Monetization of The Internet Of Things - Extracting Value from Connectivity
The Internet of Things (IoT) will create unprecedented opportunities and challenges for industry CIOs. Latest forecasts suggest 21 billion connected things by 2020. Vertical-specific things (that is, applications developed for or tailored to specific industries, such as retail, manufacturing, and transportation) will nearly triple in the same time frame — from 1 billion in 2015 to 2.9 billion in 2020. Adoption will occur across all industry sectors. It is estimated that IoT has the potential to generate about $19 trillion of value over the coming years. The staggering potential size-of-the-prize has certainly caught the attention of the world’s business community. However, there is a catch to all of this – most organizations are yet to derive significant commercial value from IoT and organizations do not generate service revenues from their IoT solutions.
Some reasons why organizations are falling short in monetizing the IoT is a combination of external and internal challenges as described:
• Security and Privacy Concerns Hinder Consumer Adoption: The IoT creates an intertwined mesh of systems and devices, which hugely complicates issues of information security. “Hacks” or attacks can happen at multiple levels. They might be targeted at the device itself, or they can be carried out over the communication network over which the data is transferred.
• Lack of Standards Limits Revenue Potential: IoT solutions deliver the most value when they are connected to a web of interlinked services. But not everyone is able to integrate with third-party products and services. Unless standards are agreed upon – spanning industries, vendors, and products – the potential of the IoT will remain under-exploited.
• Successful Monetization Demands Significant Investments: Most product-centric organizations need to make significant investments in acquiring new functional capabilities before they can sell IoT-based services. For instance, organizations need to augment their product management capabilities with the skills needed to develop and market services. These factors delay monetization efforts.
How Can Organizations Profit from the IoT?
On the conventional Internet, many of the current leading players have seen two broad phases – phase one where they focused on traction, and a second phase where they focused on monetization. On the Internet of Things though, most startups and incumbents are actively looking at monetization models right from the start. While these are still early days, there are four distinct models that are emerging:
• Hardware Premium: “Hardware Premium” is the most basic form of monetization model. Here, organizations add connectivity options to an existing or new product and offer remote device management in the form of mobile apps. This basic level of connectivity and control enables organizations to charge a premium for their product. From a consumer perspective, a key driver for buying hardware premium products is the novelty factor involved in controlling hitherto standalone devices.
• Service Revenue: The service model offers a recurring revenue stream and, more importantly, creates a relationship with the customer long after they have purchased a product. For example, a car service may offer security features, maintenance assistance, and navigation tools for its customers for a subscription fee. Customers can also select from several features – for example, automatic crash notifications can be sent to chosen contacts when airbags are deployed in the vehicle.
• Data Revenue: IoT devices generate large volumes of sensor data. For many organizations, the ability to capture, package and sell this data offers a potential monetization model. Once this data has been aggregated and anonymized, organizations can choose to sell it raw, package insights from it or monetize it using advertising.
• Ecosystem Building: The IoT thrives in a connected ecosystem – the bigger the ecosystem, the greater is the value generated for all stakeholders. In an ecosystem, the focus is not on selling a product or a service, but on providing a shared platform to other players in the ecosystem – hardware manufacturers, software developers, service providers and the like. In such a model, the platform promoter ideally makes money from both end customers as well as other platform users.
For the above monetization models, there could be various pricing models as well, some of them mentioned below:
• One-time Charges: Customer pays a one-time price for purchasing the offering
• Pay-For-Results: Allows customers to pay only for realized results from IoT offering
• Freemium: Allows organizations to attract customers that are not convinced of the value of the offering
• Subscription: Offers customers the flexibility to customize service options and duration of service
• Pay-As-You-Go: Allows customers to pay according to the actual usage of the service
The Internet of Things is a hugely exciting phenomenon. It has the potential to create a world where everything is connected – a new age of connectivity. While there are numerous agile start-ups emerging from this fertile ground, the IoT offers an unprecedented opportunity for traditional organizations as well. Clearly, we are in the phase where successful monetization is still a challenge for many. However, once organizations do arrive at a recipe for extracting profitable value from the IoT, the rewards of a connected world will certainly be worth the wait.