It’s surprising to see just how many IoT projects are built backwards when it comes to seeing a good return on the investment. They build an IoT solution and then ask “So, how do we make money?” Certainly, they’ve achieved their goal of creating something, but they’ve been so focused on what they’re trying to build that they lost sight of where the investment potential of IoT was in their business and how they wanted to make money.
We’ve also seen customers who have had a successful trial or deployment of IoT and are now tackling the next big step: a real large-scale commercial roll out, which has very different complexities.
Focus on your business model and your end user
It’s important to always keep the business model in mind, with the end customer always at the forefront of what you’re doing and why. 90% of IoT projects fail because people are building “something” without considering where it’s going to fit and who is going to pay for it. As an example, we’ve seen customers heavily invested in security, offering the most secure product on the market but it’s 4 times as expensive.
Are their end users willing to pay more for increased security? It is critical to balance heavy investment with potential return.
We see plenty of different business models and a huge range of ways that the market is monetizing IoT, including additional services that can be offered at an extra cost. We’ve also seen OEMs creating products-as-a-service and charging a monthly fee or integrating the costs into their existing contracts. Keep in mind that connecting and managing IoT is an ongoing cost, so how can you best fit that cost into your current plans?
For some customers, their previous model has been to sell their hardware once and that’s their revenue. Encountering the ongoing costs to service their IoT devices drives them rethink how they sell to their market. Another option would be leveraging your connectivity platform and selling it onwards to empower your customers to gain insights for their business as well.
Product-as-a-service brings in new revenue streams
Product-as-a-service is a hot topic within the IoT industry. Manufacturers are creating new connected products and essentially “renting out” the hardware for monthly fee, creating a recurring revenue stream by offering innovative new features that bring value to their end users. This is especially compelling for high-cost products which have a long lifetime, bringing in more revenue over a longer period of time.
As an example, an OEM sells a product to a distributor, who can then sell that product on to an end customer. That end user can request the activation of digital services, such as predictive maintenance, and pay the OEM for that feature, incurring a monthly fee for the digital platform. For many traditional manufacturers, this is a completely new revenue stream for them.
Another option is to charge per item, with each service as a separate fee or integrated into a regular maintenance fee. One thing to consider here is the price sensitivity for your customers. Monetizing your IoT solution is a fine balancing act.
And remember, there’s the incoming data which flows through your devices and networks which is valuable to analyze. You’re not just selling your service; you’re gaining insights too. By harvesting better data around device usage, you can recommend new products or upsell depending on user behavior, which opens up a whole other range of potential for income.
More efficient operations and reduced costs
A common driver for IoT innovation is the operational efficiencies which can be gained from connecting devices. You don’t always have to be selling a service or product – it could be as simple as saving time, resource and money within your business. Take the time to carefully observe which areas you’re spending the most. If you’re operating a fleet of vehicles, this could be fuel costs or maintenance. If you’re shipping goods globally, you may be investing heavily in tracking where your shipments are located. If you’re managing a factory and keeping a close eye on the performance of your machines, your largest costs could be downtime due to machine failure.
In each of these cases, an IoT solution could make all the difference in your bottom line, allowing you to monitor and track all your critical data and make important business decisions at the right time.
Talk with an expert
Ready to connect? Contact us today to discuss how Pelion can support your IoT ambitions.