There are many concepts and ideas for promoting digital offerings. The companies that use the IoT for their solutions are correspondingly numerous. But long-term success also requires concrete monetization approaches.
More and more companies are using IoT to network their products to establish new digital offers and services on the market or to increase the attractiveness of their product portfolio. Also, and especially in medium-sized companies, the realization has prevailed that this approach is a critical success factor for their future viability. There are many concepts and ideas for promoting digital offerings, and the companies that use the IoT for their solutions are correspondingly numerous. But long-term success also requires concrete monetization approaches.
Direct Monetization Approaches At a Glance.
A basic distinction can be made between direct and indirect monetization approaches. Direct approaches generate deposits through the IoT solution, and indirect approaches enable sales of other products to increase. Direct approaches include:
Selling The IoT Device.
The most obvious way to generate sales with the Internet of Things is to sell the connected products themselves. Smart home gadgets such as digital kitchen appliances, language assistants, and sports and fitness trackers are among the best-known examples. In addition, manufacturers may also offer usage licenses to use associated apps or platforms.
Charging a Setup
Smart and connected products often need to be installed and set up before customers can use them. Especially for less technically savvy users, it can make sense to offer the initial setup as a service for a fee – for example, activating a product on an IoT platform. The best-known example of such a service is probably the setting up of Internet access by the respective provider.
Freemium and Premium Services
The freemium model adds fee-based extensions to a free basic product. Customers have the advantage that they can first convince themselves of the benefits of the product before they spend any money. Companies can address a wide range of potentially paying customers with this approach. The freemium model for the appropriate Software for an IoT device is often encountered. For example, an app for condition monitoring can be available free of charge and expanded with paid features that can analyze the monitoring data.
Fees Transaction fees are common in financial applications. In this case, it is not (or not exclusively) the purchase or general use of an IoT product subject to a fee, but rather individual transactions or the amount of data generated by use. The advantage for companies is that the transaction fees are directly proportional to the operating and hosting costs of the required software infrastructure.
Licensing And Subscription, Usage Models
Licensing and Subscription
Companies can offer licenses and subscriptions for their IoT solutions to cover the development effort and ongoing costs of operating the underlying infrastructure. This includes IT infrastructures in your data center or rented cloud resources and Time-limited offers to achieve an endless cash flow. For example, license fees can be monthly or per user and are often found with Software as a Service (SaaS) offerings.
Compared to one-time license costs, the subscription model allows companies to regularly contact their customers and address customer needs with tailor-made offers. Customers can use the solution as needed and can adapt the subscription to their needs. In addition, similar to classic transaction fees, monthly pricing can scale with resource requirements.
Sharing, Renting, Leasing
With shared use (sharing), several users can share products and services to minimize the costs for everyone involved compared to a new purchase. The usage costs are calculated based on actual use. The IoT enables offers, processing, and billing here. For customers, this means only bearing a portion of the cost instead of the total cost. The provider can optimize and maximize the utilization of the product. An example of such models is car-sharing offers.
Renting and leasing do not focus on purchasing a product but rather on satisfying the actual need. Slogans like “hole instead of the drill” and “mobility instead of the vehicle” illustrate this approach. Here, too, the IoT enables billing, for example, by documenting the use of a solution.
Pay-per-use models align the price even more closely with the actual use of a product – for example, according to time units, the number of uses, or quantities used. Here, too, the advantage is that it is not the product itself that is paid for, but the use and thus the added value.
In addition to these six direct monetization opportunities, there are three indirect approaches companies can use IoT solutions to increase their revenue:
Servitization describes the business models of manufacturing companies that build new and innovative services on networked products. These new services in the IoT environment are created through knowledge and insights into the product portfolio. For example, the data generated can be used to maintain and optimize existing products. In addition, companies can forward the data from their IoT solutions to their (end) customers – as raw data or already filtered – to offer them completely new user experiences or added value. Manufacturers of swimming pool technology can, for example, use networked IoT data to improve water quality by adding chlorine and permanently reducing the environmental pollution. The advantage for the manufacturer of the IoT solution:
Cross-selling aims to facilitate or initiate the sale of other products or services through the IoT product. The sale of the IoT solution itself is not the focus of the monetization process – the solution may even be completely free for users. Such cross-selling approaches, such as printer cartridges and razor blades, are common for consumer goods in the B2B and B2C sectors. A product is automatically reordered with a simple interaction with the IoT solution or when the minimum stock is reached. Users save themselves the entire process of an online purchase and ideally always have a well-stocked inventory.
Companies can also use data generated by using an IoT solution for marketing. In this way, conclusions can be drawn from the information collected about user behavior and their interests to be able to place targeted advertising in a second step. This is common practice in the B2C sector, for example, to use data from fitness trackers profitably.