The Internet of Things has been heralded as the Fourth Industrial Revolution because it will underpin every industry and most daily behaviours that we take for granted.
It will be a world of big data, real-time analysis, and personalization. You may be shocked to learn that less than 30% of businesses generate service revenues from their IoT solutions according to this Capgemini report.
As we enter 2019, it is important to understand that "Digital Native" companies start at monetization and work their way back. For example, Uber started with a mobile monetized platform and worked their way back scaling their drivers and cars as they went.
For all of the opportunity within the IoT landscape, there are substantial challenges to achieving success. As noted by the team at Kualitatem, there are significant obstacles to overcome, one of the most important being business models and monetization.
These IoT monetization opportunities are attainable today—and they will certainly mature alongside the IoT market.
Selling Ongoing Services as Recurring Revenue Products
Given the amount of information at our fingertips with the Internet of Things, that revenue model just doesn’t optimize the return on investment for those sales.
For one, it requires the customer to make a conscious effort to return to the point of sale, repeatedly going through all of the barriers to entry.
Additionally, companies need to go through the entire process of producing, shipping, advertising, and selling for each item, despite leveraging economies of scale through mass production and national marketing campaigns.
The Internet of Things can (and will) turn this system on its head by selling physical products packaged with ongoing software services to create steady and reliable revenue streams.
Products themselves will become gateways to ongoing subscription services, requiring only the occasional hardware update.
An excellent is Google's Nest Camera and Smart Home System. The camera itself retails for approximately $199 USD, this very popular indoor home security camera also offers their customers an upgraded Nest Aware option for 10 or 30 days of video cloud storage starting at $100/year.
Nest has elegantly managed to create a diverse smart home eco-system with numerous subscription and usage based billing options for their customers.
IoT Products as Services Exist Already
These kinds of revenue models are already on the market.
As we just mentioned, Nest is the best-known example—a piece of hardware that really just enables the consumers to connect multiple aspects of a home through a subscription service.
You can also see the product-as-a-service model in Trackimo, a personalized GPS tracker for cars, pets, and even dependent family members.
The company acquires customers through the initial sale of the product, yet sales continue on a monthly basis through an affordable GPS subscription service.
The company needs to conduct sales and marketing campaigns to acquire the customer only once, lending itself nicely to the scalability of the Internet of Things.
The model is really just the software-as-a-service model paired with physical products.
There are several benefits to model aside from the cost savings of customer acquisition:
- Customers no longer need to re-evaluate a company’s value with every transaction.
- Companies can offer competitive product pricing to acquire new customers.
- Monthly (or usage/outcome-based billing) becomes normalized.
- Service disruptions become minimal.
This will become the new normal for automobiles, appliances, and homes, and the industry is just getting started.
Competitive, Outcome-Based Usage Models Over Static Subscriptions
The IoT market has brought with it a new revenue model to raise the competitive bar for all service industries, and it’s outcome-based billing.
Standard subscriptions lock people into repetitive usage patterns, preventing them using more than what a rigid plan allows.
They also expose service providers to the risk of customers who don’t fit into any pre-made plans.
Generations Y and Z are more financially conscious than Baby Boomers, demonstrating conservative spending habits more closely aligned with the Silent Generation of the Great Depression.
Service providers cannot rely on emerging generations to pay for what they don’t need. Many of them will discontinue a service if they feel they aren’t being billed fairly.
Outcome-based billing models solve this problem because it automatically connects real-time usage to specific and affordable rates.
Which Companies Should Adopt Outcome-Based Billing?
The first providers to offer this model will gain a distinct competitive advantage in the market, and it won’t be for novelty industries alone.
This usage-based revenue model will come to reshape telecommunications, television, music subscriptions, GPS services, energy service providers, and transportation.
If you can think of a scalable service, then it will eventually follow the outcome-based revenue model.
Even industries like insurance will adopt it, because they will be able to offer preferred rates to drivers with demonstrably safe driving habits. Drivers who refuse to use winter tires, change the oil, or replace their brakes will get lower rates than those who maintain their vehicles.
Similarly, the energy industry will likely be disrupted by the first company that can offer the most competitive rates, rewarding people who conserve energy and use on off-peak hours.
Monetizing B2C Consumer Data
IoT business models don’t need to limit themselves to a single revenue stream, nor should they.
Companies can monetize demographic, usage, and behavioral data at scale that would be welcomed by marketers and advertisers in just about any industry.
This is the revenue model that transformed Google and Facebook into wealthy organizations, and it will become a part of every consumer-facing industry that involves connected devices.
Not only can that data be used to drive sales directly, but it also be analyzed for research and development, customer service representatives, and user experience designers.
Understanding when, where, how, and why consumers use certain products (or not) will shape the way that companies around the world conduct business.
Such sales data will be especially useful for original equipment manufacturers (OEMs) who want to know how their products perform in real-time. With the right IoT billing platform in place, they would be able to analyze that big data in real time to improve their products.
Turning Cost Centers into Profit Centers
Building on the product-as-a-service model, businesses have the opportunity to turn former cost centers into profit centers in major industries.
The auto industry has run on a single-sale model and the occasional service retainer up to this point, this doesn’t need to remain a model where service is consolidated.
For example, automakers can increase the price of a single car with the perceived value of an added SIM card for connectivity.
The mobile carrier for that card charges the automaker, and—once the vehicle is sold—the automaker can bill the consumer on behalf of the mobile carrier while still turning a profit.
This entire process can take place without the the mobile carrier billing the automaker until the car is transported to the dealership for a live demonstration for the end consumer, cutting unnecessary up-front costs and creating an ongoing revenue stream at the same time.
Customers can cover the cost of service by paying for the added value of the SIM card, and then become an ongoing revenue stream for the automaker even though the mobile carrier provides the network infrastructure for the connected car.
Shared Asset Monetization
One of the most interesting revenue models of all follows the sharing economy.
Consumers don’t want to pay for something if they don’t need it, as we’ve observed with Generations Y and Z. The IoT market is poised to let us share expensive assets with others, letting people shoulder only a part of the bill for what they need.
The most visible example of the sharing economy would be vehicles.
Personal vehicles represent the second-highest cost in the average household. They require monthly payments, weekly fuel top-ups, quarterly oil changes, regular maintenance, and replacement parts tend to be expensive. Even parking costs have skyrocketed in urban centers.
People only drive when they need to go to work, run errands, or make social calls. That’s a lot of money for machines that spend most hours of the day standing still.
Since consumers want to pay for what they use, they will flock to the first company to make on-demand vehicle rentals more affordable than vehicle ownership by a wide margin.
We’ve seen the sharing economy applied in rudimentary models, such as Airbnb, TaskRabbit, and Lyft. The Internet of Things will take this monetization model a step further by eliminating (or mitigating) the need for human labor, rendering the model scalable with near-instantaneous results.
These revenue models represent the first wave of opportunities for the budding IoT industry, and they all require an infrastructure built for scale.
Read our whitepaper on driving profitability in the connected economy to see how you can realize your organization’s revenue model with an enterprise-grade billing solution that grows with your IoT business.