Service Innovation in the Automotive Industry: From Vehicle Manufacturer to Mobility Provider

440 billion euros in value creation are at stake for the European automotive industry by 2035 — not from new engines or better body designs, but from new services.¹ BMW earned over one billion euros in 2025 solely from selling software features via app.² At the same time, Volvo discontinued its much-praised “Care by Volvo” car subscription in October 2024 — after years as a showcase model for automotive servitization.

The automotive industry is becoming a service industry. But this transition does not happen automatically. It requires a new discipline: the systematic development, design, and scaling of new mobility services — in other words, service innovation.

This article presents the servitization stage model, four arenas of service innovation in the automotive sector, analyzes DACH case studies through a service innovation lens, and gives you a methodological toolkit for developing new mobility services.

Servitization: The Stage Model of Transformation

Servitization describes the transition from product manufacturer to service provider. Genzlinger et al. modeled this process for the automotive industry in five stages:³

Stage	Description	Example
1. Product + basic service	Maintenance, warranty, financing	Classic dealership model
2. Product + extended services	Connected diagnostics, fleet management, predictive maintenance	Bosch Connected Mobility
3. Product as a service	Subscription models, leasing with service packages	KINTO (Toyota), Care by Volvo (discontinued)
4. Service replaces product	Car sharing, ride pooling	MOIA, Free2move, Miles Mobility
5. Service ecosystem/platform	Multimodal integration, MaaS platforms	Deutschlandticket, ADAC Vision 2040

Each stage demands different organizational capabilities. You cannot skip a stage — and this is precisely where most OEMs fail: they try to jump from stage 1 directly to stage 4 without having built the necessary service design competencies.

Den Hertog’s six-dimensional model of service innovation makes visible what changes at each stage transition:⁴

• Stage 1 to 2: New customer interface (Connected Car app), new technology base (OTA updates)
• Stage 2 to 3: New revenue mechanism (subscription instead of one-time sale), new organizational form (service operations instead of sales management)
• Stage 3 to 4: New service concept (access instead of ownership), new value delivery system (platform instead of distribution chain)
• Stage 4 to 5: All six dimensions change simultaneously — ecosystem integration

Four Arenas of Automotive Service Innovation

Arena 1: Connected Car Services

The software-defined vehicle (SDV) is becoming a service platform. 309 models from 23 brands were OTA-capable in 2023 — up from 33 models from 5 brands in 2018.⁵ The global SDV market is projected to grow from 475 billion dollars (2025) to 1.6 trillion dollars (2030).

VW Connect / One Digital Platform (ODP): The Volkswagen Group invested 3.5 billion euros in its digitalization strategy. CARIAD is developing the One Digital Platform as a group-wide, cloud-based platform connecting vehicle, customer, and services. VW Connect offers battery monitoring, remote charge control, navigation, and vehicle health reports — free for ten years with new vehicles.⁶

BMW Functions on Demand: Most BMW models in 2025/2026 come equipped with remote start, Drive Recorder, and adaptive suspension control — unlockable via app after a one-year trial period for around 10 dollars per month. The result: over one billion euros in revenue from digital service activations.

Audi Functions on Demand: Post-purchase software upgrades for 80 dollars per month or 800 dollars per year. The Audi Application Store expands the offering to music, video, gaming, navigation, and charging.⁷

Arena 2: Mobility as a Service (MaaS)

MaaS integrates various mobility offerings into a single, user-centered platform. The global MaaS market stood at 195 billion dollars in 2024 and is projected to grow to over 4 trillion dollars by 2033.⁸

MOIA (VW Group): Since 2019, the ride-pooling service has carried over 11 million passengers in Hamburg. In 2025, MOIA made a strategic pivot: from operator to technology and system platform provider. The autonomous ID. Buzz pilot operation with Mobileye technology launched in mid-2025 with 25 vehicles, with regular service starting at the end of 2026.⁹ Operations in Hanover were shut down to focus on the autonomous platform business.

Deutschlandticket: 13.5 million users demonstrate what radical simplification as service innovation can achieve.¹⁰ The innovation is not technological but conceptual: a single ticket for all local public transport in Germany replaces hundreds of fare zones. According to Gallouj, this is a recombinative innovation — existing elements (public transport, subscription model, digital distribution) are assembled into a fundamentally new service. 12 to 16 percent of all Deutschlandticket trips replace car journeys — a measurable modal shift.

Car sharing in Germany: 45,400 car-sharing vehicles (January 2025). Market leaders in the free-floating segment: Miles Mobility, Free2move (Stellantis, which absorbed ShareNow), Sixt share. Stellantis considered selling Free2move in 2025 — a signal that OEMs underestimate the operational demands of service business models.¹¹

Arena 3: Platform and Ecosystem Services

The vehicle is becoming an ecosystem node. VW/CARIAD is partnering with HARMAN to build an in-car app ecosystem through the Ignite Store.¹² The platform logic: the OEM alone does not develop services; instead, it creates the infrastructure on which third parties can offer services.

Roland Berger’s Connected Services Study shows: the blocker “too few connected vehicles” dropped from 84 percent (2015) to zero percent (2025).¹³ The technical prerequisite is met. What is missing now is the service design competency to create real customer value from connectivity.

Arena 4: Public Mobility Innovation

Flix SE (FlixBus/FlixTrain): Over 2 billion euros in revenue, 81 million travelers (2023). The platform model is the real innovation: Flix owns neither buses nor trains but orchestrates a partner network across more than 40 countries on 4 continents. FlixTrain is doubling its fleet in 2025 with 65 new high-speed trains.¹⁴

ADAC Transformation: From roadside assistance provider to “central mobility platform.” The ADAC Mobility Lab in Hamburg tests digital customer interaction. The Vision 2040: intermodal mobility with connected transport modes.¹⁵

DACH Case Studies Through the Service Innovation Lens

VW/MOIA: From Operator to Technology Platform

MOIA’s transformation can be analyzed using den Hertog’s six dimensions:

• New service concept: From “we operate ride pooling in Hamburg” to “we enable autonomous mobility for cities and public transport operators”
• New customer interface: The customer is no longer the passenger but the city or public transport operator
• New value delivery system: Licensing model instead of fare revenue
• New revenue mechanisms: B2B platform license instead of B2C fares
• New delivery system: Autonomous vehicles with Mobileye technology
• New organizational form: From 1,500 drivers in two cities to a technology company

BMW Functions on Demand: Why Post-Purchase Activation Works

BMW’s billion-euro success shows how service innovation in the connected car space works:

1. Low entry barrier: A one-year free trial period creates habit formation
2. Granular pricing: 10 dollars per month is trivial for the target audience
3. Immediate value delivery: OTA activation in seconds, no workshop visits needed
4. Data feedback loop: BMW learns which features are in demand and develops accordingly

Viewed through Gallouj’s taxonomy: BMW is pursuing formalized innovation — existing vehicle functions become a new service through a new delivery model (software activation).

Volvo Care by Volvo: Why Subscription Models Fail

Volvo discontinued Care by Volvo in October 2024 — despite industry praise and its pioneering role.¹⁶ The analysis from a service innovation perspective:

• Lack of service operations competency: Volvo is a manufacturing operation, not a service company. Fleet management, damage processing, and contract flexibility require fundamentally different capabilities
• Revenue pressure: Subscription models tie up capital long-term and deliver lower margins than sales plus financing
• Organizational incompatibility: Sales management, dealer network, and service organization were not aligned with subscription logic

The lesson: Business model innovation without building the necessary service capabilities does not work. Servitization stage 3 requires competencies that a stage-1 company does not possess.

What Traditional OEMs Get Wrong: Three Structural Problems

Problem 1: Technology Before User Needs

OEMs start with SDV capabilities and then ask: “What services can we build on this?” The service design approach works the other way around: “What unresolved mobility needs exist, and what technology do we need to address them?”

Problem 2: Transactional Thinking Instead of Relationship Design

Automotive sales are transactional: sell the vehicle, close the financing, acquire the next customer. Service businesses require relationship design: How do I shape an ongoing interaction that delivers value to the customer over years?

Problem 3: Silo Organization vs. Service Ecosystem

Engineering, sales, digital, and aftersales operate in separate silos. But a connected car service demands that all departments work together: from feature design (engineering) to marketing (sales) to continuous operations (digital) and physical maintenance (aftersales). Embedding service design in organizations describes how organizations can overcome these silos.

Service Design Tools for the Automotive Industry

Service Blueprint for Connected Car Services

The service blueprint visualizes a connected car service across its layers:

• Frontstage: App interface, in-car display, push notifications
• Backstage: OTA update pipeline, data processing, personalization algorithms
• Support processes: Cloud infrastructure, security updates, dealer integration
• Physical evidence: Vehicle hardware, sensors, connectivity module

Customer Journey Across the Ownership Lifecycle

Customer journey mapping in the automotive context does not map a single transaction but the entire ownership lifecycle: configuration, purchase, first use, service activation, maintenance, upgrade, return/trade-in. At every point, opportunities for service innovation emerge.

Multi-Stakeholder Design: Shaping the Ecosystem

A mobility service involves more actors than a product: OEM, dealer, charging provider, insurer, city/municipality, public transport operator. Multi-stakeholder design ensures that all perspectives feed into the service design — not as an afterthought, but from the start.

From Strategy to Execution: A Service Innovation Roadmap

Phase 1: Identify Service Opportunities

Where does the current customer journey break down? What mobility needs remain unresolved? User research provides the answers — not market research from a distance, but ethnographic observation and contextual interviews.

Phase 2: Service Prototyping and Testing

Service prototyping in the automotive context means: Minimal Viable Service, not Minimal Viable Product. Test the service flow before you build the technology. A concierge prototype of a connected car service costs a fraction of a full backend development — and shows faster whether customers would actually use the service.

Phase 3: Service Operations Design

The phase most OEMs skip. Who operates the service day-to-day? How are failures handled? How do you scale? Volvo’s Care by Volvo failure shows: without service operations design, no service business works.

Phase 4: Scaling and Ecosystem Integration

From a single city to a national rollout, from a single service to a platform. MOIA’s pivot shows the way: do not scale yourself, but offer the platform on which others can scale.

Outlook: What Changes by 2030

Roland Berger warns: MaaS trends are concentrated in the largest metropolitan areas — regions that account for less than 10 percent of all passenger car kilometers.¹⁷ The rural and suburban mobility challenge remains unsolved. This is where the next service innovation opportunity lies.

Autonomous mobility: MOIA’s autonomous ride-pooling pilot in Hamburg starting at the end of 2026 marks the beginning of a new era. But autonomous vehicles are only the technology — the service around them (booking, routing, accessibility, sense of safety) has to be designed.

Aftermarket redistribution: McKinsey projects that over 100 billion euros in aftermarket profits (30 to 40 percent) will be redistributed by 2030.¹⁸ OEMs that understand aftermarket business as a service design task rather than spare parts logistics will dominate this market.

Conclusion: Mobility Is a Service Design Problem

The automotive industry does not have a technology problem. SDVs, OTA, connectivity — the infrastructure exists. What is missing is the competency to design services from this infrastructure that customers use and are willing to pay for.

The winners will be the companies that treat mobility as a service design challenge, not a technology project. Those that master the service innovation process: from needs identification to service prototyping to building the service operations capabilities that make the difference between BMW’s billion-euro revenue and Volvo’s subscription failure.

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Frequently Asked Questions

What is service innovation in the automotive industry?

Service innovation in the automotive industry is the systematic development of new services around mobility — from connected car services to subscription models to multimodal platforms. It goes beyond technical vehicle development and encompasses the design of new business models, customer experiences, and service ecosystems.

What does servitization mean for automotive manufacturers?

Servitization describes the gradual transition from pure vehicle sales to offering mobility services. The five stages range from product with basic service (maintenance, warranty) through extended connected services and subscription models to the complete replacement of the product with a service (e.g., ride pooling) and integration into mobility platforms.

What are examples of successful automotive service innovation?

BMW Functions on Demand (over 1 billion euros in revenue from app-based feature activation), the Deutschlandticket (13.5 million users through radical fare simplification), MOIA’s transformation from ride-pooling operator to autonomous mobility platform, and Flix SE’s platform model (2 billion euros in revenue without owning any vehicles).

Why do car subscription models fail?

Subscription models require service operations competencies that manufacturing businesses do not have: fleet management, damage processing, contract flexibility, continuous customer relationship management. Volvo’s Care by Volvo failed because sales management, dealer network, and service organization were not aligned with subscription logic.

How can OEMs use service design?

OEMs can create service blueprints for connected car services (frontstage/backstage/support), apply customer journey mapping across the entire ownership lifecycle, and use multi-stakeholder design for mobility ecosystems. The critical step: start with unresolved user needs, not with technological capabilities.

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Footnotes

1. McKinsey: A new era — An action plan for the European automotive industry (IAA 2025). Up to 440 billion euros in value creation and 150 billion euros in annual investment in e-mobility and software-defined vehicles. ↩

2. Industry reports and JD Power: BMW Digital Premium. Over 1 billion euros in revenue from app-based option sales in 2025. ↩

3. Genzlinger, F., Zejnilovic, L. & Bustinza, O. F. (2020): Servitization in the automotive industry: How car manufacturers become mobility service providers. Strategic Change, 29(2), Wiley. Supplemented by Handelsblatt Research Institute/ServiceNow: Servitization in the Automotive Industry (2024). ↩

4. den Hertog, P., van der Aa, W. & de Jong, M. W. (2010): Managing Service Innovation. Journal of Product Innovation Management, 27(5), pp. 700—715. Applied to automotive servitization stages. ↩

5. Industry data: OTA-capable models grew from 33 (2018, 5 brands) to 309 (2023, 23 brands). SDV market: 475 billion USD (2025) to 1.6 trillion USD (2030), 27% CAGR. ↩

6. VW Newsroom: Volkswagen’s Digital Transformation Gathers Speed. CARIAD revenue +30% in H1 2025. HARMAN partnership for Ignite Store in-car app ecosystem. ↩

7. Audi Digital Services: Functions on Demand, Application Store (MY26). Audi Connect CARE included in every new Audi. ↩

8. Grand View Research: Mobility as a Service Market Report. Global MaaS market 195.2 billion USD (2024), projected to 4,013 billion USD (2033), 40.1% CAGR. ↩

9. MOIA: Autonomous ride-pooling pilot with Mobileye in Hamburg, 25 vehicles mid-2025, regular service end of 2026. Hanover operations shut down July 2025. New licensing model for cities and public transport operators. ↩

10. VDV/Deutsche Bahn: 13.5 million users (May 2025), study with 200,000+ respondents. Price increase to 58 EUR (2025), then 63 EUR (January 2026). Cancellation rate dropped from 8% to 5.75%. ↩

11. BCS: 45,400 car-sharing vehicles in Germany (January 2025). Free2move: 10,000 vehicles, revenue target 700 million EUR. Stellantis considered selling Free2move (October 2025). ↩

12. VW Group/CARIAD: One Digital Platform (ODP) as group-wide cloud-based platform. HARMAN Ignite Store for digital revenue streams. ↩

13. Roland Berger: Connected Services Study. Blocker “too few connected vehicles” dropped from 84% (2015) to 0% (2025). ↩

14. Flix SE: Over 2 billion EUR in revenue, 81 million travelers (2023), 40+ countries, 4 continents. FlixTrain doubling fleet in 2025: 65 new high-speed trains, 100 modernized intercity coaches. ↩

15. ADAC: Mobility 2040 — digitally organized and individually connected. ADAC Mobility Lab Hamburg. Digital Innovation Management develops and tests new mobility platforms. ↩

16. KBB/Industry reports: Volvo discontinued Care by Volvo in October 2024. Toyota KINTO expanded simultaneously (July 2025) with business customer offering. ↩

17. Roland Berger: New Mobility — The radical transformation of an industry. MaaS trends limited to largest metropolitan areas (<10% of passenger car kilometers globally). ↩

18. McKinsey: New business models for the automotive industry. Over 100 billion EUR in aftermarket profits (30—40%) will be redistributed by 2030. ↩