Traditionally, companies don’t get super creative when it comes to business models – they simply create a product, place it on shelves, and generate revenue from selling it. Some Internet of Things (IoT) companies adopted this approach, which is, undoubtedly, more commonly used for selling perishable products. They seemed to convince themselves that since their solutions physical objects, they have something in common with cans of Coke or dairy. Sadly, this approach limits their IoT devices, which are, unlike Coke and dairy, updatable and extendable. 

Instead of selling a product and letting the relationship end, disruptive IoT business models offer ways to engage with clients on multiple levels, thereby creating more value and for a long time. In this blog post, the JataApp team is going to unpack business models that have revolutionized the IoT market, helping companies set the tone for a bright future. Based on our experience in building software for IoT, we’ll also recommend effective pricing models that can open a world of opportunity to your business.

What’s the IoT business model?

A business model offers a framework for creating and providing value to customers. Many vendors, however, simply add IoT sensors to the products, build a dashboard to show the data, and think that they’re pretty much done. 

In reality, such an approach offers customers short-term benefits and doesn’t help to leverage unique features of IoT products. Companies need to narrow-focus their attention on both customers’ needs and IoT functionality. To deliver the real value, they should strive to engage with customers through various touch points.

Business models shaking up the IoT market

Creating long-term value for clients is the key aspect of effective IoT business models. Let’s find out what models are dominating the market today.

Subscription-based model

Instead of a one-off sale, you can create a lasting value to your customers through a subscription model. This strategy is quite common for software products, but in case with IoT technologies you can offer both hardware and software as a service. This allows you to not only develop a more interactive relationship with your customers, but also better predict your revenue streams. 

Moreover, your IoT solution gathers data about your client’s environment, enabling you to better understand their needs. These valuable insights help a lot when it comes to upgrading the functionality of your product or adding new features. 

Take one of our client from France as an example. They offer an IoT-driven power bank rental platform. As you might have guessed, all customers need to do is subscribe to their services and boom –  employees can now be less attached to their desks and work where convenient. Staff members can no longer run the wires along the working space, the halls, and maybe even outside the building like a fictional character, Dwight, from the beloved sitcom The Office

Powerbank rental platform

Powerbank rental platform functionality

 

Another client from Switzerland, a company that develops smart electric charging stations, also lets users subscribe to their software to monitor performance of the stations remotely. Whether it’s support administrators, companies that rented or purchased the stations, or end users who installed them for personal use, everyone can enjoy their subscriptions, solving problems with electric stations from the comfort of their couch.  

Software for electric charging stations

Software for electric charging stations

Outcome-based model

Exactly as the title says, the following model means that users receive a specific outcome. Rather than purchasing an IoT device, the client can pay for their experience with a solution and then turn it back in a relatively short period. The maintenance, ownership, and performance management lie on the product maker’s shoulders, while a client skims the cream, enjoying the final outcome. 

This business model is particularly common in the transportation industry. As an example, Nextbike, the German bike sharing company that offers on-demand access to bikes and charges users based on how much time they spend riding. Users scan the QR-code, receive a code to unlock the bike, and start their ride. Meanwhile, the company traces the mileage and bike’s location. 

Nextbike app

Nextbike app functionality

Razorblade model

In some cases your IoT solution may require your customers to purchase other products, so that they can make use of it. In fact, the razorblade business model is beneficial for IoT vendors who sell devices whose consumables should be continually replaced. If the client runs out of these consumables, the IoT device has no longer any value to them. Moreover, if the customer spends a lot of time searching for consumables, they’re not likely to use or buy the product again. 

Therefore, the main task for a vendor is to make sure that the client can automatically reorder consumables, whenever necessary. 

For example, HP sells not only connected printers, but ink cartridges as well. Customers can automatically order cartridges, once their supplies begin to run low. 

 

HP Instant Ink

HP Instant Ink

 

Basically, you can use the razorblade model when selling any IoT device, which requires reordering parts. This approach can help alleviate a lot of client stress while also giving you a chance to embrace cross-selling. 

Data-driven model

There has been so much hype around IoT solutions lately, mainly because they can gather data in real time. When you have a device for collecting data on a customer, you know them inside out. Big Brother (in reality, not so big sensor) is watching humans, say, every time they’re crossing the sidewalks while riding on their scooters. The city’s officials can later use the data on how much time each vehicle spends on a sidewalk and in what areas with the purpose of improving the state of infrastructure.

Many businesses are, in fact, willing to pay handsomely for gathering data to better understand their clients. For example, companies may want to get the data on the energy consumption of their employees to enhance energy efficiency of their buildings. 

One of our clients, a German company that delivers a building energy management system (BEMS) for commercial buildings satisfies this kind of need. The solution reviews the indoor and outdoor environment every five minutes and makes decisions related to the heating and cooling systems control based on the available data. Enterprises benefit from the data on the conditions inside and outside the building, cutting down their energy expenses and CO2 emissions by up to 40%. 

 

Data derived from the BEMS

Data derived from the BEMS

Asset sharing model

It’s often quite frustrating when you have to buy expensive hardware, which you don’t actually need to use on a full scale. The asset sharing model was born to prevent such situations. Under this model, customers can sell the extra of the product back to the market. The idea behind this approach is to maximize the use of an IoT solution as well as reduce the price for a customer. Win-win!

Let’s give an example here. TroonDx is an Indian peer-to-peer energy trading platform that enables users to sell surplus of the energy generated by solar panels to other neighbors. In this case, solar panels are shared assets between neighbors. Prosumers (those who generate electricity) no longer have to worry about buying costly solar panels – they know that they’ll generate revenues on sunny days. 

How TroonDx works

How TroonDx works

Disruptive IoT pricing models

Venture capitalists love startups that focus on ongoing revenue streams rather than those driven by the one-off sales model. Below you can find pricing models that IoT startups should consider if they want to compete successfully today.

Solution cost plus one-time premium service

One of the most effective ways to sell an IoT solution is to offer an additional service worth paying for. This is a pricing model we can see in the business of wearable devices. Fitbit makes a good example here. Its fitness trackers contain various health and sleep analytics, with the premium service offering a 12-week training program for a fixed price. The solution also lets users compete with their peers and shows how fast they’re progressing.

 

Fitbit premium

Fitbit premium

Solution cost plus ongoing premium service

In the perfect world, the initial sale translates into a monthly recurring subscription. This will be familiar to anyone who watches movies on Netflix or listens to music on Spotify. IoT startups should look up to these subscription titans and think of ways to make customers repeatedly buy their services.  

Unlike the aforementioned Fitbit, Apple focuses on putting users on the subscription needle with its Apple Fitness+. Apple Watch owners can pay $9.99 a month and access the premium service – thousands of audio and video workouts and guided meditations. What users are also getting is personalized metrics. Since consumers can track the progress in their fitness journey, they are more likely to opt for recurring premium service rather than a one-off purchase. 

Apple Fitness+

Apple Fitness+

No solution cost, ongoing premium service

This pricing model means that a vendor doesn’t charge anything for a hardware, but hopes to break the bank by nourishing the long-term relationships with the customer. However, this option is viable for mature companies only. Small tech startups would be frightened by the very idea of making a loss on hardware at the beginning of their business. This is mainly because they have to manage the working capital, when their service hasn’t resulted in sufficient profits yet. 

No solution cost, no service 

Yes, you have read this title right. Such a pricing model can be safely used in the B2B2C world. End users don’t pay a thing, but still receive access to the IoT device. Think of Aviva Drive. For those who don’t know, it’s the insurer’s application that monitors clients’ driving behaviors and rewards law-abiding and careful drivers with a certain amount of savings. 

 

Aviva Drive app

Aviva Drive app functionality

Consider your business model carefully

In all of these business and pricing models, the key is bringing value to customers, so that they will be willing to come back for your products and services. Budding startups don’t think of selling hardware as the end goal. Instead, they strive to engage with their clients, learn more about them, and hopefully become inseparable allies for the long term. 

Now, you know a thing or two about business models, so you can start thinking about bringing your IoT brainchild to life. If you need expertise in software development or business analysis, JatApp will gladly help you out in this respect. We’ve been delivering software products for IoT startups for more than seven years now and are proud to witness them scaling and thriving on today’s market. During all this time, we’ve been awarded with many rewards, like being one of top 50 software companies in the mid-market and top 1,000 B2B outsourcing software agencies in the entire world. 

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