The Impact of Internet of Things (IoT) on Manufacturing: Monetization and Commercialization, Pt. 3
Atlee Valentine Pope, President and CEO of Blue Canyon Partners, recently chaired a panel discussion among four senior executives with experience at leading industrial and technology firms, including Emerson, Zebra Technologies, Johnson Controls, and Komatsu, on the topic of Internet of Things (IoT). The session, Evolution or Revolution: How Internet of Things (IoT) Will Change the Face of Manufacturing, was held during MAPI’s Executive Summit, an exclusive CEO and President member only event. Blue Canyon will be detailing the key takeaways and lessons learned from this session in a three-part blog series.
This is the third blog in a three-part series
Click here to read the first blog where we share important insights from the panelists on how to get started on the IoT journey
This third—and final—blog addresses two key topics: different models B2B companies use to monetize their IoT offering and common commercialization challenges faced by organizations.
There is no question that organizations have different goals for building IoT solutions and face different market dynamics; therefore, the monetization model must align with these goals and dynamics. However, one monetization model does not fit all and, as such, an interesting exchange between several of the panelists emerged.
One of the panelists reflected on their corporation’s decision early on to not charge customers for access to the data generated by their IoT offering: “In hindsight, would we have decided to give the data away for free? No! We would have said there is value here, and if we only priced at $50/unit, it would have set us up better for the future as we added more features.”
Another panelist countered, “We did the opposite. We wanted to get paid at every stage. We had an inventory planning suite for which customers had to pay. In retrospect, if we gave away the basic suite for free, then we would have brought them into our ecosystem and could later upsell advanced features. In a lot of these products/services, it is about capturing customer interest, having an installed base, and bringing customers into your ecosystem. Once connected with our IoT solution, switching costs becomes high for the customer. I am not advocating to give away everything for free, but think about the offering before you decide on a model.”
A key point of emphasis is to take a long-term perspective when making monetization decisions because those initial decisions can hurt the success of your IoT offering, or put you in a difficult situation in the future for capturing the value you have created with it.
Advanced IoT offerings have multiple models for monetization, often interconnected with each other. Another panelist commented, “We have 3 different monetization models. The first one is subscription per device. We generate data out of our sensors which provides intelligence. This data can be leveraged by the customer for several purposes such as workflow efficiency, enhanced visibility, location tracking, enabling employees to punch in/punch out through mobile devices, to name a few. The second revenue model that we have is a freemium based model. Our basic model provides customers with data and some basic analytics on the devices. We developed our own solution on top of core data collected. With the upsell version, you will have services such as dashboard visibility, health of device, predictive maintenance, load efficiency, etc. This uses the same platform as the basic offering, but leverages brand new data with our vertical domain knowledge. Finally, we are claiming that data is the new device, i.e. data, in and of itself, is a source of revenue. We have relationships with third party firms that write software on our device and write applications for the data our devices capture. We have partners who want to use that data and they pay a license fee to do so. We are working on a fourth model as a data broker, using data we collect from across different customers/partners to enable benchmarking capabilities and more.”
Monetization does not have to come directly, it often comes through indirect mechanisms. One panelist explained, “We are generating higher efficiency for our customers by getting better at operationalizing the data. Eventually, we want to provide a platform that our dealers can use to identify problems for our end customers and provide better service. The dealer can then go to market to support our product and sell our parts, essentially enabling the intelligence in a way that makes our dealers better and allows us to capture value from greater customer satisfaction and greater services/parts revenues.” It important to note that this organization is getting value in a different way—for example, through the selling of additional parts in the dealer network. Their data insight is also helping their channel partner increase sales, a “win-win” outcome between the supplier and channel partner.
Each panel executive shared that a great deal of time is generally spent within an organization discussing and addressing the technical challenges of providing a successful IoT offering. However, often the commercial aspect of successfully launching, selling, and establishing an IoT offer is just as challenging—especially if IoT offerings are very different than the offerings a manufacturer currently sells into the market, which is often the case.
One executive discussed the commercialization challenge her organization faced: “The harder part is how do you make sure your sales people know how to sell your IoT offering and who to sell it to. One lesson learned on our side was that despite how difficult it was to engineer the product, the fundamental buyer changed. The person, ‘boiler Bob’, who made a comfortable living selling and installing our product and parts, is not making the decision on IoT services. And our sales people who sold to ‘boiler bob’ didn’t know how to sell these services. They pushed back on changing the way we sold and who we sold to because they did not want to damage their existing relationships. We thought of developing different channels for selling services because of these dynamics. The challenging part is how do you make sure your sales people know how to sell it and to who?”
Another panelist shared a similar experience: “We sold large capital equipment. When you talk about IoT, you want to create an annuity, constant revenue stream. However, our sales channel was use to one time big sales. As a result, we had a tough time with sales. Who wants to go do one time sale versus recurring revenue? It does require a certain amount of patience, a different mindset, and approach.” In launching an IoT offering, the sales approach often needs to change, or, in some cases, different sales channels and/or sales incentives need to be put in place. The amount of effort and investment required to do so should not be underestimated.
In terms of the monetization and commercialization discussion, three key takeaways emerged:
- Be thoughtful in deciding on your monetization model: There is value in the data that is being generated. When you create value for your customers through unique service offerings, ensure your model can capture value as well, either at the start or at later upsell stages. Make sure to consider long-term implications, and explore both direct and indirect monetization models. We at Blue Canyon have helped our clients design, analyze, and build successful monetization models.
Download Blue Canyon’s White Paper: Driving Growth through Monetization
- Make sure your sales channel is effective: If your IoT offering is changing the way you sell to your customers, it is important to ensure that your direct or third-party sales team understands and adapts to this shift. You might also consider changing your sales incentives or developing a new sales channel approach. Channel is a key area where Blue Canyon helps clients develop effective strategies to drive sales success.
Download Blue Canyon’s White Paper: Channel Management: The Customer Chain – Value Chain Framework
- Target the right decision makers: With the new offering, the purchase decision makers often change, or other decision makers/influences become involved. You will need to go beyond the traditional buyer to understand needs and purchase decision factors, making sure to bring the right people into the discussion. This will lead to the need to develop new customer segmentation. We have helped clients rethink their segmentation in these situations, and others, to develop more effective value propositions and messaging.
Download Blue Canyon’s White Paper: A Deeper Approach to Segmentation: 3 Steps to Develop Application-Based Segmentation