Developing new business models for success in the IoT

Billions of Internet-connected devices are coming online, poised to gather information in the field and "call home" with updated data. The Internet of Things (IoT) revolution, much like globalisation, has given rise to a more open dialogue for Australian businesses to reach a global customer, to understand them better – freedom for ideas, culture and personal information around lifestyle preferences through ease of access. And with 29 connected devices per Aussie household poised by 2020, according to a recent Telsyte report, there is even more opportunity to stay connected.

It only takes a few moments of reflection to realise that with the rise of IoT, businesses have adapted and developed new models, they are trialing, testing and refining to capitalise on new opportunities. Take HiSmile, the founders of the local teeth-whitening product distribution have created a $10 million business by leveraging connected devices, underpinned by the business' social media sales strategy.

Intuitive models, like HiSmile, not only create great opportunities for innovation but also deliver new revenue stream opportunities as well as cost and efficiency benefits. However, it is important to note that along with these opportunities, manufacturers are presented with a number of challenges.

New threats emerge in new business environments. Remove borders and add policy that might be a few years behind the market and right there you have a number of new variables that can drive business success or ultimately failure. Some manufacturers may find that they need to focus on software development as opposed to the physical hardware design as the value of their intellectual property is increasingly linked to software.

Simultaneously, hardware vendors may encounter issues typically faced by software vendors, like reverse engineering, intentional and unintentional misuse of their products, and of course, piracy.

Each aspect affects profitability by either reducing costs or increasing revenue. The fact is, despite introducing new risks from unauthorised software use, the IoT has contributed immensely to generating new, lucrative opportunities.

Protecting intellectual property (IP) has now become a new emphasis for many vendors because failing to account for it jeopardises the ability to monetise it. To successfully monetise IP, designers need to leverage four aspects of a software strategy:

• Control
• Management
• Packaging
• Tracking

Connectivity helps vendors easily deliver, track and manage end-user entitlements and has eliminated many manual operational tasks and related expenses associated with licensing, while enabling vendors to introduce new products and features more easily.

The connected, intelligent device provides new opportunities for license models – including subscriptions and pay-per-use, which in turn, delivers a captivating user experience.

Improved end-user transparency enables vendors to track usage, see how products are used, and facilitate the development of custom offerings for customers. Customers have experienced an evolution of their own, and their expectations have changed. They seek Internet-based self-service tools, a change that even applies to traditional hardware-only devices. To capitalise, intelligent device manufacturers differentiate themselves by offering hardware-based software with flexible licensing.

A perfect example of this is when Tesla released a software update that would allow their customers to upgrade their car with an autopilot feature. The one-size for everybody licensing approach is no longer sufficient and vendors need develop new ways to deliver a richer user experience and monetise their IP – if they wish to remain competitive in an increasingly larger market.

Devices previously not connected to the internet now are, and they're delivering new experiences supported by creative monetisation of the IoT. For instance, an intelligent guitar can allow the purchase and download of music, along with an ability to use social networks to share recordings. More expensive equipment – once too costly for smaller organisations – is now offered on a pay-as-you-go basis, even for such products as an MRI machine.

The high up-front costs that once kept many away have been overtaken by usage tracking and internet connectivity enabling "pay-as-you-go," which has allowed manufacturers and vendors to reach new markets. The IoT is changing business models as sellers create rich, interactive customer experiences that also generate new revenue.

Still, while IoT providers are introducing new monetisation options, they can also learn some things from the software-only vendors who went before them. IoT connectivity already delivers new experiences from hardware in the field. Feature-based licensing and entitlement management enables manufacturers to provide the same product with different active functions to customers at varying price points.

And the products can be easily upgraded remotely. Naturally, they also want the self-service they are accustomed to, and for vendors, that is a win-win because the IoT should lower support and fulfillment costs.

Smart hardware-turned-software companies have already embraced this transition. They understand the benefits this new era holds for them, and they are embracing tools to develop sophisticated packaging and pricing models.

Intelligent device manufacturers and vendors need to understand the power of software and the power that software has in transforming hardware into solutions.

Businesses that embrace this transition and adopt proper software monetisation tactics, will overcome challenges to aggressively pursue greater market share and reduce costs, all while protecting against IT threats. Those that fail to meet customer demands or try to force rigid solutions on them will soon find the new IoT economy has left them behind.