How to Turn Your IoT Solution into Recurring Revenue

By Lou Lutostanski, vice president, Internet of Things, Avnet

Companies in almost every industry are investing in Internet of Things (IoT) applications with high hopes of creating new revenue streams. For instance, nearly half of manufacturers (47%) surveyed by PwC last year are already offering IoT products and services, with expectations that the revenue driven by IoT-based solutions will increase an average of 10% over the next five years.

But developing one-off IoT-enabled solutions for customers merely results in one-time revenue transactions. A more sustainable business opportunity lies in moving from simply selling a product to selling a consumable service: subscription-based IoT solutions. These models help companies generate recurring, predictable revenue streams through fees charged for pay-as-you-go usage of the IoT application, the valuable data it provides and the ongoing services to support it.

Expanding the customer base

Offering an IoT subscription model is a great way for customers to access a product or service that might otherwise be cost prohibitive, especially because they don’t need to worry about installation, maintenance and operation of the solution. Businesses can use the data they collect to create smarter ways of operating. For example, using real-time insights can reduce the cost of inventory management, speed time to market and minimize downtime, among a host of other strategic benefits.

IoT is also capable of generating new recurring revenue streams from customers that haven’t typically employed digital tools, but now see opportunities to remotely measure, monitor or control something. Farmers, for example, are leveraging IoT at increasing rates by using low-cost sensors, drones and machine learning algorithms to improve farm productivity, reduce spoilage, monitor supply chains, manage water and much more.

But companies new to a recurring revenue IoT business model will inevitably confront a number of unfamiliar operational challenges, such as customer management. An IoT subscription model can have multiple users, which requires taking on the complicated task of managing records and permissions of subscribers. Manage them poorly, and you’ll end up damaging the business-client relationship.

Invoicing is another hurdle. What is the best way to bill for IoT-based subscription business models? How do you manage this when customers use different payment options, subscription levels or add-ons? What services and data are included, and how do you track consumption?

Overcoming implementation challenges

Perhaps the greater challenge for monetizing IoT stems from implementation. IoT isn’t free. There is the cost of the device, the cost of connectivity and recurring expenses to factor in–and it all requires an infrastructure.

This infrastructure must be highly secure to ensure customers’ data integrity. Even the most experienced IT departments don’t always have the capabilities in-house to tackle the biggest questions around security. Security in IoT is more than just a software update or encrypted chip. You must consider a security scheme from the beginning of the product roadmap through deployment and updates.

This is where a trusted supplier and development partner can be invaluable. Consider field installation and maintenance of the solution. A strong partner can provide certified staff with technical acumen and the resources needed to deploy and maintain the solution at a much more affordable price point than hiring and training internal staff.

Finding the right partner

There are only a handful of partners today that can offer critical design, development and deployment capabilities for companies grappling with IoT monetization –and that all takes time and money, too. Avnet offers a cloud-based software platform and components to help jumpstart the development of IoT solutions for recurring revenue. We’ve taken the best components for IoT development and turned them into a market-ready solution that is 80% complete out of the box, ready to be customized to your needs.

Solutions like these enable new IoT entrants to deal with the security risks, unexpected downtime, low efficiency and information latency that often hinders a developer’s ability to capture the full potential of IoT—without hindering their ability to get to market faster than the competition. Partners can not only help mitigate these risks, but they can help generate intelligence that will make them more productive.

IoT has opened the doors for new business opportunities which, in turn, have helped companies explore new revenue streams developed with advanced business models and services. To take advantage of these new business opportunities, companies need to rethink how they approach monetizing solutions. Recurring revenue models offer the best route toward realizing sustainable revenue streams. A partner like Avnet that offers all of the capabilities that companies need to generate revenue from IoT, can help overcome the challenges that many newcomers to IoT are ill-prepared to address on their own.

Lou Lutostanski

Lou Lutostanski is vice president of Internet of Things (IoT) for Avnet.

Mr. Lutostanski works across the company to identify and create opportunities to leverage Avnet's capabilities and end-to-end ecosytem to expand the company's reach and expertise to entrepreneurs, startups, leading technology OEMs and other IoT innovators.

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