Arrow Panel: Monetizing IoT Means Subscriptions, Selling Data

Sharing generated data and managing subscriptions -- rather than selling connected devices -- are the keys to profitability for the Internet of Things, according to a panel Thursday.

A group of seven analyst, vendor, solution provider and distributor executives at Arrow Electronics' Internet of Things Immersions event in Boston said the effects of hardware price erosion can be avoided by creating revenue streams from subscriptions and data sales.

Consumer data is rarely of value to the consumers themselves, but rather to researchers and industry leaders, particularly in the pharmacological vertical, said Jason Voiovich, vice president of marketing, research and analytics services for Logic PD, a Minneapolis-based system integrator.

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Voiovich said selling the data generated from smart devices is a relatively untapped market opportunity, and can be extremely valuable when pharmacological companies combine it with readings from the field.

Although companies in the health-care vertical must be careful not to sell data that can be tied to a specific patient because of Health Insurance Portability and Accountability Act regulations, Voiovich said similar consumer privacy regulations don't exist in other verticals.

Selling data has been particularly lucrative in the connected breathalyzer market, where commoditization has driven down margins on device sales, said Jeth Harbison, vice president of global sales for Cycle30, a Seattle-based flexible billing and IoT device management company.

The medical and insurance verticals are extremely interested in using breathalyzer readings as markers and biometrics, Harbison said, enabling one company in the market to increase its valuation from $20 million to $500 million by selling the reading information.

Although consumers don't normally make money by selling the information on their connected devices, the collection of this data can help them save some bucks, said Karl Whitelock, director of operations and monetization global strategy at analyst firm Stratecast Frost & Sullivan.

Allstate, Geico, Progressive and State Farm are using GPS-enabled devices to keep track of how people are making turns in their car and then giving drivers advice on how they could make those turns more safely, Whitelock said. Customers can get their premiums lowered if they follow the advice of the insurance companies, he said.

Even though the program reduces premium-related revenue, Whitelock said, insurers are willing to do it because it lowers their risk, which is typically very appetizing for larger companies.

Adjusting business models based on data collected from smart machines is a longstanding practice, dating back to vending machines' charging more for soft drinks on hot days, according to Joseph Zaloker, director of technical marketing for Arrow.

"Vending machines on networks are nothing new," said Peter Semmelhack, founded and CEO of Bug Labs, a New York-based IoT and machine-to-machine (M2M) software developer. "Vending machines on networks have been around for 20 years."

Zaloker told CRN that although end users would normally be the ones obtaining the valuable data, channel partners could make their assistance and services to clients contingent on also having access to that data. He's seen solution providers and end users engage in many creative revenue- and profit-sharing models, with the proceeds sometimes being used to subsidize the cost of the hardware.

"If you're in the path of the data, you need to take a serious look at what to do with it and monetize it," he said.

Options for monetization include matching the information with other data sets or put the readings into a federated database, Zaloker said. He said he expects solution provider revenue associated with the IoT market to flow almost entirely from the data and services that can be sold off of it.

"Nobody cares about the hardware," Zaloker said.

Subscription-based models for connected devices are effective in lowering the upfront capital equipment costs and inducing more customers to join, said Zaloker, though he noted that end users can likely afford low-cost consumer devices. This shift has occurred with jet engines, Zaloker said, where manufacturers nowadays rarely ask customers to pay upfront, instead billing them based on the hours they are used.

Consumers will treat anything that's priced at 99 cents or less -- even if it's a subscription -- as if it's free, which Apple has effectively taken advantage of, according to Whitelock. Customers often forget it's a subscription, Whitelock said, allowing even small amount of revenue to add up over time.

"Don't think you're going to sell things for hundreds of dollars," Whitelock said. "People just aren't that into it."

But allowing customers to pay just 99 cents only works if the market for a product is very large, Semmelhack said. Subscriptions or recurring revenue streams are terrific, Semmelhack said, but lots of these types of transactions must be consummated in order to maintain a solvent business.

Semmelhack pointed to juvenile asthma -- which affects just 300,000 kids -- and said any type of smart monitoring manufacturer would need to make the bulk of their money from hardware in order to survive.

A low price point for hardware also requires substantial upfront fundraising to cover production and early distribution costs, Semmelhack said.

Consumers have indeed gotten used to getting phones for at or near free, but that's in part because they don't remain in active use too long, said Terra Bastolich, vice president for North American sales at NetComm Wireless, a Sydney-based broadband and wireless M2M device developer.

But people don't pull their industrial devices out of the field after 18 months to replace the technology, Bastolich said, and are therefore willing to pay more for the equipment.

Patrick Church, a principal at Santa Monica, Calif.-based VAR Laureate Computer Products, said selling data generated by smart devices is an opportunity the channel can tap into, especially since the information can be used to help consumers. More education is being offered around this topic, and Church said it's something Laureate plans to explore.