By Ryan Lester, director, customer engagement technologies, LogMeIn
We’d all love to be in business for the pure passion but the reality is that this is rarely the case. For most people, the main question is – how am I going to make money? And rightly so. Passion and desire are great but they don’t pay the bills. For any business to succeed, it must find a model that works and the Internet of Things is no different.
As the IoT continues to mature and more companies invest in connected products, new business models are emerging. There is no one-size-fits-all approach to long-term success and businesses must be ready to explore which model works best for them to achieve long-term success. From first-hand experience, I can tell you that finding the right model can be a head-spinning experience. Businesses must not only find the model that reflects the purchasing habits of their customers, they must also figure out how to support customers through the transition and the day-to-day processes of connected product.
So, to help ease some of the headache of this process, we’ve mapped out a few business models that have been successfully adopted by connected product companies to help you with choosing the right one for your business.
The services model
Whether your product is aimed at businesses or consumers, the service model is very popular. They offer a steady and predictable revenue stream for businesses and for consumers, there’s the benefit of an ongoing subscription that offers the peace of mind that their device will not fail them. For smart home products, for example, connectivity can help with product health monitoring – either onsite or remote. This model works for companies that cannot afford downtime as problems with the system can be identified and actions taken instantly including emergency maintenance, repair or immediate delivery of heating consumables.
The premium features model
This model works best with consumer products as they can purchase a device at a low one-time cost and add features as they become useful to them. This ‘freemium’ model allows users to get devices into their homes and integrated into their daily routine, and then use new features to entice them to open their wallets. With home security, for example, the customer can buy a security camera for the purpose of personally monitoring their home from anywhere. For an additional cost or subscription, the customer can also get also get access to both the live video and their video history.
The main challenge with this business model is convincing customers to continually spend money. But as long as product companies are able to prove that their product is essential to fulfilling a particular need or desire, making consumers see the big benefits should not be too difficult.
The replenishables model
This model also works for both business and consumer products. With the replenishable approach, connected products can detect when consumables are running low and automatically order a replacement. This can be anything from coffee filters to home heating oil and ink for printers. This model works very well for customers and adds real value by averting unnecessary emergencies and avoidable trips to the store.
The free data capture model
This model is the least common of all the successful models but it is beginning to take hold in a few industries. The free data capture model allows companies to obtain data about customer via their connected device, and use that data to present targeted offers based on customer activity. User activity of products and apps can reveal interesting data about lifestyle, habits and more. On the other hand, Personally Identifiable Information is a huge talking point in the world of IoT, so companies will have to be careful that they don’t violate customer trust in the way they use their data.
Progressive insurance is a great example of the free data capture model. Insurers create a telematics program to analyse how customers drive and drivers who are deemed cautious enough see a reduction in their premium. This use of IoT is directly tied to the core business offering and the data gathered directly impacts that the company’s revenue, while at the same time encouraging better driving and recording accident data to simplify the underwriting process. Success with this model might be more difficult to achieve but being able to offer a benefit a benefit for the customer based on the data collected can offer extremely relevant and timely messaging opportunities.
Too often, product companies are entirely focused on the task of getting the products connected. However, as important as that is, it is not the most important part of the connected product journey. The first step must be to understand what you want to achieve with your product. Find the place where customers are having the greatest difficulty and already spending money and use IoT to make the experience better and less expensive.