When managed correctly, IoT can be hugely beneficial to your business model, increasing efficiency, reducing operational costs, improving customer loyalty, and helping you to make better and more informed decisions. But once you’ve extracted efficiencies how can the right business model help you to enhance profit margins?
Just as IoT is continuing to evolve, so too is how it is being monetized. And while some companies think about monetizing after launching IoT, an increasing number are launching products with a recurring IoT revenue model already in mind. While there is no one-size-fits-all business model for monetizing IoT, there are a number of approaches to consider. The one that will be most advantageous to you will ultimately depend on what you’re offering.
In this article, we will look at three different business models that will help you strategize monetizing your IoT solution:
- Asset sharing
Using an IoT subscription model allows businesses to generate recurring revenue through their connected devices. In other words, instead of making a one-off sale, you instead offer a subscription to your customer where a fee is charged for periodic usage, such as monthly or annually. Think of it as the Netflix model for things like health monitors or air quality monitors. Instead of selling the movie (or the machine or the product, etc.), you are essentially leasing it to the customer – and by leasing it you control the product and can offer any number of add-on benefits, such as service packages, upgrades, etc.
Subscription models also allow you to develop an active – and pro-active – relationship with your customers, because instead of throwing products out there and seeing what sticks, you are instead gathering valuable data that will help you improve your customer offering, as well as develop features for specific clients or to meet specific market demands ahead of your competitors.
Subscription models are not without their challenges, though. Offering different subscription packages, options, add-ons, and levels, and not managing those correctly and efficiently can damage customer relations. Having processes in place to track various factors such as trial period length, subscription levels and tenure, and invoicing before you put your offer on the market will go a long way towards mitigating any issues.
The good news with this model is that your customer no longer has to pay a large amount of money up front for an expensive piece of equipment that will surely depreciate in value. Instead, you own and maintain the equipment – and when it comes time to replace it, you can refurbish the old model and sell or lease it into a different market.
As-a-service models, also known as ‘outcome-based’, mean delivering the results a customer wants. While somewhat similar to the subscription model in that it replaces products that your customer used to own and operate, the difference is this: with a subscription model your customer commits to a monthly or annual fee, while with an as-a-service model, your customer is invoiced for services based on volume and/or quality.
A good example of this would be a manufacturer of water pumps. Previously, the water pump company’s business model was selling pumps and success was selling a lot of pumps. But customers don’t really want pumps, they want get water from point A to point B, and then they might also want the water to do things for them, such as cool or power something. Providing an IoT-enabled water pump means you are no longer selling the pump and are instead selling the amount of water pumped, so the customer is paying for the outcome, which also allows them to scale up or scale down as needed.
So, instead of just selling a piece of machinery and calling it a day, using the as-a-service model means the point of sale is not the end of your relationship with your customer, it is the beginning, because you will now have responsibility for the performance and maintenance of the product. This brings new requirements for your company, of course, because you now also have the responsibility for the product’s performance throughout its lifecycle, ensuring its uptime and making better use of manpower when it comes to things like maintenance.
The good news, though, is that if you do this successfully, you will have built a strong relationship with the customer and are better aligned with their needs.
We have already seen a lot of IoT-enabled asset sharing, whether that’s urban mobility e-scooters or car sharing. The idea is that instead of buying an expensive piece of equipment that the customer may not be able to utilize to its maximum capacity, customers instead share assets, thus reducing costs, increasing efficiency, and often helping to contribute to a more sustainable society.
If we look at cars, sharing this asset makes sense when you consider that 90% of the time your car is sitting in your driveway or in a parking garage, unused. If you apply an IoT asset sharing model, instead of the car sitting around unused for much of the day, you are instead selling the extra capacity back into the market, maximizing the utilization of the product across multiple customers. This results in reduced costs and even faster market penetration.
This same model can be applied to drones, bikes, and even power grids, where excess energy from smart commercial buildings can be sold back into the grid.
Of course, this model means changing behaviors, because a lot of people still want their ‘own’ car or their ‘own’ bicycle – but in cities in particular, asset sharing is taking off. Residents don’t want or need the hassle of maintaining a car in an urban environment, where parking is scarce, the value depreciates quickly, and there often isn’t a daily need to drive.
While all three of these models are related, they each have individual strengths, as well as some challenges. All of them can be – and are already being – applied to any number of business models. The key to understanding how IoT business models can be implemented for monetization is to look at your business from a fresh perspective, from a different angle. Where can you tweak your business model so that IoT not only streamlines processes but also generates new and often steady and sustainable revenues for your company, keeping you one step ahead of the competition and your eyes firmly on the swiftly evolving future?
If you would like to learn more about how Tele2 IoT can help your business, please get in touch.