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Monetizing IoT: Show me the money

Most IoT technologies are not new. Sensors, switches, actuators, chips, communication protocols, storage and other core parts of IoT have been around for decades. In reality, IoT is a remix or mashup of many things that came before. What is new are lower costs, more intelligence, ubiquitous communications and enormous new streams of data. This changes everything. And it provides revolutionary opportunities to recombine offerings producing entirely new business models, revenue streams and added value. There are plenty of new gadgets and software apps in the marketplace, but the sweet spot is in coming up with ingenious ways to assemble technologies and unlock new ways to streamline businesses, enhance customer service and improve people’s lives.

Computing trends pave the way for IoT evolution

As computing expanded from mainframes to minicomputers, the software industry was born. With personal computers and client-server technology, new retail distribution chains opened up and the “shrink wrap” software industry was born. With the introduction of mobile tablets and smartphones, subscription-based pricing models and downloadable and streaming content markets were created. Now, with the current wave of connected IoT sensors, devices and wearable technologies, we see entirely new opportunities for pay-per-use and recurring-revenue models that will once again spawn billion-dollar business opportunities. And all the data “exhaust” from these streams provide greater insights, better customer outcomes, new business models and larger revenue streams.

Driving value by engaging the entire IoT ecosystem

Although IoT embodies many industries and markets, 10 broad sectors are spearheading adoption. These include smart cars, connected homes, wearables, e-healthcare, agriculture 2.0, the industrial internet, retail stores, smart buildings, utilities and energy grids, intelligent transportation systems and smart cities.

To win in one of these sectors, you have to understand its ecosystem — in detail. That means understanding user behavior, perceived value, use cases, underlying technologies and market dynamics. And you need to be able to partner with key players as well as compete with alternatives. Each one of these areas will have different business models, pricing and monetizing opportunities. Although these sectors are distinct, IoT creates overlapping segments and new avenues for growth that provide opportunities for monetizing, competitive disruption and business model innovation.

This translates into new value propositions, significant brand enhancement and powerful ROIs. The key to success is to thoroughly analyze and identify which segments are the best match for your IoT offering. Then focus only on those that leverage your core strengths, unique capabilities and understanding of the end user. In the competitive IoT landscape, timing is critical. To ensure a swift time to market, it’s best to partner with strong and established ecosystem players that have complementary expertise and can rapidly provide more robust functionality.

It’s very rare for one company or one product to be able to offer the “whole solution.” The advantages of working with selected partners in the value chain are shared risk, lower costs, leveraged development, credibility and easier access to markets. In some cases, a partner may be the only way to break into a specific market. In others, outsourcing non-core components of your solution may also accelerate time to market. You need to think through all the potential partnerships in the value chain and nurture those that are mutually beneficial.

When hardware goes soft: Seizing new opportunities with software and remote upgrades

In the world of hardware devices, software has become critically important. Devices from the tiniest of sensors to enormous machinery are now driven by software, and billions of these “intelligent” devices are expected to connect to the already-sprawling IoT ecosystem within the next few years. The connectivity of these IoT devices creates new levels of risk for hardware manufacturers. Protecting intellectual property from theft, piracy, misuse and reverse engineering is the cornerstone of software monetization and it’s become a significant priority for IoT device manufacturers.

Secure IoT connectivity provides a path for delivering new capabilities for hardware already deployed in the field. Feature-based licensing and entitlement management software allows device manufacturers to ship the same physical product to different customers and then activate different features, functionality and price points after delivery. This type of software monetizing technology also enables remote upgrades to products already deployed over the lifetime of the device. Remote upgrading replaces the one-and-done product mentality of the past while reducing the impact of obsolescence. With flexible software-based licensing solutions, customers can use only the features they want, turn them on and off as needed and pay only for what they use. By offering alternative pricing models to customers, manufacturers of smart hardware products have found that they’re able to tap into new markets.

Enhancing and balancing the business model

The rise of connected intelligent devices gives hardware manufacturers the chance to deliver more relevant features and a better customer experience while allowing new business models like subscriptions and pay-per-use. And as the subscription economy gains traction, enterprises are using it to balance business models and move from a large one-time Capex expense to smaller Opex expenditures spread over months or years. At the same time, connectivity-enabled usage tracking provides increased transparency and business intelligence for the customer and the vendor alike. Business models based on capital expenditure, in which manufacturers charge upfront for expensive hardware (like an MRI machine) and give the software away free, are outdated and limit the marketability of their products.

To survive in the competitive IoT landscape, intelligent device vendors must accept that software is the key to differentiating their hardware solutions. They need to enhance monetization of their intellectual property by protecting existing revenue streams, reaching new customers and cutting back-end costs. Monetizing IoT successfully will occur via highly flexible business models that encompass easy licensing and entitlement management solutions. The most successful new models will align with customers’ evolving needs and build on delivering a greatly improved user experience across the long lifetime of IoT hardware devices.

All IoT Agenda network contributors are responsible for the content and accuracy of their posts. Opinions are of the writers and do not necessarily convey the thoughts of IoT Agenda.

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