The rise of the data driven economy is enabling new revenue streams to evolve and IoT businesses are well placed to capitalise on these new trends. As with the internet around 25 years ago, the most significant business opportunities have not yet been seized or even identified.
Popular business models include Software as a Service (SAAS) and Hardware as a Service (HAAS), although there are emerging business models to be considered.
SaaS is a common business model where a software provider hosts applications and customers access these using a web browser or software ‘app’.
Payment is made through a monthly or annual subscription fee and can be based on the number of users, or number of transactions.
One application is replicated for many users, so only one application to update and maintain.
Company use of email, office productivity tools and customer management systems often follow SaaS business models.
This is one of the most common business models for companies selling IoT services. It enables companies to generate recurring revenue for their product or service through a subscription/leasing based model. The package they pay for is often by monthly fee and can include the item (hardware), all software, updates, maintenance and often a Service Level Agreement (SLA). Upfront costs are recovered over the product lifetime. The hardware is often sold at a reduced cost (or at a loss). The value is in the ongoing capability provided.
An advantage of this model is that it allows the business to have a closer relationship with customers and understand their usage of the product and potential future needs.
Smart home and home security products where hardware, installation, support and monitoring are built into a monthly fee, similar to a mobile phone contract or a monitored home alarm system.
In this model, businesses deploy devices to their customers, generally at low/no cost to the user, to gather additional data around another service they provide. The data gathered is valuable to both the user and the company and can help companies retain users by understanding how their product is used. It can also help the company drive more efficiency in their business.
Examples: Smart meters with home readout units for the customers. Customers understand their energy usage and utility providers benefit from better data about usage patterns to create efficiencies in supply and customer relations. (customer value service).
This is based around a company deploying IoT applications that will result in efficiency savings within a customer’s current business. The company deploying the service will generally provide it at no cost to the customer but take their revenue from any reduction in the price of the service. This benefits the customer as they would generally pay less than they currently pay and it also generates additional information from the IoT data.
Examples: There are examples of this type of model in the smart city and facility management space where a company will use IoT to make a service more efficient and agree to a form of reduction in current costs, with the company keeping the savings generated.
With IoT, a business receives detailed device usage patterns data. This model allows a business to supply a service in a customer’s facility but the customer is charged on a pay per use model; only paying for the time they use the device. The customer does not buy the product, but the output from the use of the product, and will pay a variable amount depending on usage pattern. This model can be used to reduce the capital costs of equipment by purchasing the service on an operational basis.
Examples: In aviation it is common for the jet engine to be paid for based on the amount of time the engine spends in flight. The engine manufacturer owns the engine and is responsible for maintenance to ensure the engine spends as much time as possible in use.
One of the enduring problems with sharing of assets is understanding the time each asset is used by each user so they can be charged based on time used. It differs from the product usage model as lots of different people utilise the asset.
Examples: In the transportation sector, bike and car-sharing programmes run on this basis.