February 14, 2017 | Authored by: Kevin Cancilla
IoT needs a business model as revolutionary as its tech
The Internet of Things has disrupted the way consumers, businesses and industries interact with their environment. The technology has improved everything from toothbrushes to manufacturing equipment, providing real-time results based on data of various scale and origin.
Such innovation must span the industry in its entirety. It's not enough to create a new product - companies need to adapt their business models to suit the devices and their customers. By refusing to do so, they doom themselves to a short lifespan of diminishing revenue.
What IoT needs
Bringing the Internet and big data to common devices is the natural progression of technology. Smartphones have shown the world how much people prioritize convenience and instant information, so why not spread that notion to other devices? However, these products must be supported by a subscription billing platform that contributes to their lifetime costs.
Because these items are connected to the Internet, they run constantly and require frequent updates. In addition, IoT manufacturers must consistently monitor for security threats and provide storage space for the data they record.
As Forbes mentioned, consumers - especially those buying smart home devices - understand updates, patches and new models are simply a part of owning technology. Such maintenance is incredibly costly for IoT manufacturers, and the devices themselves are rarely priced accordingly. In addition, consumers are used to replacing smartphones and computers every few years. They tend to see traditional devices such as thermostats, refrigerators and fire alarms as a one-time purchase that will last for decades.
"IoT products need a stable billing model that accounts for their ongoing services and maintenance."
What IoT products need are a stable billing model that accounts for their ongoing services and maintenance. Recurring management solutions provide the necessary backbone for such a radical device.
Masanari Arai, CEO of the IoT platform provider Kii, understands this idea well. He recently spoke on the topic during an IoT event in London.
"Monetizing IoT is the next key discussion point in any conversation around IoT," Arai said in a press release. "IoT is not just a device or hardware sell, which tends to generate one-off revenues and typically very low profit margins, but an opportunity for organizations to generate regular monthly recurring revenue. We need to see a fundamental business model shift in the industry, away from these one-off hardware costs and towards a long-term service-driven revenue model."
When companies don't use the right model
Forbes detailed the story of Nest, an IoT product provider plagued with negative attention. The company's $300 smart home "hub" built by Revolv will stop working on May 15 after years of not being profitable.
Nest purchased Revolv in 2014. At the time, the company had around 1,200 users, and this number has declined ever since. Such a low number of consumers combined with a one-time payment method is likely what lead to the decision to abandon the product.
Prior to his company's sale, Revolv cofounder Mike Soucie told Forbes no one in his industry was making money selling smart home hubs.
"There's a lot of betting on the long-term future and willingness to take losses," he told the publication.
Such risk isn't necessary, as a subscription management model supports the manufacturing, innovation and maintenance of IoT products. Businesses should abandon the one-time purchase method and sell their products on a recurring billing system.
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