Recurring revenue business models provide a compelling business proposition: predictable revenue streams, deeper customer engagements, higher customer lifetime value (CLV). What’s not to like? And when you bring the Internet of Things into the mix, there’s even more to like – if you go about it wisely, that is. In this post, we take a look at what works and what doesn’t when it comes to generating incremental revenues from IoT.
First, a caveat. A recurring billing model is not suitable for every IoT product. There are hundreds of great IoT offerings like Sonos speakers and Bluesmart carry-on luggage that do perfectly well as one-time purchases. But if you want to create incremental revenues, IoT-related offers are worth serious consideration.
The CMR model
To generate recurring revenue, a product or service must be consumable, measurable and repeatable. This is known as the CMR model, as described in Bob Harden’s No BS Guide to Recurring Revenue Success. In order to work, you need all three CMR components. This is as true for IoT-related offers as it is for anything people buy on a pay-as-you-go basis — with one crucial difference.
With IoT, what gets consumed and measured on a repeating basis are not products, but data. That’s because IoT products are not disposable, like razors. Instead they’re designed to last. Their value lies in the data they produce, and, more importantly, in the services that data enables.
Take Nickelodeon, for example. Last week they launched Noggin, a new IoT-based subscription service available exclusively on mobile devices. In this instance, tykes are consuming digital content on their parents’ IoT-connected tablets and smart phones in a measured and repeatable fashion.
Products alone are not enough
So, why do certain IoT products fail to qualify as recurring revenue candidates? The main reason is they don’t offer anything beyond a product level. They may provide data, but it can’t be turned into a service that someone would pay for over and over. A perfect example is the HAPIfork. This battery-powered, sensor-enhanced eating utensil supposedly helps you eat more slowly. How? It vibrates when you take too many bites too quickly.
For starters, its value is highly questionable. The $99 upfront cost is a lot to pay for something you can easily do by just setting any plain old metal fork down between bites. And from a recurring revenue standpoint, it’s a no go from the get go. The data it produces just isn’t very useful. Oh, it cranks out streams of info on how long you take between bites. But that’s it. It can’t tell you whether your forkfuls consist of green beans or pecan pie, a handy bit of data for anyone trying to slim down.
The data service it provides is so meager, in fact, that it can’t be monetized on an ongoing basis. To make this work from a recurring revenue standpoint, you might start by slashing the whopping price tag. It’s a barrier. Instead, the high cost could then be spread across a reasonably priced subscription service designed to give dieters highly personalized weight loss, eating and exercise coaching dynamically tied to the data the fork captures.
Two companies that get it right
Now let’s take a look at a couple of IoT offers that do work from a recurring revenue standpoint. One key they share is that they each employ IoT data to create services that customers can comfortably afford by way of subscriptions, usage, or a combination of the two.
With Farmobile, farmers can harvest rich data from their farm equipment to increase crop yields and profits. The data is valuable enough for them to pay the $1250 annual fee. So valuable in fact, that they can actually sell their data to farm equipment manufacturers that covet it.
Euclid monitors the presence of shoppers’ cell phones in brick and mortar stores to give retailers a vivid portrait of foot traffic and buyer loyalty. Basic insights are free, and more advanced reporting and analytics are available in two subscription tiers.
An added bonus from IoT: customer data
Of the many advantages companies like these get by offering recurring billing options, customer data may be the most valuable. With its data-centric nature, IoT offers it up in spades. For example, with Noggin, Nickelodeon will gain a goldmine of insights into exactly what, when and how long kids watch the company’s shows on mobile devices. It can then use that data to further hone their mobile subscription offerings.
So if you’re interested in launching an IoT initiative, it could well pay off handsomely to add a recurring revenue aspect to it. You can learn more about what it takes to do recurring revenue well in the No BS Guide to Recurring Revenue.