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IoT monetization starts with customer need, not a sales target

For CIOs tasked with building a new revenue stream from internet of things services, understanding your customers' expectations comes first.

Companies often begin experimenting with the internet of things by applying the technology to internal processes to gain operational efficiencies and save money. But generating revenue from IoT is different from cutting internal costs, and it requires a different mindset, according to Mike Fallon, director of the IoT transformation advisory practice at PTC, a platform vendor in Needham, Mass.

IoT monetization efforts fall flat when companies use what Fallon called "inside-out thinking": That is, the company starts with building an IoT-enabled product to capture valuable customer data. "More often than not, the starting point is why I, the vendor, want the data and how do I push a service to get that data from the user," he said.

Instead, Fallon advises companies start with the customer perspective. Questions such as, "Will the customer use the service?" and "How should the product be priced?" must be addressed before the product launches, he said.

Fallon recently sat down with SearchCIO to discuss how CIOs can start thinking from the outside in about IoT monetization and how doing so will shape what to build and how to sell the new offerings. This interview has been edited for clarity and brevity.

Why do companies have this inside-out mindset?

Mike Fallon: We've come out of a recession period where it was all about cost, cost, cost, operational efficiencies. And that's still there, don't get me wrong, but Wall Street analysts today want growth, particularly from public companies. That's what shareholders want to see.

Mike Fallon, director of the IoT transformation advisory practice, PTCMike Fallon

IoT, just timing wise, is aligned to this new requirement for higher levels of growth, and it connects to customer experience. This is important because customer experience is becoming a primary growth driver. Customer experience can be enhanced by having products connected in the field to provide more insights as to how they're being used, what challenges customers may be having, to improve quality in the field faster, et cetera. All those things drive customer experience improvement, which leads to improved growth.

And the danger of inside-out thinking is that what you build won't be used by anyone?

Fallon: The one thing the most innovative companies in the world have in common is that they know that innovation of products starts with understanding the customer and knowing the user first. The same applies to how to monetize IoT. When companies carry the concept over -- instead of using a technology push approach -- that's where we see services having better traction with customers because the service is truly useful to the customer.

What can CIOs do to promote outside-in thinking for IoT monetization efforts?

Fallon: If I'm the CIO, the first thing I want to do is make sure that on my team is my voice of customer champion -- whether that's product marketing, whether they work with an outside design firm. You put technology aside, you put the technology stack to the side, and you say, let's really understand the pain points, motivations -- all of those aspects of the eventual user of the service.

Along with that, the really progressive companies take time to ask [potential customers], if we can do this, this and this for you, what would you pay on a monthly basis or yearly basis? Very few companies do this, but the most successful ones do. And what that helps drive is the actual -- let's call it the bill of material: If the customer pays X, how do we design the eventual service to what they'll pay as well as create something that will make us money.

In that same conversation, CIOs can learn how much to charge and what to bundle -- what to make free versus what to charge for, what to make free for 60 days and then charge for later -- all those details around how to launch the service.

You mentioned a go-to marketing strategy. Do companies have to rethink their marketing strategy when it comes to IoT monetization efforts?

Fallon: Let's say I'm an industrial hardware company that's now selling software services. So my traditional go-to market is probably relatively light on the marketing and heavy on direct sales, with salespeople who get paid based on equipment sales.

Software services use heavier upfront marketing, so your marketing lens has to change to drive awareness. And, if you drive this strictly through a direct sales model, which is how companies usually start, the sales teams aren't paid as much to sell the software service.

Selling software services is strategically valuable for the CEO, the CXO, the CIO, but at the end of the day, in the trenches, your sales force gets paid more to sell equipment than they do services.

Do you have advice on how to retrain the sales team?

Fallon: If the strategy of the company is, 'We have a great product, we're getting all this great data, we know the user, and we want to make sure we get to market before our competitor does,' retraining your sales force will take too long.

The conversation I have with customers is to go there eventually, but don't start there. Ignite the process through proactive marketing -- tell a story before the service is ready. Then launch the service, and have an inside sales team ready to go.

Depending on the size of the company, maybe you want to just pick a region, have somebody dedicated to selling the service to call on customers with your traditional sales force. And then expand as you see how that works relative to an investment of a direct sales team.

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