After-market Onstar

You may already have ignored the announcements, but at a news conference this week General Motors announced that they are expanding their highly successful Onstar service by making an after-market version of the hands-free system available to buyers at Best Buy and eventually other retailers. I thought it was an interesting strategy and a good example of both partially repurposing something and expanding your existing customer base, which makes it worth taking a closer look…

For those of you who have never owned a GM vehicle, Onstar is less hype than it is a cell phone system built into your review mirror. It makes use of GPS technology to pinpoint your car’s location, and can be used to summon assistance from emergency services, get turn-by-turn navigation, diagnose engine issues, unlock your doors (if you lock yourself out of the car), track the people who have stolen your car (if it gets stolen), and in newer models even deactivate the engine so the police can arrest whoever has stolen your car. The hardware is built into most GM products, and the support service is usually free for the first year and then a moderate monthly fee from then on. Just exactly how much safer this makes any given car remains somewhat in dispute; it’s easy to believe that having a system that alerts Onstar operators (and eventually emergency response services) whenever one of your airbags deploys could be useful, and there have certainly been cases where the system enabled police to apprehend car thieves. But since most of these same functions can be obtained through other products, up to this point the Onstar system has served mostly as a selling point for GM vehicles…

What struck me about this new offering is that for all practical purposes, GM is making money without spending any. They already have the three Onstar monitoring centers set up, and even if these new customers start producing a heavy increase in calls it shouldn’t be that hard to increase the capacity of the system. Meanwhile, every Onstar user represents a regular monthly income, and if you want the really snazzy services like turn-by-turn navigation there’s a small additional fee each month. You can also use the Onstar system like a cell phone, assuming you’re willing to purchase the minutes. None of these are particularly big-ticket purchases, but with over 5 million active Onstar subscribers it does add up (somewhere on the order of $95 million per month at the base package price alone, and somewhere around $140 million per month if they all bought the expanded service). Now imagine if you doubled those numbers…

Even before the financial panic and bailout a few years back there were already stories about General Motors making more on car loans through its GMAC subsidiary and licensing the rights to various designs, logos and brands than it did from selling cars. With the company now planning on expansion into new markets in Asia and expanding Onstar coverage to anyone who wants it, it seems entirely possible that the service might become the next major profit center for the company. Making additional profit from sales of the equipment needed to use Onstar would just be a nice bonus; the real goldmine would be in convincing millions of people to sign up for extended service each month…

It’s not a bad showing for something that was originally created just to provide value added for people buying GM vehicles, and it leads me to wonder how many other companies could repurpose some of their value-added services to a wider market. Is there something your company does that people who aren’t even your customers might be willing to pay for on a regular basis? You might want to look into it…