Hardware Upgrades Offer New Opportunities

on May 18, 2016
Reading Time: 3 minutes

Software upgrades are commonplace. We have them in apps, video games, computer software. Pay an additional amount and the products can seamlessly acquire new capabilities.

Now, there’s an equally seamless hardware upgrade: Tesla will upgrade the battery in an owner’s $71,000 Model S70. The owner pays an additional $3250 for the company to do an over the air upgrade to activate an additional battery that’s built into the car. Once activated, the 240 mile range electric vehicle increases it to 260 miles, turning the car into a Model S75.

No, they don’t teleport the battery over the air. It’s already built into the car. You might think Tesla shouldn’t charge extra for hardware that’s already there. But actually, it’s quite ingenious. A clever way for Tesla to sell their car at a slightly lower price, knowing they’ll recoup a profit from many of the buyers later on.

It also allows Tesla to produce fewer variations of the car, simplify the design, and eliminate the labor and inconvenience of installing an upgraded battery. But its biggest advantage might be customer satisfaction: giving the owner a way to improve his driving distance with a phone call or tap on the display.

Is this the beginning of something new? Just imagine how hardware upgrades, or “in-hardware purchases (IHP)”, might offer designers and marketers all sorts of new possibilities. A company could sell a phone or computer with built-in memory that can be expanded with an online purchase. Cameras could have features turned on for an extra charge, such as increased resolution or a wider zoom range. Tablets and computers could have built-in cellular modems in all of their models. An over-the-air purchase would turn on the cell service.

Yes, these add costs to the bill of materials, but that’s offset by simplifying the supply chain, reducing inventory and shortening the buying decisions. Additionally, the new revenue stream of after-sale purchases provides a competitive advantage and customer convenience.

There’s also a precedent for Tesla’s IHP. GM cars offer OnStar that, when activated, turns on a built-in cellular modem to connect and make calls. There are probably numerous other examples we’ve just not noticed.

Building in extra hardware that can be enabled after the purchase can not only be done for making a new sale but also to improve performance. The Chevy Volt is powered by a battery that typically needs to be recharged 5-7 times per week, depending on the owner’s driving habits. But, just as they do on our phones and computers, Li-Ion batteries deteriorate after successive charges. Chevy solves this issue by only using 10kWh of the Volt’s 16.5kWh battery capacity. This allows the car to maintain the same driving range on the battery, even as it degrades with use. As the battery’s capacity diminishes, more cells are turned on, maintaining the same performance for the life of the car.

Imagine if Apple or Samsung did this with their phones. Instead of a battery needing to be replaced after 2-3 years, just turn on a spare cell to maintain the original performance.

But IHP applies to more than just tech hardware. Several trends are at work that make hardware upgrades more practical. More devices are connected than ever, particularly in the IoT area, and the cost of hardware is falling, with computers-on-a-chip costing under ten dollars and large displays not much more; tablets cost as little as $25.

Companies need new sources of revenues after the initial purchase, beyond just offering an extended warranty. Appliances, such as refrigerators, washers, dryers, and HDTVs could come with a built-in computer, display, speakers, or an Echo-like device activated as an option by the customer. That provides an aftermarket sale direct to the manufacturer plus the option of recurring revenue.

The opportunities are endless and only subject to the imagination of engineers and marketers.