What does IoT monetization mean for the business models of companies that manufacture machines and devices?
Cutting costs, boosting productivity and achieving new efficiencies: these have typically been the focus points of most IoT projects to date in the manufacturing sector. But in 2018, thoughts will turn to how IoT data might be used not to save money, but to make it.
That’s the view taken at management consultancy Ernst & Young, which this week published a list of five key trends for the IoT in 2018. The firm places the ‘monetization’ of IoT at the very top of this list, ahead of edge computing, the battle for standards and cybersecurity. According to EY, “more and more decision-makers are realizing the disruptive potential of IoT and are likely to […] more effectively use and monetize the data collected.”
This is particularly true for manufacturers of machines and devices, where smarter products that collect and convey data back to the companies that make them have a “value creation potential” that has so far gone unexplored by many.
That may be because exploiting that potential involves some risk and a great deal of fresh thinking, as EY’s global IoT leader Aleksander Poniewierski points out. It will, he says, “demand a redesign of business and operating models that require interoperability of current solutions throughout the entire IoT stack and the need to embed new IoT sensors in existing products.”
Despite the challenges ahead, some manufacturers are starting to think about IoT monetization far more seriously – from companies that build heavy industrial machinery, such as GE and ABB, to those that create mass-market consumer products, from automakers to manufacturers of domestic appliances.
What’s underway here is a shift away from simply relying on the upfront price levied for a piece of hardware (a forklift truck, say, or a lawnmower), and towards a software-based approach that focuses instead on the money that can be made over the lifecycle of that machine, often in the form of a subscription, through analysis of the data it conveys about how it is used, and how often. In some cases, the hardware itself may effectively be ‘free’, if the real money is to be made on regular subscriptions and value-added services based on that data.
In a November 2017 report, The Future of Connectivity: Enabling the Internet of Things, researchers at strategy firm McKinsey neatly sum up the shift like this: “Manufacturers are now transitioning to a device-as-a-service (DaaS) model in which they sell customers a subscription to their products. The subscription covers both the initial device purchase and later maintenance costs, which allows manufacturers to make money even if the products do not require service. In fact, they have an incentive to keep their devices running, since service costs could reduce their revenues.”
A shift underway
That’s a fascinating idea – and one that could be applied to many different kinds of manufactured products and customer segments. This is made amply clear by a recent study of 300 business decision makers in device manufacturing firms across five major markets, conducted by Gemalto, the digital security company currently being acquired by aerospace and defence giant Thales.
The study’s findings lead Gemalto to claim that the device manufacturing industry is already embracing software over hardware as its primary business model in its report, How Software is Powering the Hardware Renaissance. In it, more than four out of five (84 percent) of organizations say they are changing how they operate, with 37 percent claiming they have already made a full shift to a software-centric business model, which places software at the core of how they deliver value and generate revenue.
“The results of this survey validate what we see on a daily basis with our customers as we help them make this transition,” said Shlomo Weiss, senior vice president of software monetization at Gemalto.
“Companies who adopt software-based revenue models will reap three main benefits: long term relationships with their customers, predictable revenue streams and a clear competitive advantage. From gaining insight into product usage, to pay-per-use payment structures and on to new market penetration – all the companies we surveyed identified a real need to transform how they do business.”
Coming soon: Our Internet of Manufacturing event will be coming to Munich on 6 & 7 February 2018. Attendees will get the chance to learn more about how connected technologies open up new paths to increased productivity and profitability for industrial companies.