Monetising IoT investments for manufacturers

Posted on 25 Aug 2017 by Jonny Williamson

Although the IoT is providing businesses with a whole new platform upon which they can build innovative business models, many companies do not know, how to make a return on their investment with this disrupting new technology, a study reveals.

Profit will be increasingly driven through services and software – which are also potential monetisation routes for owner/operators of IoT devices – image courtesy of Pixabay

Many vendor companies will continue to profit through hardware sales, and as it stands, 55% of IoT professionals see their profits as coming from the sale of hardware.

Approaches to monetising IoT

With hardware revenues continuing to go up, driven by the sheer volume of hardware required by the IoT, these hardware vendors can be confident of the fact that they will continue to make decent money for some time to come.

With chipsets and electronics dominating the cost of IoT devices, it’s a natural place to explore when trying to determine the future of IoT hardware.

With every generation of IoT hardware, we are witnessing an increase in processing ability, a reduction in size, and ultimately, a significant reduction in cost.

As electronic hardware becomes cheaper year after year it potentially means lower bills of material and higher margins for hardware vendors.

The reality however is very different. The pressure of commoditisation means that without product differentiation, the downward pressure on price is stronger than the reducing cost of the bill of material.

This leaves hardware vendors with little choice. Either choose more expensive custom components with a price premium and serve less price sensitive, niche markets, or use commoditised components and try to differentiate.

The second approach is the one chosen by an increasing number of IoT device manufacturers, turning their backs on bespoke hardware solutions and choosing instead to ft their devices with fully general-purpose single-board computers (SBCs) or system-on chips (SoCs).

Where once the idea of running a full computer rather than a simple microcontroller would have been viewed as overkill (both in terms of cost and functionality), as the size and price of SBCs such as the Raspberry Pi or Orange Pi has plummeted, developers can now justify using them as a low-cost, high-power alternative at the heart of all of their IoT devices.

Expected monetisation methods of IoT

  • 78%. Value added service & maintenance
  • 57%. Hardware rental model
  • 55%. One off hardware fees
  • 55%. Ongoing software/security fees
  • 54%. Consultancy and deployment
  • 40%. Consumption of IoT services

The figures speak for themselves. Profit will be increasingly driven through services and software – which are also potential monetisation routes for owner/operators of IoT devices.

78% of IoT professionals agree that the real monetisation of connected devices will lie in the creation, deployment and maintenance of value added services, with 40% stating it will be, specifically, through the consumption of services.

With the exception of consultancy services, all the other monetisation models are from scalable productised services. And the only way to deliver these services is through embedded or cloud software which effectively turns a hardware product into a ‘thing as a service’.

Leading from that, there are a couple of business models especially divided into the three sectors, things a platform, things as a service and (even more important for manufacturers) things themselves.

Things as a platform

  • Revenue from industrial insights: for example, sale of failure analysis stats gleaned from industrial machinery
  • Revenue from personal insights: similar to the above but at a consumer level, for example, the sale of anonymised fitness tracker data
  • Revenue from 3rd parties creating applications for your hardware

Things as a service

  • Support: for example, repairs resulting from the prediction that a device will require maintenance could result in the device-owner saving money further down the line. Repairs can also be directly monetised, and can result in improved brand loyalty
  • The use of IoT devices for context-specific advertising
  • Value from the interaction of human factors and machine interaction: for example, warning a consumer when their device detects it is too close to a source of danger (‘pay per warning”)

IoT to boost the vending machine technologies

The opportunities that these business models present to device manufacturers are much more attractive than the old hardware opportunities. However, migrating to these approaches requires a mindset shift from hardware manufacturers.

According to the research, IoT will also revolutionise vending services worldwide. The smart vending machines market is on the rise with estimates of $2.7m to be sold by 2020.

The Spanish vending machines company InnovaPoS operates over 30,000 smart vending machines for big brands such as Coca-Cola, Audi and LVMH in more than 120 countries, either retrofitting existing machines to make them ‘smart’ or create new ones with advanced features ranging from Wi-Fi hotspots to facial recognition or high definition touch screens.

By connecting machines to the IoT and integrating ‘smart’ functionality, InnovaPoS is enabling new, monetisable use cases ranging from remote stock management and maintenance, through to individualised advertising, gamification and social networking.