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3 Disruptive Business Models Powered by IoT Analytics

3 Disruptive Business Models Powered by IoT Analytics

The Internet of Things is transformative. If your company makes things and it is now making Internet of Things things, it is the “Internet” part that is transformative. Connectivity turns products into something greater than their former selves. In many cases, connectivity enhances consumer value through the addition of features only made possible by an internet connection.

I recently gave a keynote on IoT analytics. In it, one of the points I made was that adding connectivity has the potential to increase the intrinsic value of the product more than the extrinsic value of the product. In other words, the greater opportunity for IoT products is not necessarily in features but in functions, and IoT analytics is a key driver. Direct product usage information enables functionality that was not possible before, and really good information even enables business models that were not possible before.

IoT Analytics Transforms Business Models
Image by Flickr user whyamikeenan

There are some very innovative companies working on some great IoT products, and many are rethinking their entire approach to making money, so I wanted to share some examples with you. To make the point more starkly, I am using the refrigerator as the product in all examples. Following are three transformative business models made possible by analytics from connected products:

1)       Driving service revenue without entering the service channel 

A manufacturer of refrigerators is rethinking their business. Rather than trying to turn their refrigerators into streaming music devices, (as some have done) this company sees revenue opportunity in their device analytics. Refrigerators have thin margins and repeat purchases are few and far between. As a manufacturer that sells into the wholesale channel, they don’t participate in the service industry. Using IoT analytics, this company is the first to know when one of their refrigerators breaks.

Then they sell the repair lead for $20 to a minimum of five pre-approved contractors, ensuring the customer gets a variety of timely and competitive bids. For each broken refrigerator, this company makes $100 of pure-margin revenue, often surpassing the profit margin on the refrigerator itself, and they didn’t even have to enter the service channel directly. All this while making their customers happier.

2)       Product as a service

The next time you are flying in a commercial airplane, look at the jet engine on the wing. That turbine often does not belong to the airline. Instead, they have purchased from the manufacturer 20,000 hours of guaranteed turbine uptime. This is only possible because of the thousands of sensors inside the turbine that track wear on parts and signal when repair is required.

While this has been happening in industrial applications for some time, with the availability of IoT analytics as a simple-to-deploy service, it is also available in your refrigerator. One manufacturer sees an opportunity to shift their business model from selling refrigerators to selling “guaranteed refrigeration uptime” as a service, bundling the cost of the refrigerator and potential future repairs into a low monthly fee. Having real-time device analytics enables the company to essentially apply actuarial science to maintain financial risk of the business model within desired tolerances. This is a huge benefit to a large population of consumers who cannot afford a $1,000 appliance but see the value of paying $20/month particularly when it means there will not be any large surprise repair bills in the future.

3)       Data-subsidized product

In post-war America, it was a common sales practice to give a freezer away to sell the meat inside. The modern-day equivalent takes sophistication to a new level. As a percentage of household dollars spent on food storage, the refrigerator is a sliver of a fraction of the total annual budget spent on the food itself. Knowing this, a savvy refrigerator manufacturer is using IoT analytics to participate in the revenue generated by the consumer purchasing process. The consumer gets the refrigerator for free in exchange for purchasing a minimum amount of their food online and having it delivered. This IoT-enabled refrigerator doesn’t employ particularly breakthrough technology; just weight sensors on the shelves to determine the relative density of food in their refrigerator at any time. That simple data combined with an opt-in account drives purchasing suggestions. The manufacturer is essentially providing an ad-driven refrigerator.

Information is powerful when properly applied. When it comes to IoT analytics, it is simply the most exciting aspect of the Internet of Things because it is the nexus of the greatest efficiency, revenue generation and consumer value. Building a connected device without analytics would be like building a ship without a rudder.

When you think of analytics for the Internet of Things, think past the paradigms you are familiar with. While “google analytics but for a refrigerator” may not be a completely unfair comparison, how the data can be applied for consumer and manufacturer win/win is completely different. You have to think orthogonally to the issue at hand; applied analytics may take you in a very different direction. How is IoT analytics going to transform your business?

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November 19, 2014 Shawn Conahan IoT Analytics

About The Author

Shawn Conahan

Shawn Conahan is the founder of Tellient. His mission is to make smart things smarter. (Just ask his modded Roomba named Robbie with adaptive mapping and navigation.) Shawn also loves infographics, and his all-time favorite is the Carte figurative des pertes successives en hommes de l'Armée Française dans la campagne de Russie 1812-1813 on his office wall.