Despite the massive numbers in scale and economic potential that industry analysts forecast for the Internet of Things (IoT), there seems to be a distinct cynicism the industry just can’t seem to break. Recently, Tata called IoT a solution looking for a problem. With a term so broadly used, it’s easy to see how Tata would come to that conclusion while ignoring the real value of IoT. When smartphones began taking off with the advent of the iPhone, many questioned the value of mobile computing. BlackBerry had a dominating presence in enterprise with email as it’s flagship function, Palmpilots lead the category for PDAs, and Pocket PCs such as the Motorola Q and HP’s iPaq made the struggling case for mobile Windows. With the iPhone, it wasn’t just the breakthrough user experience that let it become the leading platform that it is today. The role of apps like Angry Birds, Shazam, Bump, and the like, propelled the attraction of smart devices. For many, these killer apps acted as the impetus to adoption.
At AppCarousel, we’ve long talked about how platforms become successful and are able to attract such killer apps. The three critical ingredients have always remained the same for platforms and devices. Developers want to work with those that are:
- Easy to build great experiences for
- Easy to distribute through
- Easy to make money with
For those developing IoT devices, these attributes still provide a strategic formula, but likely involve differing tactics and perspective.
IoT devices are often purpose built with limited use cases, meaning building experiences for such devices isn’t necessarily about the device itself, but rather a collective connected experience with other devices and services. This can be seen in the Nest family of devices, and in particular, the Works with Nest program. Nest is not simply a smart device that connects to a network. It empowers partners and developers to work with their line of smart home products in ways Nest couldn’t possibly do alone. Philips Hue Lights can turn on and off when a Nest device detects motion. These in turn can trigger custom IFTTT that users create to meet their unique needs. This is the fundamental power of IoT: integrating devices and services at scale as to unlock value in how we live, work, and play. Without standardization in how devices communicate or how functions integrate, there are impediments for developers to creating new innovations and value for the market.
Distributing partnered products and services for IoT is a significant issue. Distribution is deceptively complex, with more than just moving some bytes from one place to another. In recent history, the major mobile platforms created their respective app stores to facilitate this entire value chain, but the App Store or Google Play aren’t typically applicable for many IoT products and services. The app stores simply aren’t the appropriate place for hardware features, service plans, or firmware packages. Programs like Works with Nest are a step in the right direction, but now doesn’t provide the same smooth process that mobile consumers or developers are accustomed to. It only provides a showcase for compatible products, leaving consumers to figure out how to assemble a solution on their own and partners scrambling to figure out how to fulfill orders on their own. When looking at distribution channels for your IoT product, consider:
- How will users discover new software and services?
- How will they know it’s right for them?
- How will users get what they’ve purchased?
- How will users manage what they’ve purchased?
- Does the distribution chain fit your business model and will it evolve with you as your business changes?
Driving revenue from connected products is not always a straight path. While getting a product off the ground and getting it into the hands of customers is the first priority for many IoT companies, selling hardware for a fixed price and hoping for perpetual growth has not been a formula for success. Looking at a few industry heavyweights, it’s clear that the markets are searching not just for product innovation, but also business innovation. Fitbit and GoPro saw initial success selling their products for one-time revenue, but without continued engagement and opportunities for upselling, have largely failed to please their investors.
Hardware manufacturers are quickly realizing that they must become software and service companies to stay alive and find continued growth. This shift has prompted Jeff Immelt, CEO of industrial giant GE, to invest heavily in digital initiatives and proclaim, “Every company has to be a software company.” Software is not only providing the deployment and development scale necessary for growth, but also provides business model flexibility that hardware alone cannot provide. Where “as-a-service” models have been popularized in the world of software, the same is now possible for devices. Wireless carriers have been exercising this model for years: your physical phone may be free, but a monthly subscription is where the device subsidization is recouped and additional revenue is generated. It’s getting to the point where companies like GE are no longer selling engines, but rather the outcome of thrust. These new business models are redefining the relationship between businesses and their customers, offering businesses new ways to generate profits and customers with improved experience and accessibility.
The killer app for IoT is monetization. It is the only engine that will keep companies alive and thriving. It allows organizations to align their interests with their customers. It enables people to gain faster access to new technology at scalable costs. As declared at the opening keynote at this year’s IoT World, “Eventually, the business model is the only feature.”