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Key goals to help reach efficient IoT monetization

This article is the first in a six-part series about monetizing IoT.

There can be many different approaches to developing an IoT monetization strategy for any good or service. In some cases, the goal might be to penetrate a new market or segment. In others, it might be to maximize profit. You can adopt the framework explained in this series for guidance on how to approach developing and refining a monetization strategy.

Solutions don’t just deliver value and monetization based upon the underling hardware componentry, but also upon value brought by software, data and connectivity. Many IoT customers spend more money investing in their digital platform than their hardware platform, and they might need a way to better monetize those digital assets.

Fortunately, the experiences of software and hardware vendors who are learning to monetize the digital goods in their platform — such as embedded firmware and software that can enable premium level features and functions — provide valuable insight to the process.

A healthy IoT business is characterized by a model that promotes land and expand to develop new revenue streams from new customers or markets. It includes a strong recurring revenue model for existing customers, while also providing approaches to expand existing revenue streams.

In this look at monetization goals, we approach IoT monetization through the lens of some key principals. The intention is to help businesses produce healthy, growing revenue streams that set the foundation for monetization. While each company might have different go-to-market approaches, the goals below are very broad, but the nuance within them might enable different corporate strategies, such as market penetration versus profit.

Move towards software and higher margins

The value IoT provides goes well beyond the value of the physical goods or things that are connected in IoT. The value of IoT is driven by outcomes usually delivered by digital assets or SaaS approaches that include elements of firmware, software, connectivity, data and analytics. Various combinations of these elements provide ranges of value that might deliver distinct benefits to different users, companies and markets.

These benefits go well beyond a simple cost-plus model that drives physical goods monetization and pricing models.  A good example is the Nest thermostat, which can provide a range of high value functions based upon the functionality provided by the software, not the cost of the hardware. In this context, consider models adopted by software companies where monetization frameworks help develop monetization models based upon value.

Extract maximum value for premium features.

Developing a healthy revenue stream means you don’t offer a one size fits all approach. Different markets value enhanced functions, and you must be willing to pay more for certain functions or capabilities.

One retail example is the capability of BMW automobiles to offer multiple performance packages and associated price points just by enabling different software functions that are contained in every model of that car. BMW also enables a subscription-based roadside emergency service based upon the communications systems available in each car. This approach is often seen in the software or SaaS markets where it’s not uncommon to have a paradigm of good, better and best offerings in the product line to enable higher priced options.

Think land, expand and renew to develop and grow IoT revenue

Land, expand and renew is a common revenue engine in many industries that has been refined in the software and SaaS industries. It leads to strong revenue streams by combining a recurring revenue model with expansion within an account.

With this approach, the goal is to get a relatively low cost of sale win, then expand the footprint with additional sales. For example, you might develop an IoT analytics package to control various sensors, and then sell value-added packages to perform diagnostic analysis to predict failures and improve maintenance servicing. Also, by providing a subscription or annual usage fee to use your products, there is a recurring revenue model where you can generate annual fees for the ongoing use of your product. This is similar to leasing a car or purchasing a magazine subscription.

Implement new products and business models

By combining the elements above creatively, you will have the ingredients to gain competitive advantages by developing new products or business models that provide new offerings, in many ways unimagined just a few years ago.

In some cases, crop companies are combining various monetization elements to create crop yield as a service. This service method combines all of the IoT elements to produce a high value-based outcome. As a medical equipment manufacturer, it’s possible to offer a cloud analytics solution that gathers information from various medical instruments to provide misapplication of medicine or to remotely alert a doctor or nurse about a medical emergency.

In the second article in this series, we’ll discuss the IoT stack and IoT monetization framework in order to provide you with a method to approach your monetization.

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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