How Do You Price a Connected Device?

November 19, 2015

How do you price a connected device?  Selling a stand-alone physical device is a fairly straightforward exercise. There is a discrete transfer of assets. You determine a price, and your customer decides whether to accept it or not and done.

But when that device is connected, suddenly there’s data involved, which means you can sell the same device to several different kinds of customers: consumers, advertisers, resellers, industry groups, etc. Multiple beneficiaries gives you lots more flexibility in terms of pricing and packaging.

Let’s look at Ngenic as a case study. I recently had a great discussion with their Chairman of the Board, Bjorn Berg.

Based in Upsalla, Sweden, Ngenic sells a smart thermostat, or an “extra brain used to heat up your house.” Ngenic offers three basic purchase plans: buy the thermostat outright, buy it for a lower price with a small monthly subscription, or buy it as part of a discounted bundle with an energy provider.

More than half of Ngenic customers wind up saving over 10% of their heating costs over the course of a year. The device monitors their home energy usage by taking into account variables like sunlight, occupancy, and (this is where it gets really interesting) favorable electricity rates.

Unlike here in the United States, Sweden has an extraordinarily deregulated energy market. There are over 150 energy wholesellers, and most customers have rate agreements that can change on an hourly basis relative to supply and demand.

Ngenic’s physical asset is relatively inexpensive to manufacture and assemble. And thanks to all this rampant free market activity in “Socialist” Sweden (most kilowatt hours are bought and sold at least six times before reaching the end customer), electricity there is really cheap.

So how does Ngenic create value?

  • It sells to consumers to help them save energy, and protect the environment.
  • It partners with suppliers to add “green intelligence” and differentiation to their value proposition.
  • Its devices conduct arbitrage with wholesellers (sometimes on a minute-by-minute basis) to buy more electricity when it’s cheaper, and less when it’s more expensive.

The lesson here is that in IoT, there’s no such thing as a straightforward B-to-C market approach. The physical device is just an enabler. Your value lies in your IP, and your ability to trade information across multiple markets.

As Bjorn told me, “You have to think a little bit like Google and search. Nobody pays for the search itself. But everybody knows that Google profits on you searching. And the benefits you receive are worth more than the information you’re giving away. That’s the model you have to pursue. What’s the value I can create from the information generated by my connected device? That’s where you should focus.”

If Zuora is in the “Software as a Service” industry, then Ngenic is in the “Information as a Service” industry. They’re helping themselves (and others) succeed by providing value in a crowded market, and offering different pricing and packaging bundles to different kinds of clients. That’s a lesson for all of us.

Want to learn more? Check out our Monetizing IoT Guide