CEO Monetization Playbook…Strategy #5: New Connected Services

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If you’re just “tuning in” to our CEO Monetization Playbook for Software Digital Transformation,  first catch up with the previous four strategies we detailed:

Repackage to Recurring Revenue and Flexible Consumption Models
Product-as-a-Service
Launching New Flexible Consumption Offerings and Running a Hybrid Business Model
Mergers & Acquisitions (M&A)

And then read on for the fifth and final monetization strategy: New Connected Services

 

Summary

As noted in the “Product as a Service” play (strategy #3), software companies have increasingly been making the shift from products to services. Strategy #5, New Connected Services, is an incremental approach towards a connected services model as well as a product-as-a-service model.

In short, connected services and connected devices capture value-add data that can be monetized by companies. We’re seeing more and more software companies with devices beginning to introduce these connected services in order to drive more value for their customers. These connected services create opportunities for even age-old, traditional businesses to introduce new ways to build long-term relationships with their customers based on this ongoing value-add data.

Because these new services drive specific data points, they can be used in many different applications — thus opening up new revenue streams. For example, we work with a company called Analog Devices (ADI), a multinational semiconductor company specializing in data conversion and signal processing technology. They have their own hardware and software connected app offering. The device plugs into a hotel room and provides data on whether or not a hotel guest is in the room. They can then sell this data to a cleaning service, for example, so that the service knows when to enter the room to clean without disturbing the guest. This is just one example of the interesting ways that traditional companies can use connected devices to penetrate new markets — consumer and B2B — to create revenue opportunities that extend beyond their device.

This play creates opportunities for businesses to build relationships with customers. That’s why it’s a particularly desirable (and much more common) strategy for an industry like manufacturing in which, historically, the business doesn’t have much direct engagement with their customers. But you can see that having ongoing relationships with customers that are monetized over time is a valuable strategy for software companies as well. This is the evolution into the IoT strategy and its capability to generate new revenue and transform business models.

Connected services generate “stickiness,” creating more touchpoints with subscribers. And they become a critical differentiator for software businesses looking to separate themselves from competitors.

 

If you currently sell products that collect some sort of data (or could be retrofitted to do so) and there is someone out in the world who would find that data valuable, IoT is a new revenue source for you." Scott Pezza, Blue Hill Research

Customer Examples

GM, Gerber Technology, Alcatel-Lucent Enterprise, NCR, Schneider Electric, Komatsu, Caterpillar, Briggs & Stratton, Hage

Use Cases

  • New monetization stream. Opportunity to create value add monetary streams and create a stickier customer relationship.
  • Cloud shared calculation and optimization services. Development of services that calculate and optimize cloud required capacity and use for multiple applications for a customer.
  • Predictive maintenance. Data collection and advanced analysis to track and early detect anomalies in HW/devices/machinery to optimize cost and/or reduce downtimes — like a supercharged phone-home service offering.
  • Vertical/Expert cloud storage. (settings, templates, machine output, etc.). Optimization of cloud services for a specific industry or specific application use, with specialized functions and options that best meet industry-use and specifications.
  • Advanced reporting and data export. Collection of data from different sources and analysts to automatically create reports based on predefined formats.
  • Notifications, remote surveillance, and actionable alerts. Remote monitoring of devices and equipment through the installation of devices to collect data and with the possibility to set up alarm thresholds to be alerted when unsatisfactory conditions are detected.
  • Device management and enablement software (PLM, etc.). Software allowing customers to centrally configure and manage different devices (including data integration, automatic updates, enablement, etc.) throughout the entire lifecycle of a device.
  • Vertical business process SAAS. Business process management software including various methods to model, analyze, optimize, and automate a business process, delivered as SaaS for a specific industry.
  • Extensibility. APIs, SDKs, 3rd Party Connectors, etc.). Enabling the extension of a model by using standardized tools such as application programming interface (API) or software development kit (SDK).

Pros

  • Connected services create a brand new revenue stream (which means a lower risk of cannibalizing other products in your portfolio)
  • High margin contribution

  • Greater stickiness with your customer

  • Increased market opportunities: new connected services can be sold to both net new customers and existing install base

 

Cons

  • Requires connectivity (not a fit for all segments)
  • The learning curve for a sales team of a traditional device company is steep

Customer Story

Alcatel-Lucent Enterprise (ALE), a world leader in communication and networking solutions, found themselves facing industry transformation. They needed to differentiate from large “asset-less” entrants to the communications market, players like GAFA (the big four multinational tech companies: Google, Amazon, Facebook, Apple) that were putting the market under high pressure. At the same time, they needed to protect against new small players that were entering the market by offering small feature sets, with great user experience.

In order to extend its footprint, defend its broad install base, and create new market opportunities, ALE needed to add high-value cloud solutions, and adapt their pricing and business models accordingly.

As Pierre-Yves Noel, Cloud Services Product Owner at Alcatel-Lucent Enterprise, put it, “We wanted to build relationships where we could provide our customers with our technology at the core on-premise, but also overlay cloud services to complement our revenues.”

So in 2016, they launched Rainbow, a cloud-based platform that makes additional collaboration services available to users, regardless of their existing communications systems. Its goal is to make companies borderless, from a communications standpoint, and thus optimize the employee, supplier, and customer experiences. In other words, the focus isn’t on the platform, but on the seamless communication that the platform enables.

As an overlay solution, Rainbow offers features like contact management, presence, chat, audio/video call, screen and file sharing. Users can download and install with a single click. And, as an open-platform-as-a-service, users can integrate Rainbow’s collaboration tools directly into existing applications and business processes. Rainbow is available for free, but users can buy additional features on a subscription basis.

With the right infrastructure, ALE has been able to build a unified communication-as-a-service platform with connected services like Rainbow.

 

“As a company, we are innovating from a technology perspective. To complement that technology innovation, we need the capability to innovate our business model as well. Zuora provides us with the flexibility to build those new business models” Pierre-Yves Noel, Cloud Services Product Owner at Alcatel-Lucent Enterprise

Bottom Line

For software/hardware businesses, offering new connected services is relatively easy to start with and puts a limited risk on the company’s financials. It’s a strategic play to create brand new revenue streams, increase market opportunities, and become more customer-centric.

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