Consumer applications for the IoT (Internet of Things) may be the sexy darling of the media, but many industry experts are lavishing its quieter, smarter (but slightly nerdy) B2B (business-to-business) friend with an awful lot attention. While wearables and connected homes are fun and attractive, B2B IoT is looking to be the smarter investment.
In its global IoT forecast, research and consulting firm McKinsey & Co., www.mckinsey.com, says that by 2025, IoT will have an economic impact of between $3.9 and $11.1 trillion a year, and that 70% of the revenue IoT creates will go to B2B. Much of that will be recurring revenue, as enterprises employ billions of cloud-connected smart chips, sensors, and devices to optimize operations and perform predictive maintenance.
Suitors of B2B IoT include KONE, www.kone.com, the European maker of elevators and escalators, which is developing solutions using IBM Watson, www.ibm.com, and IoT technologies that will ensure the efficient flow of people through buildings while drastically cutting its maintenance costs. This isn’t as drop-dead gorgeous as, say, the connected car, but the practicality has similar mass appeal.
But you don’t have to be an IBM to pursue B2B IoT—if you have the right approach. Here are three IoT recurring monetization tactics available to B2B of all sizes and stripes serving a broad spectrum of industries.
Offer Usage-Based Pricing
B2B customers are in love with this option and it’s easy to see why. They get low up- front expenses and pay only for what they use, so they can control costs. Providers are into it because it gives them long-term, predictable revenue. For example, most of Amazon’s profits these days doesn’t come from selling physical goods to consumers, but from the usage-based recurring revenue it earns from businesses through Amazon Web Services, www.amazon.com.
The problem is, many services are not as easy to meter as compute cycles in cloud data centers. This is where B2B IoT whips off those chunky glasses and saves the day. Connected smart sensors are able to precisely track what services customers use, when, and how much. For example, by using IoT technology to monitor how many miles people drive, insurance carriers like Metromile, www.metromile.com, are able to offer customers new pay-per-mile auto insurance.
IoT also opens the door to a related recurring monetization strategy: outcome-based pricing. Instead of buying a physical product, B2B customers purchase the results that product delivers, such as a set amount of engine thrust per year for an airline fleet. By connecting individual product components to the cloud, IoT makes it possible to accurately verify that SLAs (service-level agreements) and other performance-based metrics have been met (e.g., that jet engines did in fact deliver the total level of thrust an airline contracted).
Along with airplane manufacturing, results-oriented pricing, driven by IoT, is fertile ground for B2B targeting in such diverse industry segments as managed IT services, trucking, construction equipment, HVAC (heating, ventilation, air conditioning) systems, and healthcare.
Connect Existing Products to New Services
In addition to validating performance, connected products enable B2B companies to drive new recurring revenues by attaching enhanced services to existing products. Consider ATEK, www.atek.com. In 2003, it launched TankScan, a wireless system that remotely monitors above ground liquid storage tanks. Back then, the solution relied primarily on cellular technology. In recent years, however, the company has created an entirely new recurring revenue stream: subscription-based, full-service support. The IoT-powered service enables customers to remotely monitor TankScan’s sensors and cellular connections, ensuring the system is always in top working order.
The types of products ripe for additional monetization through connected IoT services like TankScan’s are as vast and varied as IoT itself, offering B2Bs an abundance of potential niches. A small sampling includes inventory management systems, industrial robots, commercial lighting, parking meters, electronic cash registers, medical imaging systems, and transportation fleets.
For B2B companies, connected products offer yet another huge bonus. In an IoT world, a product sale is not the end of a transaction; it’s the beginning of a long-term customer relationship. That’s because IoT products connect not just to the Internet, to each other, and to other systems; they also provide direct connections to product manufacturers and suppliers. Connected products can be continually enhanced and upgraded through software and firmware updates delivered through the cloud, providing product sellers with a powerful means of engaging B2B customers over time in ways that traditional standalone products can’t.
Monetize IoT Data
Of all the IoT recurring revenue options available to B2B companies, data may be the most lucrative of all. That’s because multitudes of connected IoT objects will generate truly dizzying amounts of data. According to ABI Research, www.abiresearch.com, by 2020 IoT devices are expected to generate 1.6 zettabytes (145 billion terabytes) of data a year, data that can be packaged for business customers in infinite ways.
A prime example is how companies are already monetizing so-called data exhaust—or extraneous data output from IoT devices that end customers might not find useful, but is quite valuable to third parties. Case in point, Farmobile, www.farmobile.com. This subscription-based IoT service uses embedded smart chips in farm equipment to help farmers glean insights that improve crop yields and profits. As part of the solution, farmers can in turn sell their data to farm equipment manufactures eager to use it to improve their products.
For B2B, recurring monetization opportunities from IoT data extend across virtually all industries that rely on IoT technology.
Now Is the Time to Prepare for IoT Monetization
Despite near-term challenges in areas such as security and compatibility, IoT adoption is steadily gaining steam. The spoils will go to the swift. Launching an IoT initiative is not an overnight endeavor. In addition to solving the technical aspects, an IoT service may require businesses to also make their billing, fulfillment, and financial systems IoT-ready.
B2B IoT is sure to come out of its shell and show the world who is boss soon, and forward-thinking organizations who can see through its rough exterior will be in the best position to reap the extraordinary recurring revenue gains that IoT will deliver.
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About the Author:
Brendan O’Brien is co-founder of Aria Systems, a cloud-billing provider that helps enterprises monetize and grow recurring revenue at scale.