The world of IoT has been closely linked to the development of a service economy: in a world where everything is connected, monitored and spitting out data you can charge for its usage rather than selling it and forgetting about it.
Ericsson has taken this concept one step further positing the emergence of an experience economy – where the all-important entity is not the product or even the service but the customer experience delivered.
Whatever paradigm best captures this future one thing is certain: the monetisation model will change dramatically. Organisations that have been accustomed to garnering revenue from large one-off payments for the goods they produce and provide will have to shift to one where they receive incremental payments based on the delivery or a service, or the provision of an ‘experience’.
This shift will present considerable challenges: just what will constitute a charging increment or a charged entity? How will that information be captured? What model will be used?
Subscription services meet IoT
One company that, while it does not claim to have all the answers, sees itself as well positioned to provide its expertise to companies struggling with these questions is Zuora, a provider of subscription management software and services.
The company was founded in California in 2007 by KV Rao, Cheng Zou and Tien Tzuo who envisioned “a fundamentally new business model, one where companies of all sizes would offer broad libraries of services via subscriptions [and] that would challenge the 20th century manufacturing economy by shifting the focus to delivering services instead of products.”
Clearly IoT is a key enabler of this vision and Zuoro’s expertise, products and services will help any company struggling with monetising the functionality of an IoT ecosystem.
Richard Becker is vice president Internet of Things solution and strategy at Zuora. He told IoTAustralia that IoT-related deals are becoming a significant part of Zuora’s overall business and explained how subscription services can monetise IoT. “Most of our business is in the traditional world of subscription services but the fastest growing part is in the IoT or connected product space,” he said. “We have about 50 customers in that category.”
Models of IoT monetisation
Zuora classifies these under four different monetisation models.
- The ‘Box Strategy’ “You bundle a product with a cloud-based storage and monitoring service and installation, put it on a subscription service and sell it. And you could add service and training to that.”
- The ‘After Market Strategy’. “You take data from your product and your customer to come up with a warranty and support offering that is specific to that customer.”
- -The ‘App Store Strategy’ “A good example of this would be the connected car.”
- ‘Data As a Service’. “How you sell and get people to subscribe to data is probably the one that has people scratching their heads right now but is probably going to be a huge market.”
In the Data As a Service category, Becker says: “We already have a customer in Australia that is planning to set up a data store and sell analytics and/or data.”
In terms of vertical markets, for any of these models, Becker sees automotive as the one likely to move fastest but presently beset by uncertainty.
“We have model to identify those industries that are going to shift really quickly and at the top is automotive. I don’t think anybody has figured out the connected car or who is going to monetise what. All that needs to be figure out, and figured out fast. Who own the hotspot? Who owns infotainment? Who owns the data off the car, and how does service integrate with that?”
Another rapidly growing market where the model is still fluid is the connected home. “I was with a garage door company today,” he said. They have a whole new connected product, but who is going to buy a subscription to a connected garage door? No one. So what is the platform going to be and who is going to own it? You have cable companies, vying for it. I think there will be few winners a bunch of losers.”
Winners and Losers
There are also likely to be few winners and a lot of losers in traditional distribution models, Becker says.
He also suggested that, in an ‘everything as a service’ scenario and with the differentiating functions and features of products increasingly implemented in software, manufacturers might significantly reduce the range of hardware products they produce and then just turn features on or off according to what the customer needs or chooses to pay for.
“That is a very different paradigm for big companies. It changes how I install things; it changes my sales and distribution channels because my partners and installers are not determining the solution they are putting in place. Its capabilities will be controlled by the OEM not by the reseller.”
He adds: “OEMs will have to reduce the number of resellers and bring those resellers closer to what they are doing and they are going to have to be in tune with the data and the service solution. And that puts another burden on OEMs – they will need to get closer to their end customers.”
He says is already happening in the installation and operation of building management systems. “In the old days the building manager would figure out what he wanted to buy from a catalogue and put all the bits together. Now in the IoT world, everything is connected into a solution with a service level agreement or some kind of outcome expectation against it.
“We are working with Schneider Electric, which designs the electronic components to go into a building. Schneider is building out a software cloud that connects those things and delivers a solution based on the data from them.”