Three Ways IoT Will Drive Recurring Revenue in Manufacturing

When it comes to the IoT, smart homes and cars usually hog the spotlight. But from a monetization standpoint, the real action is taking place in smart factories. The Industrial IoT (IIoT) could add as much as $14 trillion in global economic activity by 2030, according to estimates by Accenture. Increasingly, that action will involve recurring revenues. Here are three ways IIoT will drive incremental monetization in manufacturing and what it means.

Outcome-based pricing

The idea of paying for a product’s results—and not for the product itself—isn’t new. For example, jet engines makers Rolls Royce and GE have offered “Power by the Hour” pricing for decades. Instead of buying engines outright, airlines instead purchase guaranteed hours of engine thrust. Customers like these arrangements because they avoid the large up-front expenses associated with equipment ownership. In return, they pay only for what they want—positive outcomes. Better still, they can pay for them over time.

With the spread of IIoT the idea is poised to take off. That’s because with embedded sensors and pervasive cloud connectivity, it’s now possible to verify with certainty whether a product or piece of equipment is actually delivering the results customers are paying for—and how much of a service customers are consuming for billing purposes.

In addition to aircraft, IIoT is accelerating adoption of outcome-based contracts in a broad range of industries, including heavy construction, agribusiness, oil and gas, utilities, transportation, and healthcare.

Manufacturing as a Service (MaaS)

MaaS, also known as on-demand manufacturing, slashes production cycles and streamlines supply chains by enabling customers to order products not weeks and months in advance as they’ve always done, but only as needed, purchased through a consumption model.

The cloud connectivity of IIoT greatly enhances a number of manufacturing technologies that make on-demand scenarios possible, including computer-aided design (CAD), machine learning, and, most critically, additive manufacturing, more commonly known as 3D printing.

No longer limited to rapid prototyping, 3D printing is now being used to create everything from functional machine parts to finished goods. For example, Siemens employs 3D printing to make components for gas turbine blades. Speed to market is a key draw. 3D printing specialists like ProtoCAM can turn around products in less than a day. And it’s catching on. UPS offers 3D printing services in more than 60 UPS Stores nationwide.

Another way MaaS is driving recurring revenues is by allowing manufacturers to monetize their equipment through pay-per-use arrangements. Think of it as Uber for the industrial set. Through IIoT, industrial operators can precisely track to what extent equipment is being used, along with raw materials and other supplies.

Manufacturing Enablement as a Service

Depending on the product, manufacturing can involve hundreds of individual processes and services. With the aid of IIoT, product makers can access a growing number of these services on a subscription or consumption basis. Examples include predictive analytics, condition monitoring, augmented reality, and robotics.

For instance, with sensor-driven positioning solutions from Trimble, industrial customers can remotely monitor, track, and optimize assets anywhere in the world throughout the manufacturing cycle. Predix from GE is an entire IIoT platform as a service (PaaS). And Siemen’s Product Lifecycle Management (PLM) solution enables customers to drastically reduce production times by solving manufacturing problems in virtual space before physical manufacturing ever takes place.

Implications

Product makers who embrace IIoT could see substantial savings in time and costs throughout their operations while enhancing revenues in a brutally competitive global market. But to succeed with IIoT, they’ll need to acquire fluency in recurring monetization, because it’s the transaction method of choice in so many IIoT scenarios. To excel with recurring revenue, many manufacturers will need to shift from selling only one-and-done products to also offering cloud-connected services. Those who can rapidly expedite that transition will have a significant leg up as IIoT goes mainstream.