by Josh Simi, on September 15, 2015
The first and most obvious type of value creation is revenue generation from the end customer or business that is the target of the connected product offering. At the highest level, revenue is typically collected at product purchase (pre-paid) or on an on-going basis (recurring), although a number of hybrid models also exist. A full list of the available IoT strategies and revenue stream models and is outside the scope of this white paper, but some examples include:
Pre-paid.
Connected features and services are available for a period of time (or indefinitely), and the user pays for these services by purchasing a product at a higher price point.
Pay-per-use.
A consumer is only charged for features or resources that they use. A variant of this model is to charge market rates for the resource or feature, which may fluctuate over time.
Pay-for-privacy.
A user’s data defaults to public availability. The consumer is then charged to make their data private or to use tailored privacy controls.
Ad supported.
Connected product options are free in exchange for receiving targeted advertisements.
Add-on capabilities.
Additional add-on features are available as for-pay packages or modules.
Service subscription.
A consumer is charged a fee for use of connected product features, which they can access as long as they continue to pay.
Automated accessory replenishment.
A device determines when an accessory needs to be replaced and automatically ships and bills a customer for it.
Lending/leasing/renting.
A user is given exclusive right to a connected product for a defined period of time. An example of this is home medical equipment such as oxygen concentrators.
Digital/physical freemium hybrid.
A physical device and online services are combined in a package that is free to start, but requires payment to unlock premium features.
The revenue-generating IoT business models above can be applied at any step in the product’s value chain. For example, an OEM that makes lawn care equipment may charge distributors a pay-per-use fee for leasing equipment. The distributor in turn may charge end users a subscription fee for access to Internet-enabled product features. In this way, monetization of the product offering may actually be a chain of business models linked together.
For a more comprehensive list of revenue-generating IoT business model options, download our Monetization Strategies for Connected Products white paper.
