The Internet of Things: Moving From Cost Savings to Revenue Generation

We’ve all read plenty about the rise of the Internet of Things (IoT), including its exponential growth. The number of connected devices alone is expected to explode in the next few years, with forecasts for new devices by 2020 ranging from 20 billion to more than 200 billion.

Analysts predict that IoT technology will support US$273 billion in spending on services alone in 2017, mostly on professional services to design, install, and operate systems.

Turning IoT data into money is not necessarily a straightforward process,. t requires knowledge of customers to be able to offer the right item to the right customer in the right way

With all that growth and spending, many companies are struggling to settle on the right IoT application or justify the capital investment that the technology may require. In many cases, this difficulty is due to the fact that, while it may be clear how connected technology can save money – by, for instance, making operations more efficient or allowing workers to do more – it’s often less obvious how IoT applications might generate new revenue.

Indeed, for many executives, the idea of locating value in the combination of physical and digital information is still new. In this article, we look specifically at monetizing IoT technology, exploring strategies common in the software world – where information has long generated value – and how those strategies may apply to other industry sectors.

Making the value connection

In the simplest form, IoT technology takes inputs from the physical world, uses digital technologies to derive insights from those inputs, and then makes outputs available for use back in the world.

In linking the physical and digital world, the IoT has another impact as well.

Traditional physical products create value for customers only by virtue of their performance: A standard lightbulb is valuable based on its brightness, efficiency, and lifespan. With connected objects, information also becomes a key determinant of value: A smart lightbulb is valuable not just because it can brighten a room, but because it can enable automation, scheduling, remote controlling, and other abilities.

Yet, due to possible unfamiliarity with the potential market opportunities, many leaders are taking a wait-and-see attitude toward IoT technology. A recent MIT and Deloitte survey of IT executives revealed that most of their companies intend to leverage IoT-generated data to pursue only small-scope applications aimed at efficiency improvement.

While it is certainly prudent to start small and scale applications as they succeed, thinking big is also a benefit. And for businesses that need to rationalize initial tech investments, using IoT technology to generate revenue may be the key.

Monetization drivers

Turning IoT data into money is not necessarily a straightforward process, however. It requires knowledge of customers, and the governance capabilities to take advantage of that knowledge, to be able to offer the right item to the right customer in the right way.

To develop these data governance capabilities, IoT players can learn from an industry in which information has long been a primary source of value – software – and explore the monetization drivers that leading firms are leveraging.

Selling technology in the software world has evolved from selling packaged software to selling services, building relationships focused on driving value to customers, and meeting customers’ expectations for flexibility in consumption. From a monetization perspective, this means that new business models are expanding and becoming the norm.

For instance, some content management services leverage the “freemium” model: A free service includes a personal account with limited storage and file size, while the premium service allows more storage, bigger file size, more users, enhanced collaboration, etc.

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