One of the most difficult part in offering IoT solution is to find the right business models for your clients. Traditionally, products are sold based on superior technology or the richness of the product features but customers are now more demanding – they don’t want the usual Capex-based model. They don’t want to see a “white-elephant” by the end of the project whereby the usage or the impact of the solution is not to their expectation.
Below are the seven possible IoT business models that you can use:
- Subscription Model – This is the second easiest model after the Capex-based one-off model which is popular for the vendors but heavy up-front investment from the customers. The idea is to pay in return for the continuous value or services that you rendered. Usually, the subscription can be paid monthly or annually and normally comes with a contract to safeguard the vendor from losing if a customer suddenly stops subscribing to the service.
Sometimes, it is a hybrid model whereby the customer need to pay a certain upfront or a certain percentage of the hardware cost and the remaining can be paid via subscription. This recurring revenue model benefits both parties.
- Outcome-based Model – With all the sensors data that has been collected, the vendor might have more confidence to offer an outcome-based payment model, for example, the customer just need to pay the agreed percentage of electricity bill costs savings every month or year by implementing smart building or smart electricity solution.Another analogy – The idea of buying a water pump is to transfer a volume of water from a river to the land. Why buy the pump when you can only pay the amount of water that is successfully transferred?
- Asset Sharing Model – Expensive assets such as big trucks or heavy machinery can be costly if it’s lying idle for many days or months. By monitoring the usage of the assets, you will the ability to rent out that extra “capacity” and earn more revenue.
Thus, some form of revenue sharing model can be a win-win situation if the customer is not willing to spend upfront investment.
- “Razor-Blade” Model – This business model in which one item is sold at a low price in order to increase sales of a complementary good such as consumable supplies. An example, Amazon’s Dash is an IoT button that was either given free or sold at a cheap price. When pressed, the button will send an order automatically to Amazon.
The idea for Amazon is not because of the extra revenue but in fact to understand the customer’s purchase behaviour.
- IoT Data Model – The value is in the insights of the data. When IoT sensors are attached to individual assets, you will know more about the usage of the assets. When sensors capture the movement of supermarket customers in their shopping area, it will give better insights about where to place the items more strategically.
- Pay-per usage Model – This model will charge the customers for the amount of time they are actively interacting with the product such as rental of cars which automatically track the mileage and fuel.
Another business model is the Usage-based Insurance whereby the amount of annual insurance paid is based on the behaviour of the driver whether they are a safe or reckless driver. This can be monitored from the driving patterns captured through sensors in the car.
- Offer a Service Model – The IoT product is provided free or subsidised but it comes with contractual service such as maintenance, audit or consulting. An example, a connected air-conditioner is bundled with a remote maintenance service. The customer will be informed if the air-condition requires a service.
Connected machines require continuous monitoring to avoid any disruption, and this service can be contracted to a service provider.
As you can see, there are many business models that can be explored with IoT. Some of this is quite new and not many dared to take that bold steps of these new business models. But with the right problem statement, business case, the scale of the project, the business model might benefit both parties – the vendor and customer.
The IoT Tsunami is waiting to happen if we are able to get the right business model to succeed.