than my little roadster?