By Slade Sherman

Locking in the right business model for your connected device

At Creator, we work with a variety of clients who need to improve their product lines with connected functionality – so, a question we are routinely asked is “What’s the right business case for this?”

We believe, the right business case = the right business model.

But hasn’t this always been the case for product design and manufacture? Has anything really changed?

Traditionally product manufacture companies only needed to worry about the cost of making and manufacturing the product and how much warranty is enough.

With connected devices there’s more to think about. In addition to the design, build and manufacturing costs, companies need to consider a broader range of support commitments over the life of the connected product, such as:

Server hosting
App development
Feature updates
A range of customer support options
Ongoing maintenance

The good news is that this broader range of support commitments provide for broader opportunities for ongoing product revenue.

In working with our clients, here are seven approaches to generating ongoing revenue, towards a more sustainable business model for their connected devices:

Premium Value Added Services – not too dissimilar from the App Store or Dropbox type cloud storage models of offering the base product for a low cost and making money from value added services. An example: Nest’s Nest Aware Subscription allowing customers to ‘upgrade’ to cloud recorded streaming video. Customers get the base service free, but cloud storage of streaming video is extra.

Product ‘Consumable’ Sales – bringing the Xerox office printer model to other consumables. CPG companies can justify connected devices in-home based on product sales of consumables from those devices. Amazon products like dash and eco fall into this category, as does Freshub, another innovative start-up. From vending to in-home devices, this approach helps brands and retailers better respond to customers directly when they need the product.

Subscription Services – As long as the value proposition stacks up, companies can sign up customers using innovative subscription offers on a range of goods and services. A good example is HP Instant Ink with a range or printing plans that offer customers savings, and the convenience of to-your-door ink replacement. Monitoring services that offer insights about product function or assets are also great candidates for subscription business models.

Predictive Maintenance Contracts – look no further than GE and the power-by-the-hour business model. Instead of simply selling a part to its customers, GE took responsibility for maintenance, spare parts, servicing and refurbishment and transformed themselves from an equipment provider to a solution provider. Can your connected product be transformed into a broader solution?

Big Data and Machine Learning – there is revenue in product data insights! Innovative companies like Augury are using “listening” algorithms to tell if machines are working properly. These real time insights deliver sufficient value to justify their cloud service fees. Creating value and monetising data through valuable insights is a massive, but as yet largely unrealised, opportunity.

Enhancing Services – rethinking how connected devices could improve your existing service revenue model. Industries like insurance are starting to see disruption through IoT devices. Car insurance companies like Progressive Snapshot use devices to monitor driver habits, with the expectation that this will lead to lower costs through a better ability to assess risk levels. This should result in better margin for insurers and lower premium rates for customers.

Shared Economy – are there other shared service opportunities out there? IoT clearly affords a richer monitoring of connected things and this monitoring can lead to opportunities in the ‘shared economy’. City Bikes business models are made more achievable because of connectivity. What other shared service for under-utilised things might apply?

Which is the right model for your connected product? I also welcome your feedback on interesting connected product examples that may not be mentioned in this article.