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Antti Lyyra

Kari Koskinen

February 5th, 2018

How Tesla is changing product life cycle in the car industry

5 comments

Estimated reading time: 5 minutes

Antti Lyyra

Kari Koskinen

February 5th, 2018

How Tesla is changing product life cycle in the car industry

5 comments

Estimated reading time: 5 minutes

With software updates, any product can be open-ended and continuously in the making, argue Antti Lyyra and Kari Koskinen

Traditionally cars are sold as finished and complete products. Buyers do not expect new cars to improve or change once they are rolled out of the dealer’s premises. Only occasional maintenance, software updates or repairs are carried out to keep the vehicle functional. To stay competitive, car makers introduce new models to market every four to seven years and these models are refreshed with minor functional and cosmetic changes around halfway through their life cycle.

But the status quo is being challenged by the Californian car company Tesla. Much like your smartphone, Tesla releases frequent software updates to improve and change the functionality of the cars they design and manufacture, thereby modifying cars continuously after the point of sale. To better understand Tesla’s digital innovation practices, we looked into how and how often Tesla updated their best-selling Model S and consider the potential implications of continuous development to product and marketing strategies.

The frequency and characteristics of change

We collected data from various online sources over 1344 days between June 2012 and February 2016. During this period, Tesla made five major software releases, complemented by 23 minor and 89 maintenance updates, amounting to 117 releases. The distribution of the total number of releases (117) across the period (1344 days) shows that Tesla released a new version of software for the Model S, on average, every 11.5 days.

We also examined the changes in features and functionalities and classified them into seven categories. These range from information management, such as maps and communication, to entertainment, including radio and Spotify streaming, to user interface design and self-steering.

A number of qualitative aspects captured our attention. While updates were generally aimed to improve and enhance functionality, bugs were also introduced. Some technical issues were also reported, such as flashing screens, the need for rebooting and occasional unexpected shutdowns. A few times functionality was changed or removed as a response to safety risks or regulatory intervention. For example, Tesla raised ride-height (ground clearance) when battery fires were under investigation in 2013; then, later in 2015, Hong Kong’s Transport Department told Tesla to temporarily disable the Autosteer and Auto Lane Change functionality.

There is a further advantage to Tesla’s model: as functionalities can be changed and activated by updating software, the company is able to sell additional features throughout the car’s lifetime.

Implications for product and marketing practices

Our findings show that a product, traditionally considered to be finished and complete, can become open-ended and continuously “in the making” if a company decides to adopt the modifiable character of digitally controlled components and functionality. This brings upon novel avenues and challenges for innovation and product management practices.

Notably, companies have a wider spectrum of choice in their product and marketing decisions. To lower upfront costs, a firm may decide to enter the market with a product that is good enough to get early traction, then develop, improve and maintain it until the end of the product’s lifecycle. Marketing messages could be tailored to emphasise the promise of continuous innovation and improvement instead of focusing on the finished goods.

This also offers more choice to the consumer. They may decide to purchase a product where the specification is fully known at the point of purchase, or, alternatively, to buy into a stream of updates, which not only enables new features and improves existing functionality but requires them to maintain and learn new features and settings.

While opening up choice, the idea of incompleteness and continuous improvement blurs the boundaries of control between product owners and manufacturers. After purchase, it has traditionally been the owner who decides how the product he or she owns changes. With the more iterative approach this aspect may no longer be valid. Since the manufacturer can alter a product, it also retains a significant portion of control over specifications and functionalities.

This might not be much of a problem as long the software updates are seen as improvements. However, occasionally, the verdict on whether a particular software update is considered an improvement may be open to debate. If software release cycles are short, the question as to how many updates an average user is willing to accept is another important question. Constant change may place users in a continuous learning mode, which can affect the overall satisfaction with a product. What works for early adopters may not be suitable for a more conservative clientele.

While computers and smart phones have long benefitted from continuous development, this open-endedness and modifiability is currently transforming a larger range of products. In order to bring customer needs and organisational capabilities together, product managers, marketing managers and strategists should plan for the modifiability of a product throughout its life cycle; by reflecting upon the hardware and software configurations, software development timelines and practices and cloud-based infrastructures that are required to support modifiability, as well as the legal and contractual arrangements. On the academic front, more research is needed to study the managerial and strategic implications brought upon by continuous product modification and the longevity and shift of control in customer relations.

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About the author

Antti Lyyra

LSE Fellow at LSE's Department of Management

Kari Koskinen

LSE Fellow at LSE's Department of Management

Posted In: Management with Impact

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