Much as PC vendors count on new software to boost hardware sales, auto makers are increasingly placing their bets on in-vehicle services as a way to increase profit margins on new auto sales.
Here at the Consumer Electronics Show (CES) this week, several auto giants offered up their latest enticement: satellite-based radio technology.
Hugh Panero, CEO of XM Radio, a wholly owned General Motors Corp. subsidiary in Washington, announced here that in its first year of operation, XM had 30,000 subscribers paying US$9.95 per month for its in-vehicle cable radio system.
Meanwhile, DaimlerChrysler AG and Ford Motor Co. plan to launch its competing Sirius Satellite System in February. A national rollout of service will take place on Aug. 1, priced at $12.95 per month.
Both systems offer hundreds of genre-specific music, news, and talk stations, mostly commercial free. Differences between the two systems, other than the monthly fee, are minimal.
XM claims 30 commercial-free channels out of a selection of 100 while Sirius says 70 of its 100 stations will be commercial-free.
Each claims better and more original programming and each company even has its own national business publication awarding it product of the year. Fortune Magazine named XM the product of the year, while Time gave the honor to Sirius.
Although the subscription to satellite radio for either may seem like a drop in the revenue bucket to an industry with sales totaling nearly half a trillion dollars, the strategy is not targeted at the sub-$20 fee, at least not at first.
Penaro said XM is looking to make the cable service two-way so that listeners might hit a single button on the radio when they want to buy the CD of the artist they are listening to.
Excess bandwidth might also be leased to enterprise-level companies for its own VPN.
"Direct TV does something like that and we are looking into it, but we want to get the initial service in place first," Penaro said.
Beyond the service, however, there is plenty of money to be made for the manufacturers on the sale of the hardware, according to a spokesman at Serius.
"You can sell it as an after-market product, but the big win for XM and Sirius are cars that are coming off the line. The cost to the auto maker is not very large," said Darren Brand, a Serius spokesman.
But in the after-market for the auto industry, which is for sales of options after a car is already purchased, is also a multibillion dollar part of the auto industry and the competing services each have their own hardware OEMs making after market products for the two systems. Neither service will work on the competing products hardware.
XM has Sony, Pioneer, and Alpine making units that start at about $200 while Sirius has Kenwood, Jensen, Clarion, and Panasonic making products.
Sony and Panasonic will both make units that can be unplugged from the car and used in the home.
General Motors will roll out 20 models in addition to its Cadillac line over the next year while BMWs will be the first to offer Sirius Radio as an option, followed by DaimlerChrysler models and Ford.
All units also include regular AM and FM radio stations antennas.