Author: Juan Carlos Lazcano, Vice-President of M2M for North American, Gemalto
From wearables tracking our personal fitness to smart buildings capable of predictive maintenance, the IoT is having a significant impact on our daily lives. Most IoT technologies are not new – sensors, actuators, wireless modules, communication protocols and other core IoT components been around for decades. What is new are lower costs, ubiquitous wireless communications and enormous new streams of data. This changes everything. It provides revolutionary opportunities to recombine offerings and produce entirely new business models, revenue streams and added value. There are plenty of new IoT solutions and software apps in the marketplace, but the sweet spot is in coming up with ingenious ways to assemble them and unlock new ways to streamline businesses, enhance customer service and improve people’s lives. An agile monetization framework is essential for the IoT to thrive.
IoT follows the path of computer software
As computing expanded from mainframes to minicomputers to laptops, the software industry evolved in sync. The industry initially followed a “shrink wrap” approach to delivering new products until the rise of mobile devices and smartphones gave way to subscription-based pricing models and downloadable and streaming content delivery we employ today. Now, with the boom in connected IoT devices and the emerging Industrial Revolution 4.0, we see entirely new opportunities for pay-per-use and recurring-revenue models that will once again spawn billion dollar business opportunities. And the data ‘exhaust’ from our connected world provides greater insights, better customer outcomes, new business models, and larger revenue streams.
Engaging the entire ecosystem to drive value
Although the IoT encompasses virtually all industries and markets, specific sectors are leading the way and spearheading adoption. These include the industrial IoT, new mobility and smart cars, connected homes, smart cities, agriculture 2.0 and smart energy to name a few.
To win in any IoT sector, you have to understand its ecosystem in great detail. That means understanding user behavior, perceived value, use cases, underlying technologies and market dynamics. Each segment will have different business models, pricing and monetization opportunities. You need to be able to partner with key players as well as compete with alternatives. Although these sectors are distinct, the IoT creates overlapping segments and new avenues for growth providing opportunities for new revenue, competitive disruption and business model innovation.
The key to success is to thoroughly analyze and identify which segments are the best match for your IoT offering. Then focus only on those that leverage your core strengths, unique capabilities and understanding of the end user. In the competitive IoT landscape, timing is critical. To ensure a swift time to market, it’s best to partner with strong and established ecosystem players that have complementary expertise and can rapidly provide more robust functionality. In some cases, a partner may be the only way to break into a specific market. In others, outsourcing non-core components of your solution may also accelerate time to market. You need to think through all the potential partnerships in the value chain and nurture those that are mutually beneficial.
When hardware goes soft: seizing opportunity with licensing and entitlement solutions
In the world of hardware devices, software has become critically important. Devices from the tiniest of sensors to enormous machinery are now driven by software; and within the next few years, billions of these “intelligent” devices are expected to connect to the already-sprawling IoT ecosystem. Connecting assets brings obvious benefits but it also creates new levels of risk for hardware manufacturers. Protecting intellectual property (IP) from theft, piracy, misuse, and reverse engineering is the cornerstone of software monetization and it’s become a significant priority for IoT device manufacturers.
Feature-based licensing and entitlement management software allows device manufacturers to ship the same physical product to different customers and then activate different features, functionality and price points after delivery. This type of software monetization technology also enables remote upgrades to products already deployed over the lifetime of the device. Remote upgrading replaces the one-and-done product mentality of the past while reducing the impact of obsolescence. With flexible software-based licensing solutions, customers can use only the features they want, turn them on and off as needed, and pay only for what they use. By offering alternative pricing models to customers, manufacturers of smart hardware products have found that they’re able to tap into new markets.
Enhancing and balancing the business model
The rise of connected intelligent devices gives hardware manufacturers the chance to deliver more relevant features and a better customer experience while allowing new business models like subscriptions and pay-per-use. And as the subscription economy gains traction, enterprises are using it to balance business models and move from a large one-time CAPEX expense to smaller OPEX expenditures spread over months or years. At the same time, connectivity-enabled usage tracking provides increased transparency and business intelligence for the customer and the vendor alike. Business models based on capital expenditure, in which manufacturers charge upfront for expensive hardware (like an MRI machine) and give the software away free, are outdated and limit the marketability of their products.
To survive in the competitive IoT landscape, device developers and OEMs must accept that software is the key to differentiating their hardware solutions. By leveraging reliable connectivity and a solid foundation of security and trust, they can enhance monetization of their intellectual property with agile monetization software that protects existing revenue streams while reaching new customers and cutting back-end costs. Highly flexible business models that encompass easy licensing and entitlement management solutions are the key to realizing effective IoT monetization. The most successful of these will align with customers’ evolving needs and build on delivering a greatly improved user experience across the long lifetime of IoT hardware devices.
To learn more about the essential elements of successful IoT technology, click here to read about IoT Connectivity in part one of Gemalto’s three part series and click here to learn about IoT Security, in part two of Gemalto’s three part series.