By 2017, 90 million people will live in smart homes. By 2020, there will be 50 billion connected devices. The latest Gartner forecast predicts that by 2020 there will be $309 billion in incremental revenue opportunity for IoT suppliers, mostly in services. With numbers like these, it’s clear IoT is not just another trend. It’s the future of business.

But what’s often left out of the discussions is how to make sure your company is developing a recurring revenue model that will allow you to stay agile, respond to your market, and scale products successfully. First let’s talk a bit about what IoT is, and the impact it’s having on business today.

The term “Internet of Things” was coined by researchers at MIT in the 90s. It describes an environment where everyday devices are connected to the Internet, as well as one another (this second aspect is frequently overlooked). The IoT represents a seismic shift for businesses, because a connected device is a significant learning and revenue opportunity.

Integrating products and services isn’t a new concept. There have always been after-market maintenance solutions, and at a very basic level IoT could be considered a virtual break/fix plan.

The first wave of IoT will probably consist of devices that can diagnose their own problems and schedule their own field technician calls.  But then things will get much more interesting. IoT will move beyond efficiency and into possibility.

6 IoT Challenges

Here as we see it are the core challenges facing the nascent Internet of Things market today:

• There are still some well-founded security concerns about domestic IoT, and a generally accepted development platform remains elusive. 

• The same basic subscription billing questions still apply: What’s the length of your service period and contract? Will your connectivity be bundled? Will you adjust for peak or seasonal usage? What will be your primary units of measurement (devices, users, storage, etc)?

• Note that the traditional systems used in the management of the device—production, inventory, shipping—are not the systems that will manage the customer relationship.

• Establishing a single customer record that can be viewed in from multiple systems is imperative. You’ll need to provide a truly global customer experience, accommodating a variety of currencies, payment methods and tax/finance regulations.

• Seamless user experience in a B2C relationship can be difficult, and that’s with only two actors. In IoT you can have half a dozen related parties, and we often see business companies being serviced by multiple dealers. You need to have the right data model and subscription identity to make sure you can deal with customers however they find their way to you.

• Churn has its own special connotation in IoT. Somebody may have your device and not have a subscription—what’s their experience?

Opportunities for Success

Though the traditional ways of doing business may be evolving, it’s important to remember that the way to succeed in IoT is the same as it ever was: building solid recurring relationships with your customers.

As we move at warp speed into an ever-more digitized world, concentrating on connections—wireless, virtual or otherwise—and a solid business model will ensure you’re business is on the right track.

• Prepare for a business model transformation.

• Leverage the usage data of how and when and where to improve the user experience and create a relationship.

• Specialize on what you’re good at – you can’t build everything.

• Think about tiered value as part of the architecture.

• Build for change and future-proof your solution.

• Enable customers to identify themselves as power-users. The “who” in the relationships are key.

• Set a bar for success of recurring vs. one-time revenues for year one.

7 Questions

Ultimately, we think IoT is about enabling companies to meet the demands of today’s changing consumer.

Consumers today are more informed and demanding than they were ten years ago by an order of magnitude. They have the world’s store of knowledge at their fingertips. They expect ongoing value and unique experiences. And they’re not as interested in methods as they are outcomes.

Stand-alone products don’t cut it anymore. Other than picking a color or slapping a monogram on it, a stand-alone product can’t be personalized. A product can’t learn your behavior and preferences.  A product can’t be constantly upgraded, so that it gets better and better — instead, it simply gets obsolete.

People increasingly view owning something as simply managing the decline of a physical asset.

To meet the expectations of today’s customer, companies must move beyond products into services — from a product experience to a subscription experience.  They have to create services that can learn and adapt based on behavior.  Services that can improve themselves autonomously.  Services that can be truly customized.

Sure, there will always be an actual physical object involved, but the point isn’t to ask “What can an Internet-enabled device do?” but rather “What do customers really want, and how can I deliver that as an intuitive service, rather than a stand-alone product?”

Nest isn’t just a thermostat remembers your heating patterns after a week, it’s a central nervous system for your house that tells you when particulates are in your air, or raccoons are in your yard.  An Autonet Mobile connected car isn’t just a vehicle with a 4G connection and a map (something you can get with your phone, anyway). It’s a diagnostic system on wheels that tells your garage to schedule an emissions-level check or lets you know when your teenager is driving too fast.

The next eighteen months will see a tectonic consumer shift towards connected devices, from automobiles to homes to wearables. Because ultimately IoT is not just about extending a product’s capabilities.  It’s about creating a world where a product is not a product — it’s a service.

To meet the demands of today’s consumer, companies will need a clean break from their old product-based business models. They will need to reinvent themselves as subscription-based platforms.

They will need to flip the switch from selling products to managing services.Honeywell did it. Lowe’s did it. And trust us, many others are coming!

Are you ready for IoT?

• Can you engage and manage at scale?

• Can you change pricing in days or weeks instead of months or years?

• Can you move from one basic unit to another? (think minutes to megabytes in mobile)

• Can you handle the use cases? (renewals, upsells, downsells)

• Is sales part of the experience?

• Will you accommodate international and regional pricing?

• Can you support electronic payments?