Oct/Nov 2015

With the rise of the IoT (Internet of Things), the era of truly BIG data is upon us. Buried in those endless data streams from billions of connected “things” is one type of data that’s essential to recurring revenue success—customer usage. Regrettably, most companies incorporate usage in their billing systems only when it directly relates to services they can bill, like data charges on a smartphone. They stand to miss out big time, because usage is a key driver of recurring monetization in IoT.

Why usage of all things? For starters, IoT is the most data-centric phenomenon of all time. And a good bit of that information will involve recurring payment models that rely on consumption-based pricing, such as cloud-computing capacity on AWS (automated warehouse system).

But of even greater value may be the role usage plays in customer retention. Here’s why. With recurring revenue, you want customers to buy your offerings on an active and repeating basis over time. To do that successfully, you need to know them very well. Well enough to anticipate their needs, maximize their satisfaction, and present them with cross-sell and upsell opportunities that truly hit the spot. That knowledge comes from usage data. Understanding how customers consume your products and services gives you insights into their habits, behaviors and patterns you can’t see otherwise.

Going beyond the Numbers
Consider churn, something every recurring revenue business tracks. However, most never look beyond the churn report numbers. Raw figures don’t provide actionable insight. But what if by drilling down, you discovered that the heaviest users of your freemium are the ones most likely to stick with the paid version after the trial ends?

That’s knowledge you can act on. For instance, to boost conversion rates, you might launch initiatives aimed at encouraging greater freemium use among less engaged customers during the trial period.

Usage data not only gives you a clearer picture of each customer. It also reveals connections between clusters of like-minded customer “cohorts” who you can subsequently target as groups in finely tuned ways.

In fact, consumption data improves recurring revenue outcomes across the board. It enables personalized care at the individual customer level, large-scale business decisions and market agility at the macro level and relationship building at the cohort level in between.

Even more, when it comes to recurring monetization, insights from usage may well be what separates winners from losers in the Internet of Things.

Consumption: Edge in the IoT
The Internet of Things is Moore’s Law in overdrive. The technology is now so cheap that it’s rapidly becoming ubiquitous. The good news is, you’re going to get to market very quickly. The bad news is, so are all your competitors.

Technology is the great equalizer in the Internet of Things. That’s why I believe the real battleground for recurring revenue dollars won’t be waged on the technology front.

The edge will belong to those who can provide the most attractive pricing and packaging at every market turn, combined with highly personalized customer experiences.

You gain that competitive edge with consumption data. And nothing we’ve ever seen delivers more of it than the IoT. That’s good news you can use. Because this will be a competitive environment like no other, and you’ll need every advantage you can get.

Data Challenges on the Road to the IoT
Usage data is essential to monetizing the IoT. But before we can harness that data fully, we’ll need to overcome some stiff challenges. More good news: on several fronts, that’s already starting to happen.

  • Interpreting torrents of data. It will take big data analytics with massive chops to glean meaningful insights from multitudes of connected sensors. Specialists in behavior analytics and predictive analysis like IBM and SAS are already in high demand. Their numbers will only grow as IoT becomes more mainstream.
  • Bolstering IoT security. Before anyone installs a home security system they can run from a smartphone, they need to be certain it can’t be hacked. We’re getting closer to the end zone. Myriad point solutions and joint efforts like the Cloud Security Alliance are just some of the ways industry is working to lock down the zillions of moving parts of the IoT.
  • Protecting customer data is just as critical. Strong encryption can make most data breaches moot, if it’s applied. For example, health insurer Anthem didn’t use it, because it wasn’t required to. As a result, its high profile breach exposed the personal information of 80 million customers. Pervasive encryption standards will go a long way toward securing customer data.
  • Safeguarding data privacy. With customer usage data, however, the risk is not about information theft so much as it is data abuse. Truth is, data thieves don’t care how many times a day you open your cloud-connected refrigerator. But utility companies and the makers of smart-home systems do. And that’s where data privacy and legal issues come into play.

Big questions still need to be addressed including: Who has access to usage information? Will it be used responsibly or intrusively? What are the legal implications when it’s shared without permission?

Currently, Europe and Canada use an “opt-in” approach—companies must get permission from customers to share data. In the U.S., companies are free to share it unless customers explicitly “opt-out.”

Incentive programs are a popular compromise, like the one from Nest that gives customers discounts in exchange for sharing their data with third parties.

The Time Is Now to Embrace Usage Data
Knowing how people consume the services you offer can provide massive value to your monetization efforts above and beyond the role usage has traditionally played in billing.

If you wish to maximize recurring revenues in the IoT, the right time to adopt a data-embracing strategy is now.

Start by exploring ways to integrate a wider range of consumption data into billing, finance, and other key business systems.

Brendan O’Brien is chief evangelist and cofounder, Aria Systems.

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