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Maturing business models and the ROI of IoT

In new markets, the return on investment of projects can be minor, and in some cases negative in the short term. Companies invest to learn, to test market fit and to build a foundation for future success. The internet of things is now moving beyond these early days, and there are multiple ways to drive positive ROI from IoT connected products. Both direct revenue and indirect value from IoT data can quickly impact a company’s top and bottom line.

Increase ROI through more product sales

An increase in direct revenue from an IoT-connected product can come in a variety of forms. The most common is through new features that are only in connected devices. These new features create differentiation and value in the product, driving customers to buy the connected product instead of an unconnected product. The simple example of this is a connected thermostat. A connected thermostat allows users to remotely control their device through an app, utilize multiple sensors to provide more uniform temperature across a house or office, and integrate the thermostat with other systems such as lighting or window shades. All of these new connected features create smarter products which drives customer adoption and increased sales.

Increase ROI through recurring revenue streams

Companies can also increase revenue through new sales and service models. A simple example of creating a recurring sales model through a connected product is the Amazon Dash Button. You place this device at a location where you have a consumable, like laundry detergent or coffee pods, and when you need a refill you hit the button to get your next replenishment. Where Amazon falls short is that the customer must remember to hit the button and have enough buttons for all their consumables. For product manufacturers this auto-replenishment model is an exciting new opportunity to create a recurring revenue stream with an end customer. I have worked with printer, pet care, life science, agriculture and energy companies to create automated replenishment models that have dramatically increased the ROI of a connected product project. This extends into service models as well, where a product service contract can be signed with a recurring revenue stream that allows for remote device management and support.

Increase ROI through indirect revenue streams

Beyond direct revenue from the sale of a product, or parts and services supporting that product, there are a variety of other ways companies can make more money from connected products. One of the biggest areas that is being unlocked through IoT-connected products is data markets that allow revenue to be made through the data or features that a connected product enables. A great example of this is the work Con Edison, a utility company, is doing with their smart air conditioner program. By connecting consumers’ home AC units, Con Edison can promote better end user behavior to manage peak electricity demand. The data flowing from a connected product opens new opportunities to monetize that data. Another example of this is through new service models delivered using connected devices, like in the healthcare industry. By enabling connected products and devices, companies can create new ways to deliver services to their customers. It may not be the connected product itself that is creating a new revenue stream, but instead the collection of devices together provide a new service revenue stream.

Increase ROI through cost savings

The final area that companies can increase the ROI of IoT is through cost savings that include risk avoidance, improved product quality and more effective marketing. By having a product connected, a company gets a real-time view into the health and usage of that product. This allows a company to better manage product risk of failure, downtime and service costs. An early example of this is in the insurance industry with companies like Progressive and its Snapshot product. Consumers can lower their insurance costs by driving data back to Progressive, which allows the insurance company to better manage risk. Similar IoT data will also lead to higher quality products, as companies can better understand why products out in the market are failing. Connected products are disrupting a multi-billion dollar product, user and market fit testing industry. Companies will have an unprecedented view of how customers are using their products, what features they adopt first and if they stop using the product. This will improve the ROI of product development processes, marketing programs and other costs of designing and launching products.

As companies approach IoT and connected products, there are a variety of ways to create a strong ROI. There are ways to generate new direct revenue streams from connected products, indirect revenue from connected product data, and reduce the costs of developing and launching a product. With the IoT industry maturing rapidly, companies need to have both top- and bottom-line business goals in place for connecting products. There are numerous ways to make an IoT project profitable, so the question for companies today is how to prioritize their investment to get products to market quickly and to start gaining valuable new insights from that data.

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