Connected and intelligent products: what strategy to “monetize” the Internet of Things?
If you are a global industry, you have certainly already entered fully into the Internet of Things (IoT) and have probably invested in strategies and infrastructure. Why ? Quite simply because it opens up new prospects for products, development or even “business models”. A recent McKinsey study entitled “Capitalizing on the potential of the Internet of Things” estimates that the commercial prospects of IoT are staggering since it estimates them between 3.9 and 11.1 trillion dollars per year by 2025! In this new economy, it seems to me that three critical strategies need to be addressed.
1. From the sale of a simple product to a service
Internet of Things products are smart and connected. But to take full advantage of it, it is crucial to move towards a subscription-centric model, and more precisely, to realize that for a user (i.e. a potential subscriber), the quality of experience is more important than the product itself. Thus, the McKinsey study highlights that the ability to supervise equipment on a customer’s own site allows its manufacturer to market it as “services” thanks to the new possibility offered by the IoT of billing them to use. We should add that this feedback has many other advantages: to guide the development of new products, to cross-sell or to add additional sales, etc. As this study notes: “ This service approach allows suppliers to forge more “intimate” relationships with their customers in which their competitors will have great difficulty interfering.. “
Many questions regarding this transition from products to services remain. However, this is indeed a fundamental market trend, evidenced by numerous business creations whose success and valuation have not wavered. Recall for example that Apple has recently started to market its equipment through an outright subscription. Many saw it as a simple competitive reaction, reproducing the models already offered by the main market operators. However, as recent market research conducted by Goldman Sachs attests, the prospects for growth go far beyond this perception of a simply reactive attitude to the competition. In his report ” Market Conviction », Goldman Sachs strongly recommends the purchase of Apple shares, the target price of which it sets at $ 160 per share – ie a gain of some 50% compared to its current closing price! Why ? Monetization of services. The merger of its services and equipment within a global subscription offer is in fact the most promising mode of development today because of its high added value.
A recent interview Andy Mattes, CEO of Diebold (a leading manufacturer and distributor of ATMs) focused on how to maximize shareholder value creation in the context of a recent corporate takeover and changing competitive landscape. The debate was organized around two key themes: first, Diebold’s ability to optimize its production and integrate biometric technologies into its smart connected products, and second, its propensity to create value by marketing production as a service, this last point having, according to the leader of Diebold, a direct impact on the shareholder value of his company. How? ‘Or’ What ? By increasing margins, providing cost effective and customer centric software solutions. Such examples are commonplace today as the pay-as-you-go billing model is more favorable to the customer thanks to the tools for monitoring and measuring product usage.
Whether in the B2B or B2C realm, the Internet of Things has the capacity to transform virtually any product into a service, and therefore, to create the ideal foundations for forging closer and lasting relationships with the customer. The operational challenge for companies therefore consists in building a transitional infrastructure enabling them to adopt a development mode centered on the new subscription economy.
2. Know the behavior of its customers-subscribers.
Today, we can see that consumers will have more and more connected devices of all kinds – from their cars, to their home automation systems and various clothing devices. However, to be successful in this area, it is certainly not enough to “stick” sensors on a given object to make it a “smart product”. It is a question of reasoning in terms of “creation of added value”; a trend recognized by many companies. The new connected health assistant launched by Visiomed is a good example. Thanks to the vital data collected from the patient, this assistant allows, thanks to the power of artificial intelligence which has demonstrated a rate of 87% of consistent diagnoses and to the complementarity of the teleconsulting platform, a new health experience.
This notion of the expected end result is also crucial in the world of Internet of Things for the general public. Nest is not just a thermostat. It should rather be considered as a “home automation brain”, capable of memorizing heating habits and of issuing alerts in the event of the presence of certain particles in the air. Likewise, vehicles with Autonet mobile connections have a permanent diagnostic system, for example to generate alerts to plan vehicle emissions control, to check the speed of a young driver, etc.
To meet the expectations of the most demanding and best informed consumers, it is therefore essential to develop services capable of “learning” and of adapting to their behavior in order to improve themselves entirely independently. .
3. Monetize and secure data.
The Internet of Things is bringing about a radical change in the way we think about security. The recent Jeeps Cherokee “hack” demonstrated that a connected car is susceptible to being hijacked remotely, even if its driver is behind the wheel! This type of threat is set to grow in the same proportions as the explosion in the number of connected devices.
The security of the Internet of Things requires the implementation of two basic security principles: a robust authentication system and highly secure communications. A leading solution that takes care of these two issues has actually existed for decades through public key infrastructures (PKI). This system establishes a platform of “trust” thanks to strong authentication services and an encryption mechanism based on digital certificates.
It is not certain that the PKI environment remains ideal in the long term; however, it is to date the best option for all companies in the Internet of Things market to protect their customers – and thereby their reputation. There is now no doubt that data security has joined physical security as a critical priority for all companies involved in IoT.
Beyond this issue of data security, the ability to also provide it in the form of a service (or DaaS, ” Data as a Service “) can also be a key part of an Internet of Things strategy. It is for example possible that you are “dispossessed” of your customer relationship if you are a first level supplier (wholesaler), or if you rely on a complex network of resellers or distributors for example. In this case, the data of your connected objects can thus be quantified and be the subject of “subscriptions” for all those who need it to develop their business but above all, you will keep control of the digital experience of your customers. which would have escaped you with a lambda product.
In short: the customer is king!
The new ones business models will constantly evolve with the progress of the Internet of Things to offer ever more demanding customers new modes of consumption. In this new framework, the winners will undoubtedly be those who have been able to move fairly quickly towards approaches centered on subscriptions and on the marketing of products as a service (PaaS). It is a challenge that may seem insurmountable to some insofar as it is actually a question of considering a real organizational reconstruction and completely rethinking its management systems. As always, the precursors will be the leaders of tomorrow in their respective markets.
The Internet of Things certainly raises multiple issues, but there is no doubt that those who triumph will reap considerable benefits. It is therefore about focusing on the needs of customers in terms of services rather than thinking in terms of creating new generations of products.
What services do your customers need? What results do they expect from it? And finally, what security measures can you implement to protect them?
Philippe Van Hove is the Director of Western Europe, in charge of the development of Zuora. After a DESS in economics from the University of Paris-Dauphine, he held various management positions at Ascential Software, BladeLogic, BMC Software and 3i Mind. Prior to joining Zuora, he was Director of Development for Workday, a leader in cloud applications for human resources and financial management.