When I talk to companies that are working on IoT projects, the phrase “digital transformation” is often used, and here’s the way I boil it down:
Most established companies have digital assets, whether that’s downloadable software, cloud services or information stored in databases. However, many of them don’t how to truly monetize those assets in the new digital world. They normally need help creating scalable distribution systems for software, ecosystems of third parties to tap into their data and solutions, and billing solutions that enable them to create new revenue streams in a flexible and ever-expanding manner.
To give you an example, I am working with a company that has created great software products to integrate with their systems, but today it gives away updates to the software because it doesn’t have a system for being able to merchandize and charge for those updates. It also gives its data away because billing for information is an alien concept to them.
I see six phases of the digital transformation journey, and each of these phases is critical for those of us in the IoT sector to understand. In the list below I will take two examples: a car manufacturer and a smart home technology company.
- Device deployments. The car company’s first priority has to be to design and deploy a head unit/dashboard infotainment system that has the potential to run apps and services. The smart home company has designed a funky home sensor of some sort and needs to get it to market.
- Cloud connectivity. As soon as the hardware is designed, the question turns to how to get it connected to a communications layer (cellular in the case of the car, Wi-Fi in the case of the smart home) and what back end the device talks to. The car company’s cars talk to a cloud app management platform; the smart home company’s sensors send information to a big data cloud that integrates with other smart home clouds.
- Software distribution. All devices need to get updated over the air, and in many cases apps and value-added services need to be pushed to the devices once they are in the field. So the car manufacturer starts thinking about how to securely deliver these things with minimal user intervention, and the smart home manufacturer realizes that the only way to add value to the device is to offer apps and services that keep growing with time.
- Ecosystem. Most manufacturers know that the only way to stay relevant in the long haul is to create a vibrant ecosystem of third-party app developers, content providers and companies that use the manufacturer’s APIs to create cool software solutions. The devices are out there, they are connected, software can be distributed, so this is the phase that turns towards developer programs, API programs and partner recruitment.
- Marketplace. Once there is an ecosystem, those third parties will want a place to promote and sell their solutions, they will need to make money, and the manufacturer will also want a piece of these new revenue streams. The car company will want to promote a highly curated set of apps and subscription services to drivers, and the smart home company will want to market the fact that there are hundreds of great apps that are compatible with its device.
- Monetization. It’s one thing to have a marketplace to promote apps, it’s another altogether to be able to securely bill for those apps globally and manage all the revenue flows. Issues include what payment methods to accept, which business models to run with (one-time, subscription, pay per use, try and buy, etc.) and how to handle taxation in each country. Whether it’s a car manufacturer or a smart home gizmo manufacturer, they are typically hardware companies and until now they have never had to implement billing for digital assets.
The digital transformation journey is complex, especially in IoT where the new breed of devices often have brand new use cases, the back ends are often proprietary, software distribution is often complex because of unique new operating systems, ecosystem creation and operation is a new diversion for the manufacturer, and creating a revenue-generating marketplace is almost impossible to do internally.
My next article will look at how wearables companies are doing in each of these six phases, but for now please add your comments below on this subject of transformation via IoT.
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