From wind turbines to your washing machine, the IoT is all the rage, and everyone wants their piece of the pie. Monetization and creating business value, not to mention profits, is the holy grail for the IoT. But who is really making money on the IoT and where are the most lucrative opportunities?  For that we turned to Mike Fallon, Senior Advisor of the IoT Transformation Advisory Practice at PTC. Mike is responsible for delivering frameworks to companies that address the how of IoT monetization – specifically for CIOs and other C-suite executives.

How can organizations profit from the IoT? 

Today, we are seeing two primary areas of opportunity for monetizing the IoT: operational efficiencies and new revenue generation. Operational efficiencies are of interest because of how the IoT allows you to organize and use data. In manufacturing, for example, the IoT can help to prevent unplanned downtime, capture real-time insights regarding production and operation, and integrate data across an extended supply chain.

Of even greater interest, right now, is new revenue generation, particularly for hardware companies that see opportunities to introduce digital services into their product offerings. Since the economy has rebounded from the recession, C-level executives and shareholders are very focused on growth. With so many digital transformations happening right now, traditional manufacturers and hardware companies are looking to these digital services as a way to generate new revenue and bring value to those transformations that are underway.

Why is it so hard to monetize the Internet of Things? 

We see a handful of common challenges as we talk to companies about monetizing their IoT strategies. One of the main challenges is developing a strategy and achieving alignment across key stakeholders in the organization. This often carries over to another challenge that we see – companies taking an inside-out approach that prioritizes the provider’s goals over what the end customer needs. Many companies aren’t asking themselves important questions about their strategies, such as, “How do we ensure that the customer or user cares enough about our service to want to pay for it?” The most successful companies are the ones that prioritize the user’s needs and the user experience.

Further, this idea of forming the right strategy can extend to the company’s go-to-market execution. This can be particularly challenging for companies that traditionally sell hardware and are trying to introduce digital services to their customers as part of new offerings. Whenever new offerings or services are introduced, the challenge of how to best market them typically follows.

There is no neat one-size-fits-all monetization model for the IoT, not least because the needs of different companies vary hugely. What are some of the successful models that you have seen, both in consumer and industrial sectors of IoT?

If we look at new revenue monetization, the key question that a company needs to answer as it shapes its business model is, “What is my customer or user willing to pay and how would they like to buy?” Many companies get trapped in what we could describe as more traditional thinking, often asking themselves, “How do I want to bill the customer?” along with other internal-oriented perspectives. These factors won’t be ignored, but the best business models are the ones that customers adopt rapidly because it’s clear to the customer how the software or service helps them do their job easier, enables them to do more than they could previously, and helps them achieve their own goals and objectives.

If companies stick to an inside-out approach that prioritizes their own needs over those of the customer, they’re potentially setting themselves up for failure because they likely aren’t doing all that they can to achieve the customer adoption needed to be successful.

As our publication name suggests, we focus on the Internet of Things, specifically the Industrial IoT. How do you plan to roll your product out for IoT devices? Can you provide examples?  

Right now, the IoT space is being defined by the platform. More and more companies are adopting IoT platforms, like the ThingWorx Industrial IoT platform from PTC, for their IoT initiatives. The best platforms provide companies with the capabilities that they need to be successful with their IoT strategies, such as application enablement, machine learning, industrial connectivity, and, increasingly, augmented reality.

Platforms allow companies to rapidly iterate as they build new IoT applications and solutions. This is crucial right now, as the IoT space is still maturing and companies are determining what works and what is needed in the market. Platforms also help companies future-proof their IoT strategies, as the best platforms will continue to add new capabilities and features to match the evolution and maturity of the market.

PTC makes ThingWorx available to partner companies and solution builders, which, in turn, use the platform to develop new solutions and applications that they sell to end customers. These solution builders can be system integrators, hardware companies, or other software companies. PTC has developed a robust ThingWorx partner ecosystem that offers companies multiple ways to take advantage of the platform and its many benefits.

Additionally, PTC uses ThingWorx for its own internal development of new connected solutions that are sold through its well-known solutions business, focused primarily on computer-aided design (CAD) and product lifecycle management (PLM). An example is the Navigate application from PTC – a PLM-focused solution that has emerged as one of the best-selling solutions in PTC history.

Talk to us about pricing models. What are they, which are the most popular and which ones do you see has having the longest and greatest run?   

The IoT Transformation Advisory Practice at PTC spends a lot of time looking at pricing and business models. One of the things that we most often emphasize to our customers is, once the strategy around deciding what to connect and what data you can collect is set, do not try to copy and paste business models. There is rarely a one-size-fits-all approach when it comes to IoT business models, primarily because each customer could have a different set of needs and/or objectives. At a higher level, this is where companies tend to struggle with generating new revenue through IoT. The pricing models that work start with understanding the needs and aspirations of the user of the service. The company needs to understand what the user is willing to pay for and the specifications that are included.

In today’s world, opting in and out of digital services is commonplace – it could be something as simple as cancelling a Spotify account or it could reach the level of an Industrial IoT service. The pricing models with the greatest and most sustained adoption will fit the evolving needs and expectations of the customer. Because the companies providing the new services will likely have insights into their customers’ operations, they’ll have the opportunity to have access to changing behaviors and shifts in their customers’ business.

As we’ve seen our customers’ journeys evolve, we’ve started to see innovation possibilities in the context of outcome-based design as well. Outcome-based design will continue to be important because it helps to align the design and engineering teams and more closely connects them to user insights that drive more targeted innovation and a faster time-to-market, all in the context of the customer experience.

Who in the organization plays the most important role creating an IoT monetization strategy?

It seems that there’s a common misconception that there’s one person who is most crucial to the development of an IoT monetization strategy. To be successful with a monetization strategy, it can’t fall solely on the shoulders of the CIO, CMO, CTO, etc. There needs to be a cross-functional team that provides input from each member’s respective discipline. IT, marketing, and finance can all play important roles in the development of the strategy, and it’s important that there’s a balance between these perspectives. When I work with customers, establishing a cross-functional view is a critical first step that I help them with.

If the CIO or another executive is in the lead role, he or she should reach across the hall and ensure that team members that spend all day thinking about customers and have direct engagement with customers are part of the team. This could be someone as high up as the CMO or it would be a more focused product marketing manager or director. Marketing will need to be a part of the solution to help guide the go-to-market strategy and execution.

So if a company wants to begin monetizing IoT, what’s the go-to-market approach they should take?

I work with companies that, for centuries, have been successful building their businesses with business models largely driven by the sale of physical products. While aftermarket services have also been a source of value (spare parts, component upgrades, warranty services, etc.), the strategy by the naming associated with “after” has been just that.

My background is working with companies that produce physical products. Now that I am in software, I have gained an appreciation for the importance of communicating in advance the availability of new services. This comes back to the critical role that marketing plays. Traditional and forward-thinking marketing efforts, along with the use of insights that you have from the customer and user are vital to connecting with your market.

As we think about how these new services will be sold, it’s important to consider that most sales executives could be used to getting paid in a certain way for selling a physical product. If the new service that is introduced requires a new selling strategy – perhaps one that requires more support from marketing, inside sales, or aftermarket services – both the learning curve and overall motivation for the sales executive needs to be considered.

If your strategy is to drive rapid adoption of the new service from your customers, at least at the initial launch of the offering, having a team that is dedicated to service with a focused understanding of the offering and a focused incentive or rewards system will typically drive adoption more rapidly and will have access to learnings that you may want to incorporate into the service as you iterate. Remember that your customer’s and user’s needs are in constant evolution and continuing to meet and anticipate those needs is critical to the overall strategy.

Anything else you’d like to add?

To summarize, there are six main components to think about when developing an IoT monetization strategy:

• Strategy – Understand the objective in terms of a broad adoption strategy versus a more selective, premium offering for selective customers.
• User-Centric – Approach the strategy from a user-focused perspective and build your design for revenue off of this.
• What to Charge – Leverage learnings from user-engagement and feedback to understand pricing models.
• How to Charge – Put a focus on making the service easy to adopt or test out.
• Go-to-Market – Remember that this is a team game, driven by the cross-functional group that has developed the overall strategy. Tell a user-centric story and consider who sells and how to keep incentive and reward systems from being barriers.
• Technology – Ideally, the technology that’s offered will have robust capabilities, allow for secure, rapid iteration and scaling, and allow for integration to other business and enterprise systems.