Last month, Tesla revealed that it was working on a music-streaming service for its vehicles (and, presumably, other environments, such as smartphones).
Tesla has a lot going on now, from the initial rollout of the $35,000 Model 3 mass-market to CEO Elon Musk’s apparent plans to support a Hyperloop route between New York and Washington, DC. But the streaming service is particularly notable, mainly because it’s so plausible.
The service is unnamed, but we’re going to suggest “Tesla Tunes” over “Tesla Music.” Regardless of what it ends up being called — and whether Musk, evidently a fan of classic rap and hip-hop as well as certain Rolling Stones numbers, hosts his own show — it is one of the best ideas the company has had in a while.
The streaming-service concept follows on the heels of some questionable ideas, chief among them the 2016 acquisition of SolarCity, which loaded up Tesla’s balance sheet with debt and created a transportation-and-energy conglomerate that is now difficult to accurately value.
Here’s a breakdown of the brilliance of Tesla Tunes:
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1. Subscription services are lucrative.
The classic problem of the auto industry is that you sell the car once and then have to wait at least a few years before the customer returns to buy again.
For decades, car companies have worked to sell owners various add-ons, such as extended-service warranties. Since the mid-1990s, General Motors has developed OnStar, a suite of connectivity features that predates the modern infotainment system and is GM’s main way to leverage its fleet-wide 4G LTE Wi-Fi offering.
Now, with touchscreens and computers in almost every new car, the logic of offering more services linked to data and entertainment is impossible to resist. For Tesla, the model here is obviously Apple, which created a device — the iPod — and then linked it to a music service, iTunes, in which it took a 30% cut on every song sold.
That was the prestreaming world. Tesla could simply partner with Spotify or Pandora or Tidal — or some combination of all of them — or make a deal with SiriusXM, a near-ubiquitous in-car satellite radio service. There’s ample precedent for this, with many vehicles’ infotainment systems offering streaming integration.
It’s worth noting that Apple and Google are also in on the act, with CarPlay and Android Auto allowing users to connect their smartphones to their vehicles and access streaming via that route.
But under all these scenarios, Tesla would be sharing. And maybe Musk doesn’t want to share. Or perhaps he doesn’t want to concede that Tesla, in many ways a software company, can’t develop its own proprietary service and keep the entire profit margin, which could be considerable even given the hefty costs of licensing a large library of music and audio entertainment.
2. A lot of music labels would want their content in Tesla vehicles.
Regardless of what you think about electric cars or Musk himself, there’s no denying that Tesla cars are cool.
They always have been, from the early days of the first high-performance Roadster, which demonstrated that EVs could be much more than glorified golf carts.
The 400,000 preorders on the forthcoming Model 3 prove that a lot of people want in on the Tesla experience and are willing to put down $1,000 apiece for the privilege of spending $35,000 to buy the entire car two years later.
Even before the Model 3, Teslas were the favored vehicles of the Silicon Valley elite. Tesla’s cars are rolling validation of the high-risk tech ideology and evidence that a new car company could be created in the US, a feat not achieved in decades before Musk and Tesla came along.
Music streaming is very techy and very Silicon Valley: Don’t own music, subscribe. Control the platform, get other people to produce the content, and then take a fat cut of the revenue because you own the largest distribution channel and can call your shots.
This could just be the beginning for Tesla’s subscription services. Music makes for an abundantly cool start, but hundreds of thousands of customers on the road — many with respectable net worths who won’t balk at a $25-a-month charge for something desirable – are likely to have other addressable wants and needs.
3. Music streaming would enable Tesla to own another marketable flow of data.
What you listen to is a flow of data points, and that flow can be organized, monitored, diced-and-sliced, and then sold to marketers.
Tesla already keeps track of its vehicles, largely for safety reasons. But the expectation in the auto industry is that car-related data could be a huge future business with double-digit margins (building and selling vehicles yields at best 10% in good times for most carmakers) and low capital costs.
Ancillary businesses are already part of Tesla’s program, so this wouldn’t be anything new. The carmaker racks up zero-emission credits, thanks to producing no vehicles that produce tailpipe pollutants, and Tesla can sell them. Musk, however, has often complained that his company doesn’t earn as much from these sales as it should.
A subscription music business could also provide Tesla with an advertising platform, keyed to tiered pricing. For example, a basic service might host ads, whereas a higher tier would eliminate them.
See the rest of the story at Business Insider