Pradeep D Singh, Synthesis Systems

IoT-led Subscription Monetization – If a ‘thing’ is connected, it can be subscribed to and monetized.

IoT and subscription monetization are two powerful things that can turn even a stagnant industry into one flourishing with possibilities.

Cisco, in one of its earlier studies, predicted the IoT market to reach $19 trillion in the next few years. In the same report, they also mentioned that 70% of organizations do not generate service revenues from their IoT solutions yet. Interestingly, a report from Markets and Markets predict the global IoT monetization market to reach $ 443.27 Billion by 2022, at a CAGR of 52.95%.

These stats clearly show that the enterprises are leaving a significant opportunity on the table.  We believe that the potential is even more significant given the ability to go beyond just monetization—ultimately to reach IoT subscription monetization to earn recurring and consistent revenues.

In one of our earlier articles, we discussed the need for services bundling to deliver superior customer experience and create a new stream of recurring revenue. IoT makes this possible at a rapid pace.

What is IoT-led Subscription Monetization?

First things first, let us define what IoT subscription monetization is, and then we’ll jump into more critical elements.

IoT subscription monetization is the process of generating incremental and recurring subscription-based solution revenues through IoT-enabled products.

The keywords to be noted are:

• Incremental and recurring
• Subscription-based
• Solution revenues (revenue not purely from a product, but through a bundled solution)
• IoT-enabled products

For an example of a company already harnessing the power of IoT-led subscription monetization: Audi AG. Audi generates additional revenues through its IoT-based solution Audi Connect. Audi connect is a platform for infotainment and connectivity designed to enhance the enjoyment of the ride for Audi drivers and passengers, while different business model options applied for monetization are either Bundled subscription-based services and incremental service subscription. 

What is driving IoT-led Subscription Monetization?

Demand, Realization, Capability, and Expansion – Customer experiences are driving everything, and they can be enhanced through IoT-Led Subscription Monetization.

Since the beginning of the IoT sector, organizations have heavily invested in collecting the data coming to IoT devices and storing it on the cloud. However, they have not equally invested in strategically using that data to create business models to monetize business relationships and deliver more value to customers.

Concurrently, customers became increasingly dissatisfied with dull, monotonous product offerings that didn’t truly enhance their entire usage experience. They began demanding more from the companies they interacted with, whether it be through better customer service, additional product offerings, flexible pricing options, and so on. 

As a result, companies slowly started to realize that the real value in IoT is in providing superior customer experiences and differentiating their offerings to stay relevant. Smart organizations have recognized this and are now investing heavily in exploring IoT as a new and a recurring revenue stream for their business.

Lastly, all of this is made possible due to recent advances in the technology space, such that companies are now capable of providing these types of offerings, while the ability to bundle IoT-led products as a wholesome solution enables organizations to significantly differentiate their products in an otherwise commoditized product marketplace.

Once customer demand leads to companies realizing a change is needed, coupled with those companies possessing the capability to implement that change, users are on-boarded onto these connected things with bundled offerings. This rapid expansion is expected to continue, with Gartner Report forecasting that 14.2 billion connected things will be in use by 2019, and that total will reach 25 billion by 2021.

Imagine the data those devices will generate!  The writing is on the wall: “IoT-led Subscription Monetization.”

What are the different IoT-led Subscription Monetization Models?

IoT monetization is not limited to one set of products or verticals. While we’ve seen the implementation of monetization models across industries, here are four popular models that businesses can utilize to activate their own IoT Monetization: Hardware Add-on, Data Monetization, Solution Monetization, and Platform Monetization Marketplace. The graph below puts IoT Monetization into perspective by relating it with the ability of companies to deliver high customer experiences and differentiate themselves. 

#1 Hardware Add-On

The first stage of the IoT monetization journey starts with adding a few IoT features to the product and providing customers with the ability to control those features through various connected devices. E.g., If you were to purchase a smart/connected air conditioner, it would come with a mobile app on which you could control the AC; aside from general controls, you could monitor the temperature and switch it on/off from another room or outside your house, or you could connect it with other smart home systems to control it via voice. This is a typical example of a Hardware Add-On model.

Such products exhibit a premium over the older models which cannot connect to our devices. Also, this allows the manufacturer flexibility to add more features to the app and deliver superior customer experiences while earning recurring revenue from the provided functions.

Application: All verticals

Subscription Monetization: Possible, but low

Real-Life Example of this model: LIFX.

LIFX is Wi-Fi enabled LED smart lighting. The remotely programmable LED light bulbs can be controlled through a smart-phone app and boast a premium over other, regular bulbs. It connects your lights with IFTTT, Amazon Alexa, Samsung SmartThings, Apple Home Kit, Flic, Nest, Google Assistant—all of which are IoT enabled.

#2 Data Monetization

It’s no secret that all IoT devices generate large amounts of data every second they are operational. But what happens to the data that is collected? There are two ways this data can be monetized: 

• Provide New Features: The data collected from IoT devices can be analyzed through the analytics models to understand the customer patterns and expectations. Companies can leverage these insights to offer new features to improve the customer experiences delivered. (The next step from this is to enhance future customer experiences by predicting what customers want and then offering/delivering such features to them.)

• Sell Anonymized Data: At times, the collected data might not be relevant to the business you are in but might be precious for a different yet a related industry. You can then anonymize the data and sell it to help organizations improve the customer experience.

E.g. Data that is being collected from a truck’s tire is not only useful for the tire manufacturer; the same data is also precious for the truck manufacturer to understand the truck’s performance in various terrains, while it is also precious for the insurance company to understand the travel patterns of the truck.

Note: The key thing here is to anonymize the data to eliminate potential privacy concerns that accompany the selling of user data to third-parties. Subscription to such data by the third-party organizations is what generates recurring revenue.

This offers a great potential to deliver higher customer experience as the data is being directly used to innovate new features and to offer value-add services. The more data, the more potential ideas.

Application: All Verticals

Subscription Monetization: Possible with medium potential

Real-Life Example of this model: Michelin Solutions.

Michelin, a French tire manufacturer based in Clermont-Ferrand in the Auvergne region of France, packages insights generated from the data that it gathers through sensors embedded inside customer vehicles via its Michelin Solutions unit. Customers pay Michelin on a per-vehicle, per-year basis. These insights help its customers achieve a variety of goals including reducing costs, carbon footprint, etc. Hence, by leveraging IoT, they have launched an ecosystem that uses sensors inside vehicles to collect data, like fuel consumption, tire pressure, temperature, speed, and location. This data is then processed in a cloud solution and analyzed by Michelin experts, who provide recommendations and training in eco-driving techniques.

#3 Solution Monetization

This is one of the most popular models and is growing quickly. A key reason for its growth is that it pushes the customer experience to a higher level. The central idea here is to sell a connected product, collect data, and encourage customers to subscribe for a value-added bundled solution either directly or through a device.

E.g. A customer and the owner of a connected car can subscribe for services, such as accessing parking information, finding charging stations, traffic data, scheduling service, automatic notifications on any malfunctions in the car.

This model ensures constant customer engagement and acts as a true differentiator for the manufacturer.

Application: All Verticals

Subscription Monetization: Possible with high potential

Real-Life Example of this model: Google Maps Ride-Share Integration.

The new feature in Google Maps presents the users with the ability to order Uber or Lyft rides when checking their routes in the app. Further, it gives the predicted cost for the ride after comparing between two service providers and an estimated time of arrival (ETA) for the desired destination.

#4 Platform Monetization Marketplace

It is fair to say that most modern customers are not in favor of using multiple applications and providers to manage a single setting (such as Smart Home, Smart Car, etc); they want one provider to deliver everything involved, on one screen, as a complete and unified view. However, the market today is flooded with IoT manufacturers offering siloed solutions going against the grain of a connected future.

The future is in a marketplace of IoT platforms that acts as a hub for everything that needs to be IoT-enabled. E.g IoT-enabled AC, IoT-enabled lights, the IoT-enabled entertainment system is all replaced by one Smart Home application. Similarly, the applications that manage car tires, navigation systems, and fuel efficiency can be replaced by one single Smart Travel app.

The IoT platform manufacturer can build the central IoT marketplace platform and monetize it through opening the APIs for various other OEMs in diverse industries. Each product sale is a revenue source for the IoT platforms. Platform manufacturers will play a critical role in creating IoT-led subscription monetization. The best part is that the IoT platform monetization helps the platform manufacturer earn revenues from multiple sources, such as OEMs, direct consumers, service providers, and other IoT product manufacturers.

Application: All verticals through IoT platform manufacturer

Subscription Monetization: Possible with very high potential

Real-Life Example of this model: Amazon Web Services & Google Cloud IoT.

Amazon Web Services offers reliable, scalable, IoT platform cloud computing services. Google Cloud IoT is a complete set of tools to connect, process, store, and analyze data both at the edge and in the cloud.

IoT Subscription Monetization Pricing Models

Here are the most popular Subscription Monetization pricing models that can be used based on the monetization model in play:

One-Time
The customer pays one time during the original purchase

Periodic

The payment happens at periodic intervals. E.g. Monthly, quarterly or Semi-annually

Pay as you go

Payment based on usage with an ability to disconnect the service at will

Pay as you grow

The payments change based on how the subscriptions are scaling

Outcome-based pricing

Payment is based on the outcome of usage, e.g. savings made through the IoT app usage

IoT Spaces for Subscription Monetization

We often hear the question, “Is IoT Subscription Monetization possible for our industry and business?” The general answer to that is, “Yes—why not?” Because based on our definition of IoT Subscription Monetization earlier, the key aspect is to bundle a service with the IoT product. As such, IoT provides near unlimited possibilities to make this happen.

Here is a list of the most popular industries monetizing IoT as subscriptions. We’ve tried to provide the key features that can be subscribed to as three broad categories – Consumer, Commercial, and Industrial. This provides a perspective on the range of features that can be provided as subscriptions, and how industries can monetize these subscriptions.  

IoT Spaces for Consumer

Smart Health and Wellness 

Subscription Features

• Health monitoring – Measure and manage health conditions
• Wellness – Improve general wellness with personalized tips
• Illness management – Periodic interactions with the doctors based on health monitoring reports

Who subscribes to the IoT marketplace: Hospitals, medical equipment manufacturers

Solution accessed through: Mobile apps and wearables

Return on subscription comes through: Convenience fee from patients

Examples: Jawbone UP, BeClose

Smart Homes 

Subscription Features

• Energy management – Conserve energy when appliances not in use
• Home device management – Manage devices remotely
• Safety and security alerts – Ensure high-security for people and things

Who subscribes to the IoT marketplace: Real-estate companies, device manufacturers

Solution accessed through: Mobile apps and wearables

Return on subscription comes through: Value-add payment from customers and the device manufacturers

Examples: Philips Hue Connected Bulb, Nexia Home Intelligence, Nest Learning Thermostat, WeMo Switch

IoT Spaces for Commercial

Smart Offices

Subscription Features

• Seat allocation and management – Efficient utilization of available space
• Asset management – High utilization of organizations assets
• Equipment maintenance – Periodic maintenance alerts to avoid incidents

Who subscribes to the IoT marketplace: Corporatations, office equipment manufacturers

Solution accessed through: Mobile apps

Return on subscription comes through: Reduction in billing leakage for corporates. Payment from corporates to the equipment manufacturers

Smart Cities

Subscription Features

• Public safety – Alerts on untoward incidents
• Traffic control – Traffic alerts to decongest busy roads and provide alternatives
• Parking management – Show empty parking spaces

Who subscribes to the IoT marketplace: The City Corporation

Solution accessed through: Mobile apps

Return on subscription comes through: Value-add payment from citizens

Smart Vehicles

Subscription Features

• Maintenance alerts – Notifications for maintenance when needed
• Vehicle performance alerts – Ensure high performance at all times
• Fuel efficiency management – Conserve fuel with a fully functional vehicle
• Auto parts management – Manage the inventory and distribution

Who subscribes to the IoT marketplace: Vehicle manufacturers, auto parts manufacturers

Solution accessed through: Mobile apps and wearables

Return on subscription comes through: Value-add payment from customers and the manufacturers

Examples: Audi Connect, Jasper Connected Car Cloud, Streetline Parking

IoT Spaces for Industrial

Smart Retail 

Subscription Features

• Self-check-out counters – Easy check-in and check-out without long lines
• Predictive equipment maintenance – High asset utilization
• Ware-house fulfillment – Manage the inventory and distribution

Who subscribes to the IoT marketplace: The retail owner

Solution accessed through: Mobile apps

Return on subscription comes through: Value-add payment from customers as a convenience fee that the customers pay in order to access/utilize all of the things being offered by the retailer

Examples: PowerShelf, Amazon Go

Smart Agriculture

Subscription Features

• Precision farming – Ensure right amounts of water, chemicals
• Crop optimization – Health monitoring and periodic updates to maximize the production
• Cattle wellness management – Ensure healthy cattle through continuous health monitoring
• Green-house management – Manage the temperature and other elements to regulate climatic conditions

Who subscribes to the IoT marketplace: Agri companies, Governments

Solution accessed through: Mobile apps, Sensors, wearables

Return on subscription comes through: Government grants, Agri companies and farmers

Smart Banking

Subscription Features

• Banking on wearables – Secured updates and transactions on wearables
• Bank on connected cars – Mobile banks and ATMs at your location
• Smart branches – Faster check-in and check-out
• Payments through things – Multi-channel secure payment modes

Who subscribes to the IoT marketplace: BFSI companies

Solution accessed through: Mobile apps, Wearables, Connected devices (Cars etc.)

Return on subscription comes through: Value-add payment by the bank customers

Examples: Idea Bank, Capital One, Starling

Conclusion

There is little doubt in the fact that IoT has the potential to transform any industry—even the stagnant ones—into a new-age digital super power, as it can be a solid money-maker for organizations who utilize this potential to drive superior customer experiences. And, IoT-based Subscription Monetization can also sustain huge growth potential.

As strange as it may sound given what we discussed above, monetizing IoT and converting it into recurring subscription revenues remains a largely unexplored area. The reasons for this are multi-fold. First, IoT was traditionally seen as a tactical tool to drive organizational efficiency rather than a strategic solution to drive customer experience, so exploration for this aspect remained sparse. Secondly, there were divided efforts from various entities, such as manufacturers, services providers, and IoT manufacturers in monetizing IoT. While IoT manufacturers are currently taking the lead to develop holistic platforms with the capacity to onboard multiple stakeholders, provide numerous subscription options, and monetize this to earn recurring revenues, all of these entities are being forced to work together to collectively examine the possibilities for delivering the highest customer value.