It’s true, and it’s been true for a decade or two (or three). But Tesla is hot on their tails, for example, Toyota sold 66,000 Camrys last quarter, Honda sold 43,000 Accords, and Tesla sold 63,000 Model 3s.
Dang, you old. I have never heard of different curves. As long as I have been paying attention, the RIAA curve has been the industry standard.
You win another RS story. During the management breakout session at the annual store manager’s meeting, one of the store managers made a suggestion that would make work easier for the store staff. Bernie’s reply was words to the effect “when I was in a store, force feed (the small parts shipments) only came twice a year. The parts were packed in bulk. We had to bag and tag the parts ourselves.” Needless to say, Bernie rejected the suggestion to make work easier out of hand. (I don’t recall what the suggestion was, but the story, again, demonstrates the intransigence of RS top management)
When Lew Kornfeld retired as President of RS, at the end of the 70s, he wrote a book “To Catch A Mouse, Make A Noise Like A Cheese”, about his career at the company. It was an interesting read.
When RS started opening stores outside of the metro Boston area, they had a target store sales volume number in mind. When the early stores fell short of that target sales volume, Charles Tandy asked Lew for an explanation. (I don’t recall what the numbers are, so I am plugging in a number pulled from the ether) Lew’s reply was "because we are locating them and fixturing them like $40,000 stores (which was the revenue they were getting). They are making a nice profit, so what is wrong with a $40,000 store? Tandy agreed, so a lot of early RSs were low rent. (part of “plan Steve”, above, to save RS, get out of the expensive real estate)
Steve
Jack Welch. famously, said he didn’t want to be in any market where GE was not already, #1 or #2. Seems to me, the best growth opportunity, in a mature market, is where the company is currently not dominate, so it can sharpen it’s game and take share away from the competition. Welch took the other tack, only participate where the company was already dominate. A dominate market position may make it possible to “grow profits”, with little effort, by gouging customers, but it does not make the company better at what it is doing.
Steve
Balderdash! Flapdoodle! Tommyrot! Get those younger folk off my lawn! We Gen X’ers (who are the main older auto buyers now) are perfectly familiar with that concept. We were paying cable bills and gym memberships and Life magazine subscriptions before they were born! I might be old enough to remember when Substack was called “newspapers,” but we paid for it the same way.
What BMW’s doing - giving away a physical component with a non-trivial cost for free but bricking it through software - is relatively new. Not just for older folks, but younger folks as well. We’re all used to services and software and media products available by subscription. But I think a physical object is novel for everyone. I’ve been trying to think of an analog. There’s lots of physical objects that you only can use for as long as you pay the ‘subscription,’ of course - leasing a car or renting a boat or getting a tool from Home Depot or what have you - but when the ‘subscription’ is over, you have to give the object back. People have been doing that for centuries. But having the company give you the thing and never expect it to be returned, and brick it unless you pay, is a little unusual.
I wonder if that model survives now that we’ve returned to non-zero (or near-zero) interest rates. I can see companies being somewhat indifferent to being paid upfront for a physical product versus an ongoing subscription stream in a time of near-free money. They’re out the cost of installing the component, but with super-low interest rates they’re somewhat indifferent to the time frame of recouping that cost and getting a margin. But with interest rates a thing again, deferring payments into the future comes with a real cost.
I’m thinking “shareware”, or “trial” software packages, that had some features crippled, unless you pay a license fee. Tucows was one of the sites where you could download semi-crippled software to try out, before paying the fee. My Dell computer came with a media package from CyberLink, that has some features crippled, unless I send money to CyberLink. My HP came with a similar CyberLink package, except even more features are crippled.
In the case of BMW, is the seat heater hardware really “free”, or is the cost already buried in the price of the car, and the “subscription fee” simply free money for the company, because they already charged you for the hardware? How many years have seat heaters been standard in every Bimmer, vs an option? If the feature has been standard, the cost is built in to the price of the car, and the “subscription” is nothing but a money grab.
Steve
It’s common with software. Also common with media packages (like cable bundles), where certain features/channels are only available if you pony up more dough. I was trying to think of a physical object analog.
Dunno. It might even be neither of those two things. From the below article, BMW might already have been including that hardware in the seats for all cars for quite some time - only activating it if the consumer selects the option at time of purchase.
In which case, this would indeed be something like what btresist was describing - something that was always there in a lot of vehicles, but bricked by software unless you paid for it. They would just be adding the option to pay for it over time in a subscription, rather than up front.
I think that is the exact opposite of what Tesla will want. I think Tesla wants you not to have to look at the road, touch your foot to pedal or steer the car. Tesla wants you on a computer surfing and shopping on your commute.
Microsoft used to allow everyone to bootleg. Sure there were warnings but most of us could get a copy from a friend. We were on Microsoft’s opioids.
The long game Tesla is rivaling Google search, Amazon shopping, Netflix and Microsoft workflows as you travel with your family.
Steve, Your Tandy & Kornfeld references exactly echo my own memories of the evolution of the stores. Thnx. I remember the time in the 90’s when I went to a Radio Shack to buy some resistors and capacitors for a small project and was stunned on being told that “we don’t do that anymore”. Off I went to the closest successor, Fry’s in Silicon Valley, where my big brother lived.
And you are correct about how quickly the RIAA standard overwhelmed the “competition” as the big European guys (EMI, Telefunken, etc) all folded and went with the USA almost immediately. I think we had one weird German record that was manufactured to some other spec.
david fb
Whoever told you that was lying. I had employees at RS that, if a customer was after small parts, would play stupid, and fob them off on someone else, because small parts were seen as a lot of work, for very little money.
I took some pix when my local RS closed. This store had survived the initial cull when RS went BK in 15. The company was bought by, iirc, General Wireless. Their attempt to save the chain failed two years later, and the rest of the company owned stores closed.
In this pic, the drawers visible on the right are full of small parts. If I zoom in on the original pic, I can see that the drawers are labeled “resisters”, “potentiometers”, “capacitors”, and so on. The items in the brown bags in the upper left corner of the pegboard are kits. Back in the 80s, RS had a lot of little electronic toys, like the “executive decision maker” and the “pocket Simon”. Those brown bags were those toys, and some other items, in kit form, with the circuit board and parts, but not the outer case. They had some legitimately neat stuff in there, but it wasn’t enough to sustain the company, when the cell phone operators stopped subsidizing them.
How much is Microsoft tightening it’s grip, and how much is advancing technology, that enables Microsoft to tighten it’s grip? Win 8 and later writes the OS license number into the computers BIOS. iirc, every time the OS connects to the update server, it reports the license number, and the update server looks for duplicates of the number being reported. Did that technology exist in the days of Win 98?
Steve
That approach fails the smell test, that the customer had not paid for the hardware when they bought the car. BMW could come up with something really stupid, that no-one pays the subscription for, but the company already gave away the hardware? That opens the company to suffering a drop in GP. Management would need to be pretty stupid to make itself vulnerable to a failure scenario. Not likely to happen. The only logical scenario would be to bury the cost of the hardware in the price of the car, and the subscription fee is free money for management. That way, management wins both ways: they get paid for the hardware when the car is bought, and they get paid more free money, in subscription fees.
Steve
Remember, cars are becoming computers on wheels. Computers have all the hardware to edit photographs or do statistical analyses. But to “unlock” those functions you have to buy/subscribe to the software. Same with smart phones. The iPhone has processors with functionality far in excess of what is needed for basic communication. To access that functionality one has to buy software. Customers accept that.
The same will be true with cars. Cars will have far more functionality than simply getting from point A to point B. To get that functionality, you will have to buy the software.
They could, but that’s apparently not this case. Per the article, nearly all people who bought BMW’s were already choosing the heated seat option anyway - close to 90%. So apparently BMW was just going ahead and including the hardware in most of their vehicles, and activating it for the 90% of people who paid for the option. That’s a relatively low risk scenario for them.
IOW, they were already doing the “weird” part of this scenario - installing a component regardless of whether someone would pay for it, and bricking it if someone didn’t pay up. They went ahead and did that because they had such a high take rate.
All the subscription fee does in this scenario is change how the payment is made. The hardware was already there, and they were already gating it by software rather than installation. Now, though, you can try it out for a limited time - or change your mind and buy the option even if you (or a prior owner) didn’t select it at the time of initial purchase.
It is unusual. Not exactly “bricking” but IBM did this with mainframe computer upgrades back in the IBM 360 days. They would install, for example, extra memory in all machines and when you paid for the upgrade your service guy would open a cabinet, flip a switch, maybe run some software and your upgraded machine would be all set. This prevented companies from needing to wait for a memory module to be shipped …there was no Fedex back then.
Mike
Oh Tesla in some ways will tighten its grip from day one. Other companies opioids wont be allowed. But only much later will Tesla up its prices to consumers.
What is a decade for us older pharts?
But it’s not really an analog.
You have access to 100% of the hardware of a phone or computer the day you buy it. All the functionality is available to you. Nothing is bricked or gated. Yes, you have to buy software to run on it (though a lot is bundled in the initial purchase of the phone). But you don’t have to pay more to the phonemaker to get access to the hardware.
When I bought my first turntable record player, obviously I had to buy records to play on it in order to get any utility from it. But the features of the record player - to play records - were all, 100% available to me from the date of purchase.
Yeah, but the main point of the car will still be to get from point A to point B. Cars have always been able to do some other things - they’ve had radios in them for decades - but those things were always accessory uses to the primary purpose of the car. They weren’t “sound systems on wheels” - they were cars that happened to have radios in them.
You know where that’s going - my usual refrain that cars aren’t becoming computers on wheels, just cars that have more computers in them. Because the main purpose of the car isn’t computing, it’s transportation. Computing will be an important part of how the car does its job of transporting. It already is - there’s chips in almost everything, from the engine to the air bag. But unlike phones, where it’s the software and not the case that is the true functionality of the phone, the functionality of the car is as a physical object that can transport you in real world space.
There’s all sorts of hardware that people purchase up front, but that hardware is only useful (or fully useful) if they pay a annual/monthly subscription fee.
Examples include -
- Home alarm systems
- Cell phones
- Certain exercise equipment (peloton, echelon, etc)
- Cable modems
Some of these have been around for a long time (home alarm systems, for example)
Yes - that’s the type of thing I was reaching for! Though as I think about it, it’s still not a perfect analog. You still have to pay for the hardware - it just requires a subscription also. It’s not a situation where they give you the bricked hardware without additional charge in hopes that you’ll pay a sub to activate it.
With a home alarm you are paying for the monitoring service. A couple decades ago you would have to pay for the hardware and subscribe to get the monitoring, you could just buy the hardware, I suppose, but it was useless without the monitoring service.
You can now buy hardware and choose to have a monitoring service too, but even without that service the hardware is useful for its primary purpose: it will activate an audible alarm or chime whenever a window is opened or whatever.
I don’t see this as an analog to “heated seats” because you are paying for the hardware and it serves no function without the subscription.
With Peloton, Echelon you are getting an enhanced service, but if you stop your subscription you can still ride the bike, you just don’t get all the spiffy videos and such. Again, not the same.
The cable modem is the hardware, but you are free to substitute your own. You still have to pay for bandwidth, but that has been true since the beginning of the telephone system. That they bundled the phone and service was an artifact of a different era, and was eventually ended by regulation. Again, I don’t see how you bring your own car heated seats, so the comparison fails.
I note that upthread BMW got such pushback over trying to charge a subscription for Apple Car Play that they stopped doing it. I suspect the same will happen (already has) for silly things like “heated seats.” Significant software which requires continual monitoring and upgrading - such as self driving - will probably be different, but not a lot else.
You can charge for satellite radio because everyone understand there are salaries to be paid and music rights to be bought, but heated seats? Not.
No matter how many times you say this you will not convince anyone, because it’s just wrong. Refrigerators and stoves, home heating units and power tools, golf carts and toasters all have increasing amounts of computerization and chips but they are not becoming computers either. Cars are transportation. They use many inputs to achieve the purpose: electrons or hydrocarbons, brake pads and headlights, and yes chips. But they are not computers, nor “becoming”, nor remotely resembling.
It’s worse! ADT, for example, has some terribly underhanded business practices. They literally trick people into “buying” their system “on credit” and trapping them into a long-term contract with hefty monthly payments, both for their service and for their hardware. So they make it SEEM like they are providing the hardware, but in reality you are still paying for it … over time.