This article is the second in a six-part series about monetizing IoT.
The previous article addressed the key goals of efficient IoT monetization. The next step in the monetization process is understanding how to monetize your IoT offering in a structured framework. The two-part framework presented here will help you move forward. Developed with software and hardware manufacturers, it delivers monetization approaches based upon the value the customer receives from an IoT product.
What is being monetized?
The IoT Solution Stack recognizes that an IoT solution isn’t necessarily a single element, but multiple elements connected conceptually as a stack to provide value individually or collectively. The embedded software in these different elements is what provides new levels of performance, capacity and functionality, forming the foundation of new value streams. This approach recognizes that a supplier may provide and monetize products that comprise only part of the stack, or that the supplier may provide a solution that encompasses the entire stack. How much of a solution you provide will very much drive your monetization strategy.
Below is illustration of this IoT Solution Stack:
Let’s look at the elements of this stack, starting from the bottom:
Device. These are the edge devices or the “T” in “IoT.” They are the high-volume software-enabled devices that are connected via the internet. Depending upon the solution, this includes myriad phones, sensors, meters, cameras, valves, switches, systems, vehicles, scanners, medical instruments and more that are networked to form an IoT solution.
These edge devices are becoming more intelligent and flexible with the increasing role of their embedded software. One example is a medical instrument that offers various software-enabled functions along with connectivity to electronic medical databases with patient and medication information.
Gateway. In the middle of the stack are intermediate control and aggregation points found mostly in Industrial Internet of Things (IIoT) deployments. A good example is the programmable logic controller (PLC) found in manufacturing environments. PLCs usually perform device management to control a subset of the edge devices in a factory floor such as switches, valves and robots. Their monetization is often derived from the rich set of different functions they provide and the number of edge devices or data they manage.
Cloud Analytics & Control. At the top of the stack are the data aggregation, analytics, control and decision-making functions. These solutions tend to be cloud-based software that rely on combinations of big data, AI, blockchain and scalable cloud-based infrastructure technologies to make sense of tremendous amounts of data.
This level of the stack provides solutions that tend to be the “brain” of IoT networks and is used for functions such as controlling factory floors, optimizing supply chain performance, detecting defects and errors in utility networks or controlling lighting throughout a city. Value is often driven by the type of functions that are provided, scaling by the number of edge devices and data controlled and managed by this level of the stack.
As a rule of thumb, the value of IoT follows the direction of the stack; the higher up you go in the stack, the higher value the offering provides. The highest level is most aligned with producing the desired outcomes of connecting a variety of devices. Of course, given the large number of end devices in a deployment, the total dollars in a solution might be driven by the total number of edge devices.
And the highest value is achieved when the entire stack is provided by a single supplier, such as when a utility meter provider sells the entire electric, gas or water stack as a service to a municipality.
How to monetize the stack
The three dimensions of monetization form the basis for determining the structure of your monetization models. The following metrics are the underlying monetization structural elements, not buying programs or discount models to tune the actual pricing.
Revenue model. Every monetization model relies on an underlying structure for producing revenue that is designed to support a revenue-generating business model that matches the way customers want to consume the product or service. Common options include:
- A one-time, up-front model based upon physical goods and perpetual license model where there are ongoing transactions to sell new or expanded products
- A recurring revenue model based upon time or a measure of consumption (e.g. number of hours expired, number of analyses performed), where revenue is generated based upon measurements of value and usage
- An outcome model based upon achieving a specific outcome or measurable value, such as improvement in crop yield per year
Monetization metrics. Metrics define the units of usage or value that are used for individual product pricing. This allows product managers to effectively price those units of value that are important to customers based upon how they derive value from the product. Metrics are the units of value that enable a company to generate more revenue through increased use or adoption, for example, more customers using management software; more endpoints being managed by an IoT cloud analytics solution; or the amount of data processed for an analysis.
Product packaging. Product packaging discusses approaches to meaningfully partitioning your product functionality into different products or commercial units to grow revenue. This dimension of monetization considers different approaches for your products to meet varied market opportunities or to monetize the customer journey as customers become increasingly expert and want to increase the value they realize from a solution.
The third article in this series will cover monetization models — perpetual, subscription, usage, and outcome — and how to select the one that’s most suited to different offerings.
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