The main question anyone who builds an IoT business asks is – how am I going to make money? Legitimate question, right? While we’d all love to be in business for the pure passion, learning how to maximize your IoT investment is key to long-term success. As the IoT continues to mature, several proven business models have emerged for new companies to choose from. Unfortunately, as with most things, one-size does not fit all. First and foremost, your business model must reflect known purchasing habits for your customers and be able to compel them to invest in your product as well as added features. What makes your product better than traditional physical goods? Is it essential or just a gimmick? Secondly, winning over customers means needing to figure out how you are going to support them so your business model and go-to-market strategy must include a solid customer service plan. We know first-hand how head spinning all of this can be. To help, we’ve mapped out a few of the most successful business models adopted by connected product companies to date:
The Services Model
Whether you are a B2B or B2C company, service models are extremely popular. For companies, they offer a steady, predictable revenue stream. For customers, ongoing subscriptions offer the benefit of peace of mind that their device will not fail them. In the HVAC industry, for example, connectivity can help with product health monitoring – either onsite or remote. Problems with the system can be identified and actions taken instantly including emergency maintenance, repair or immediate delivery of heating consumables. This model works especially well for companies who quite literally cannot afford downtime (think about server rooms in the HVAC example).
The Premium Features Model
This model tends to work extremely well in many B2C use cases where consumers can purchase a device at a low one-time cost, but add features as they become useful to them. By choosing a “freemium” model it allows you to get your devices in homes and integrated into the daily routines of users, and then use new features to entice them to open their wallets. If you look at home security, for example, the customer buys a security camera – which is great for the ability to personally monitor their home from anywhere. For an extra cost or subscription, that customer can now get access to both the live video but also their video history.
This model has certainly run into its fair share of challenges as it’s hard to convince customers to continually spend money. However, when companies are able to prove that their product is essential – to peace of mind or otherwise – they are seeing big wins.
The Replenishables Model
This is another model that works well in both B2B and B2C use cases. This is where a connected product can detect when consumables are at a minimum and automatically send the customer a replacement. This can include anything from filters for coffeemakers to ink for printers to home heating oil. It’s convenient for the customer and creates real value by saving them a trip to the store or the “oh no” moment when they are out of something the need.
The Free Data Capture Model
This is a unique model that is starting to take hold in a few industries. The free data capture model is where companies obtain data about a customer via their connected device usage, and use that data to present targeted offers based on the customer’s activity. The way customers use connected products and the apps that control them can reveal interesting data about lifestyle, habits, and more. On the flip side, there is a lot of focus on Personally Identifiable Information (PII) in the world of IoT, so companies need to be careful that they use the data they collect in ways that don’t violate consumer trust. Progressive Insurance is a good example of this. They created a telematics program to analyze how its customers drive. Drivers who are deemed cautious receive a premium reduction. This use of IoT is directly tied into their core business and the data gathered has an impact on company revenue, while at the same time encouraging safer driving and recording accident data to simplify underwriting processes. While success with this model is more difficult to achieve, being able to offer a benefit for the customer based on the data collected can offer extremely relevant and timely messaging opportunities.
So often, product companies are focused on the actual task of getting a product connected – but the first step in this journey is really understanding what you want to achieve with your product. The technical aspects of making that model work can come later, but success hinges on the model you choose. Over the years we’ve helped a lot of companies jump start their IoT businesses and our suggestions for business models are always the same – find the places that are notoriously sticky (security, for example) and where customers are already spending money and use IoT connectivity to make that experience better and less expensive.
To read more about finding success in the IoT, check out our 5 Steps to a Successful IoT Journey whitepaper.