Sure, the Internet of Things could create hundreds of billions of dollars in new markets but the question is: who will be the winners and losers in this new marketplace? What are the driving forces behind IoT and what are the implications for companies developing strategies in IoT? How should you innovate to ensure you grow your business without being disrupted or “Amazoned?”

Let’s examine these issues in a bit more detail then review a framework for evaluating IoT strategies and the implications of how you should be developing your approach to monetizing IoT.

Power by the Hour and Other Driving Forces Propelling IoT

As with previous waves of technology, smaller, lower cost, and more powerful computing devices and sensors are helping propel the Internet of Things. Another critical factor in the equation is ‘connectivity.’ Standard protocols and electronics drawing less power while offering greater bandwidth are other factors tying this enormous variety of devices together into productive networks. The result has spawned entirely new types of devices, capabilities, and services at lower cost to consumers and industries. This in turn has driven companies to develop new applications that provide greater value and reduce costs in a virtuous cycle.

Many new innovations are being developed—not just in the technology–but in revolutionizing business models, changing revenue streams and disrupting established markets and industries.

Jet engine manufacturers can now sell “power by the hour” as a service instead of jet engine hardware as a capital expense. Medical device companies now sell MRI imaging priced per image instead of expensive machines. That enables them to add value, get into new markets, and extract revenues from smaller hospitals they could not previously reach.

These examples extend across industries, companies, and consumers with new recurring revenue models, subscription-based pricing and pay-per-use models. These areas provide fertile territory where innovative companies are finding better ways to satisfy their customers, seek greater differentiation, and enter adjacent and new markets.

Implications for Your IoT Strategy: Link Monetization to Customer Value

Every company will have different monetization options available to it depending on its industry, market segments, product, technology and other variables. What is critical is linking your monetization approach to how you can create new value for your customers. The image below highlights a number of ways you can streamline operations, reduce costs, add new value and increase revenues. Consider which of these you’ll use to hone your value proposition and identify new ways to leverage IoT to better meet your customers’ needs.

Examining Monetization Opportunities in Five Dimensions

Although there is not enough space in this article to examine multiple industries and company types, there are five key dimensions or characteristics that heavily impact monetization strategies and opportunities. Looking at companies across these five dimensions can help pinpoint new value creation, key success factors, product strategies, ecosystem partnering, competitive threats and monetization opportunities. You should consider where you lie in these dimensions and consider what the best IoT strategies are for your company:

• Large vs. Small companies
• Incumbents vs. New entrants/Disruptors
• Industrial vs. Consumer
• Product vs. Service
• End-user products/apps vs. infrastructure/platforms

Here are just a few things you should consider in your IoT strategy in each area.

Large vs. Small companies

Large companies should actively explore new technologies, consider partnerships, build ecosystems, participate in standards, set up trials and encourage experimentation. Schneider Electric is one company that is leveraging their strengths and even set up a Silicon Valley Innovation center to help foster new technologies and partnerships. Most importantly, leverage existing customer relationships for insights into nascent needs and test beds for your new offerings.

Small companies with fewer resources need a tight focus. Identify ways to obtain feedback and gain traction quickly. Think beyond the technology and products to how you can bring your new offerings to market efficiently and monetize them through unique business models. Also consider partnering with larger companies to enhance distribution, awareness, and credibility.

Incumbents vs. New entrants/disruptors

If you enjoy an incumbent position with large market share and strong customer relationships, leverage that to provide your new offerings and/or partner with third parties to bring their offerings to market through your channels of distribution. Companies like Bosch, Siemens, Honeywell and similar industrials can leverage their power positions if they don’t become complacent and fall prey to the Innovator’s Dilemma. If you’re a new entrant, you may want to partner with existing companies to leverage their products and channels as well as get to market efficiently and increase your credibility. If you have a point product or service, you may also need to partner with a larger company in order to provide a “whole solution.” If you’re truly disrupting the market, you’ll need to consider new business models, new distribution approaches and alternate paths to partner in the ecosystem.   

Industrial vs. Consumer

If your company is selling to other businesses, look for ways to leverage IoT to offer new services, reduce your own costs, streamline your supply chain, and price based on usage or other revenue models.

If you’re focused on consumers consider how you can combine new technologies with your existing products to provide more value. Also examine how you can best establish an ongoing relationship with customers through subscription or usage-based pricing -as opposed to only a one time transaction or sale of a product or device.

Product vs. Service

Product companies with hardware devices should consider ways to turn one-time sales into ongoing revenue streams. These may include value based pricing with SAAS models, subscriptions, pay per use or other ways to connect pricing to ongoing value which can deepen relationships with customers.

Service companies may be able to add new value by integrating IoT devices, supporting them, managing data flows and monetizing these new value added services. Partnering with IoT device companies may also be fruitful. Companies like Comcast and ATT for example are in the “cat bird's seat” and can deliver and subsidize devices as part of their Smart Home strategies.

End-user Products/Apps vs. Infrastructure/Platforms

Selling an individual app, device or product within certain markets will require a great deal of differentiation – otherwise competition is going to drive down prices and margins. Think niche positioning and partnering with bigger players to leverage their market presence.

Companies with strong market positions that can drive platform standards like GE with their Predix platform or RTI with its middleware for the Industrial Internet of Things can create a great deal of new value. Key for these platform vendors will be lining up partners, building ecosystems of partners, and attracting developers to leverage their offerings.

Plotting Your Course to Monetization in the Internet of Things

With so much growth and opportunity in the IoT market, the key for monetization will be focus.  Depending on the type of company and offering you bring to market consider where you fit in the five dimensions above. Make sure to link monetization to key customer values that reduce costs, increase revenues or improve user experience. Consider how you can leverage partnerships, ecosystems, and value chains. And most importantly, think about innovating not just with technology, but also with unique business models and differentiated pricing.

If you’d like to hear more from Chris, check out his IoT predictions for 2017 and his post on Amazon’s IoT strategy, which is titled “Amazon Developments in IoT: A Force to Be Reckoned With.”

Chris Kocher is a managing director of Grey Heron a management and strategic marketing consulting firm. He is a 30-year veteran of Silicon Valley and multiple innovation and investment cycles. Chris brings a wealth of strategic and hands-on operating experience to help CEOs, executives and investors build revenues and shareholder value. He has consulted with over 130 companies on innovating with new business models, product strategies and monetization in disruptive markets and established industries. Chris has held management and executive positions at HP and Symantec in addition to advisory roles at several start ups. He can be reached at kocher@greyheron.com if you’d like to discuss how he can assist you in growing your business or follow him on LinkedIn.