Industrial IoT Monetization: Closing the “Manufacturing Gap” via Servitization
The industrial sector is facing a “Commodity Trap.” Hardware margins are shrinking, global competition is intensifying, and the traditional “make, sell, ship” business model is becoming a race to the bottom.
To survive, manufacturers must evolve. You are no longer just a hardware company; you are a software company that makes hardware.
This shift is called Servitization: the transition from selling a physical product to selling a capability. It is the difference between selling a jet engine and selling “power-by-the-hour.”
While the strategy is clear, execution is stalling. Manufacturers are falling into the “Manufacturing Gap,” the chasm between collecting IoT data and actually monetizing it. This article explores how industry leaders are bridging that gap to build resilient, recurring revenue streams.
What is the "Manufacturing Gap"?
Manufacturers have spent billions on the Internet of Things (IoT). They have equipped factories, vehicles, and appliances with sensors, creating massive “Digital Twins” of their physical assets.
The problem is that they have the data, but they can’t bill for it.
Most manufacturers attempt to run a modern service business on legacy infrastructure built for shipping pallets. Traditional ERPs (Enterprise Resource Planning) are designed for Orders: linear, one-time transactions identified by a SKU. They do not understand Streams: continuous, variable usage data generated by connected devices.
When you try to shoehorn a usage-based subscription into a legacy ERP, the system breaks. It leads to revenue leakage, billing disputes, and an inability to launch flexible pricing models.
The fix is to close the gap. To do this, you need a “Digital Supply Chain” for revenue, a Monetization Platform that sits between the device cloud and the General Ledger.
The 3 Stages of Servitization
Servitization is not a binary switch; it is a maturity curve. Successful manufacturers evolve through three distinct stages.
Stage 1: Product Support (Reactive)
You sell the asset and charge for break-fix repairs and spare parts.
- The Model: Transactional.
- The Value: Low. You only talk to the customer when something breaks.
Stage 2: Connected Services (Proactive)
You use IoT data to offer remote monitoring and predictive maintenance.
- The Model: Recurring Subscription (Flat Fee).
- The Value: Medium. You prevent downtime and build a “digital tether” to the customer.
- Real-World Success: Konecranes digitized its industrial lifting equipment to offer real-time data subscriptions. This shift allowed them to launch 100% more product rate plans and increase active subscribers by 29% year-over-year.
- Read the Case Study: How Konecranes Monetizes Connected Equipment
Stage 3: Equipment-as-a-Service (Predictive)
You stop selling the asset and start selling the outcome (e.g., Uptime, Compressed Air, Energy Savings).
- The Model: Outcome-Based or Hybrid (Usage + Sub).
- The Value: High. You are a strategic partner in the customer’s success.
- Real-World Success: Schneider Electric moved from a traditional hardware model to offering digital energy management services. They leverage IoT data to provide consultative analytics and remote monitoring, deepening their customer relationships.
A fundamental aspect of moving to subscriptions is a balance between technology innovation and business model innovation… It’s about changing the experience of the customer.
— Cyril Perducat
EVP Digital Services and IoT, Schneider Electric
Why Legacy ERPs Fail the Factory of the Future
The transition to Servitization requires a fundamental re-architecting of the back office.
1. Data Volume (The “Flood”)
A fleet of 50,000 connected sensors generates millions of usage events per day. Legacy ERPs were optimized for order-centric processing; high-volume event ingestion and rating is typically handled by a dedicated mediation and monetization layer.
2. Dynamic Contracts
In a subscription model, a contract is a living thing. Customers upgrade firmware, add new sensors, or change service tiers mid-cycle. Legacy systems require manual intervention to handle these amendments, destroying margins.
3. Revenue Recognition (The Compliance Trap)
Variable usage creates complex liabilities under ASC 606. If you bundle hardware (recognized at shipment), services (recognized over time), and usage (recognized upon consumption), you need automated Revenue Recognition logic to keep the books balanced.
A fundamental aspect of moving to subscriptions is a balance between technology innovation and business model innovation… It’s about changing the experience of the customer.
— Cyril Perducat
EVP Digital Services and IoT, Schneider Electric
The Sustainability Dividend
The transition to Servitization requires a fundamental re-architecting of the back office.
1. Data Volume (The “Flood”)
A fleet of 50,000 connected sensors generates millions of usage events per day. Legacy ERPs were optimized for order-centric processing; high-volume event ingestion and rating is typically handled by a dedicated mediation and monetization layer.
2. Dynamic Contracts
In a subscription model, a contract is a living thing. Customers upgrade firmware, add new sensors, or change service tiers mid-cycle. Legacy systems require manual intervention to handle these amendments, destroying margins.
3. Revenue Recognition (The Compliance Trap)
Variable usage creates complex liabilities under ASC 606. If you bundle hardware (recognized at shipment), services (recognized over time), and usage (recognized upon consumption), you need automated Revenue Recognition logic to keep the books balanced.
Building Your Digital Supply Chain
To bridge the manufacturing gap, you must implement a technology stack that mirrors your physical supply chain.
- Ingest: Capture raw data from the edge (AWS IoT, Azure IoT).
- Mediate: Clean, aggregate, and map that data to a customer account.
- Resource: What is IoT Billing & Mediation?
- Monetize: Rate the usage and bundle it with subscriptions on a single invoice.
- Resource: The Executive Guide to IoT Monetization Strategy
Stop manufacturing churn and start manufacturing revenue
The gap between hardware and software is closing. The winners of the next decade will be the companies that successfully monetize the data flowing between them.
- Evaluate the Market: Compare the Best IoT Billing Software
- See the Solution: Explore Zuora for Manufacturing & IoT
Frequently Asked Questions (FAQ)
What is the difference between Product Support and Servitization?
Product support is reactive (fixing what breaks) and is often a cost center or low-margin add-on. Servitization is proactive (monetizing the capability) and transforms the service into a primary, high-margin revenue stream.
Why is “Equipment-as-a-Service” (EaaS) considered higher value than leasing?
Leasing is a financial instrument focused on the asset’s cost. EaaS is a service relationship focused on the asset’s output (uptime, performance). EaaS typically includes maintenance, software, and upgrades, offering the customer a guaranteed outcome rather than just a financed machine.
Does Servitization require a total overhaul of my ERP?
No. The most successful manufacturers adopt a “two-speed” architecture. They keep their existing ERP for the physical supply chain (inventory, logistics) but deploy a specialized Monetization Platform (like Zuora) alongside it to handle the high-speed “digital supply chain” of subscriptions and usage data.
How does IoT data enable outcome-based pricing?
Outcome-based pricing requires a “single source of truth” that both the vendor and customer trust. IoT telemetry provides this objective data (e.g., exact operational hours, energy consumed, or units produced), allowing the contract to be billed based on verified performance rather than estimates.
What are the financial risks of moving to a subscription model?
The primary risk is the “Swallow Fish” effect, a temporary dip in revenue as you swap large upfront CapEx payments for smaller recurring OpEx payments. However, once the recurring base reaches critical mass, revenue becomes more predictable, resilient, and valuable (higher valuation multiples).