Guides / The 4 Core Business Models of IoT: From Connectivity to Outcomes

The 4 Core Business Models of IoT: From Connectivity to Outcomes

A row of wind turbines stands in an open field with a road running alongside, under a cloudy sky in the early morning.

For fifty years, the manufacturing equation was simple: Cost of Goods Sold (COGS) + Margin = Price. You built the box, sold the box, and moved on. The revenue event was a single point in time.

The Internet of Things (IoT) has broken that equation.

In the new Subscription Economy, the value of a device is no longer defined by its physical components, but rather by the digital services it delivers over time. To capture this value, manufacturers must shift from a transactional mindset (selling units) to a relationship mindset (monetizing lifecycle).

In practice, most leaders blend 2–3 models as they mature: start focused, validate value, then layer monetization as the operating model and data trust improve.

This transition requires selecting the right monetization model. Below, we analyze the four primary IoT business models, from simple connectivity to complex outcome-based guarantees, and how industry leaders are deploying them to drive recurring growth.

What you’ll get: a practical breakdown of each model—what’s sold, value prop, pricing levers, costs, KPIs, risks—and the enabling “thing‑to‑revenue” architecture that makes them work.

1. The Connectivity & Maintenance Model (Connected product + Subscription)

“The Digital Tether”

This is the entry point for most manufacturers beginning their Servitization journey. You continue to sell the asset as a one-time capital expenditure (CapEx), but you bundle a recurring digital subscription that enhances the product’s utility.

  • What is sold: The physical device (Ownership) + digital service subscription (access to data/features).
  • The Value Prop: Remote monitoring, predictive maintenance alerts, proactive support, or fleet visibility.
  • Why it works: It is a low-risk evolution. It doesn’t require re-engineering the core product, but it establishes a direct, “always-on” digital relationship with the customer.
  • Primary revenue streams: Hardware margin, tiered software/service plans, add‑ons, support/SLAs
  • Pricing levers: Feature tiers, device counts, data/storage caps, SLA levels, geo entitlements
  • Cost structure: BOM, connectivity, cloud/telemetry, support, security/OTA updates.
  • Key metrics: Device attach rate, ARR/ARPU, service gross margin, churn/retention
  • Pitfalls: Unclear ongoing value → churn; hardware margin drag; upgrade/entitlement complexity

 

Real-World Blueprint: Konecranes

Konecranes, a world leader in industrial lifting, didn’t just sell cranes; they shifted to digitize them. By outfitting equipment with sensors, they could offer customers real-time data on usage and safety.

“The data they provide delivers tremendous value to our customers. We just needed to find the best way to monetize that value. Zuora helped us transition to a more flexible subscription model.”

— Raheel Farhat, Digitalization & Transformation Lead, Konecranes 

  • The Shift: They moved from rigid annual maintenance contracts to flexible, monthly data subscriptions.
  • The Result: This flexibility successfully scaled their connected service offering, leading to a reported 19% increase in active subscribers. 
  • Read the Case Study: How Konecranes Monetizes Connected Equipment

2. The Consumption-Based Model (Pay-per-Use)

“The Utility Approach”

Here, the pricing logic flips. Instead of charging a flat fee for access (time), you charge for the actual consumption of the service (volume). This aligns cost directly with value and is becoming the standard for industrial IoT.

  • What is sold: A variable service based on metering (Gigabytes, Hours, Cycles, Transactions).
  • The Value Prop: Align cost to realized value. Zero waste. Customers never pay for “shelfware” or idle capacity.
  • Operating requirement: “Data gravity”: capture raw telemetry, cleanse/aggregate, and rate it into billable events; pick the right metering strategy (prepaid, postpaid, threshold) and dispute workflows.
  • Primary revenue streams: Metered fees, minimums/commitments, overage, prepaid drawdowns
  • Pricing levers: Unit of measure, tiered/volume rates, seasonal pricing, floors/ceilings, thresholds
  • Key metrics: Utilization, unit margin, NRR, SLA attainment, DSO
  • Pitfalls: Demand volatility, noisy data/metering disputes, collections risk
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Real-World Blueprint: Usage-Based Networks

Consider Cambium Networks, which provides wireless broadband solutions. They  adopted a usage-based subscription model to manage access to the CBRS (Citizens Broadband Radio Service) spectrum. This allows them to automate billing for thousands of devices based on actual cloud management usage, simplifying the complexity of regulatory compliance and spectrum access for network operators.

Strategic Deep Dive: Defining the right metric is critical. Read our guide on How to Approach IoT Consumption Pricing Models to compare prepaid, postpaid, and threshold strategies.

3. Hardware-as-a-Service (HaaS)

“The Netflix for Machines”

This is the definitive “Subscription Economy” model for hardware. The manufacturer retains ownership of the physical asset. The customer pays a single recurring fee that covers the device, the software, the maintenance, and the eventual replacement.

  • What is sold: Bundled capability (device + software + maintenance + refresh) for a recurring fee (OpEx).
  • The Value Prop: Risk transfer. The customer avoids the large upfront capital outlay (CapEx) and the risk of technology obsolescence. Predictable TCO; service‑level outcomes.
  • The Sustainability Angle: Because the manufacturer owns the asset, they are incentivized to build durable, modular devices that can be refurbished and redeployed—powering the Circular Economy.
  • Primary revenue streams: Recurring HaaS/DaaS fees, upgrades, multi‑year terms, premium tiers
  • Pricing levers: Configuration bundles, refresh cadence, SLA tiers, seats/devices, usage add‑ons
  • Sustainability angle: Provider ownership encourages durable/modular design, refurbishment, and redeployment
  • Key metrics: Payback, fleet utilization, churn/renewals, lifetime margin
  • Pitfalls: Asset financing and lifecycle management complexity; retrieval/redeployment logistics

Real-World Blueprint: Acer

Acer disrupted the PC market by launching a Device-as-a-Service (DaaS) program. Instead of selling laptops, they sell “computing power.”

  • The Shift: Customers subscribe to a package of hardware, software, and support services.
  • The Result: This model allows Acer to shift from a purely transactional hardware vendor to a service provider, offering SMBs greater agility and a 100% digital customer journey. This transformation enables Acer to test new offers rapidly and receive immediate feedback, deepening the customer relationship beyond the point of sale.
  • Read the Case Study: Powering Acer’s DaaS Business Transformation

4. Outcome-Based Pricing

“The Holy Grail”

This is the most advanced and profitable model. You stop charging for the thing (the device) or the input (usage) and start charging for the output (the business result).

  • What is sold: A guaranteed business result (Uptime, Energy Savings, Clean Air, Throughput).
  • The Value Prop: Total alignment: Provider succeeds only when the customer’s outcome is achieved.
  • Primary revenue streams: Outcome fees, performance bonuses/penalties, availability SLAs
  • Pricing levers: Outcome definition/measurement, earn‑backs, service tiers, shared savings
  • Operating requirement: Mature telemetry, causal attribution to outcomes, clear contracts/SLAs, and finance‑grade recognition of variable consideration (ASC 606/IFRS 15).
  • Key metrics: SLA attainment, outcome yield vs baseline, unit economics per outcome, NRR
  • Pitfalls: Measurement disputes, attribution risk, global policy/regulatory complexity

Real-World Blueprint: Schneider Electric

Schneider Electric transformed from a hardware vendor into a Digital Services partner.

“It’s about changing the experience of the customer… Zuora’s billing system is helping transition a high percentage of Schneider’s business to a recurring revenue model.”

— Cyril Perducat, EVP Digital Services and IoT, Schneider Electric 

The Hybrid Reality: Mixing the Models

While these four models are distinct, the most successful enterprises rarely choose just one. They use a Hybrid Strategy to maximize revenue capture.

According to the IoT Subscription Impact Report, companies who adopt hybrid models (Hardware + Subscription + Usage) consistently outpace their peers, growing revenue significantly faster than traditional product-based businesses.

A single customer contract might look like this:

  1. One-Time Fee: $1,000 activation fee (Hardware deployment).
  2. Recurring Fee: $50/month (Connectivity & Dashboard access).
  3. Usage Fee: $0.10 per machine cycle over 10,000 cycles (Consumption).

Is your infrastructure ready?

Implementing these models requires a “Thing-to-Revenue” technology stack. You need to ingest device data, mediate it into billable events, and automate the complex Revenue Recognition (ASC 606) rules that come with bundling hardware and services.

Don’t let legacy systems throttle your business transformation.

Frequently Asked Questions (FAQ)

What is the difference between HaaS and Leasing?

Leasing is typically a financial instrument managed by a third-party bank, focused solely on financing the asset. Hardware-as-a-Service (HaaS) is a service relationship managed by the manufacturer that bundles the device, software, maintenance, and upgrades into a single subscription.

Which IoT business model is best for high-margin industrial equipment?

Outcome-Based Pricing typically yields the highest margins for industrial equipment because it captures a share of the value created (e.g., downtime prevented) rather than just the cost of the machine. However, it requires mature telemetry capabilities to prove the outcome.

Can I shift to consumption pricing if I have a legacy ERP?

Not easily. Legacy ERPs are designed for flat SKUs, not variable streams of data. To launch consumption pricing without replacing your ERP, you need a Mediation Engine to clean and aggregate usage data before it hits the financial ledger.

What is “Servitization” in manufacturing?

Servitization is the strategic transformation of a manufacturing organization from selling physical products to selling services and outcomes. It is enabled by IoT data, allowing companies to offer predictive maintenance and HaaS models.

How does the “Circular Economy” relate to IoT business models?

Subscription and HaaS models incentivize manufacturers to build durable, repairable products because they retain ownership of the asset. This reduces waste and encourages the refurbishment of devices for second and third lives, aligning profitability with sustainability.