How to monetize IoT – challenges and business models
Background/challenges We have all heard and read a lot about the exploding opportunities that come with IoT. Despite all the excitement and hype created around this area, service providers will have to overcome several complex challenges to realize the full potential of IoT. The challenges that surround IoT include: interoperability, security, customer experience, business models as well as building a portfolio of IoT products and services for vertical markets. However, one of the greatest challenges is monetization.
Yet, despite these challenges, there is no need to shy away from harnessing the exponential growth opportunity that exists in the IoT space. The key to monetization is having the right strategy. Together with TM Forum, Ericsson has created a monetization tool to help operators design the IoT monetization strategy. This new tool enables service providers to use monetization patterns and models to create an IoT monetization strategy.
Monetization models versus business models
What is the difference?
We can view the business model and the monetization model as two sides of a coin. Both models must be well defined and used to drive a profitable business. The objective of a business model is to define a strategy to create and deliver value for customers and profit from that value. Like good storytelling, a business model should have a well-structured plot that describes the sequence of events that should be followed to create and deliver value to a customer. The business model innovator Alexander Osterwalder has developed a handy tool that can be used to represent the business model. In his model, monetization is one of the key building blocks. However, it’s described as a revenue streams block in the business model canvas. It captures the sources for generating revenue and the various means to earn it. If we go back to the previous analogy of comparing the business model to storytelling, a monetization model captures the tone and theme of a story. It helps to set the stage to support the business. So, an effective monetization model must describe the central and supporting characters, contractual relations, and sources of revenue.
An example of a monetization model is illustrated below:
Enabling IoT monetization
So, as the IoT concept matures and operators can start looking beyond connectivity, companies need to focus on how to generate revenue from the IoT business. The key to success in monetizing IoT lies in the monetization structure being able to support all business relationships and all levels of charging and processes across the entire billing chain. Service providers should subsequently develop monetization and business models that fit the services offered, as discussed above. Examples of IoT business models are: platform model in an ecosystem; pay-per-use; subscription for IoT users; and revenue sharing, to name a few. Additionally, using the right pricing strategy is a critical factor in generating revenue streams, as the final building block.
A monetization model should help to answer the following three questions:
- What do you want the customers to pay for?
- How do you want to make money from the product offer?
- How do you want to charge the customers for the product offer?
In this article, we have begun to scratch the surface of how to monetize IoT. This involves addressing the challenges with a suitable business model and subsequently turning efficiency into profit. The monetization model is a vital part and the final building block of the business model. It is important that it reflects and is tailored to the product offered.
For a more in-depth article on monetization patterns and to look further into how to build an IoT monetization model, read my next blog post: How to monetize IoT – patterns and models.
For more information on IoT Monetization visit this page.
If you would like to hear more about these topics, please join me in Amsterdam at the Internet of Everything InFocus 2017 conference. On Wednesday October 18, I kick off the Monetization Case Studies track: INDUSTRY INSIGHT: Tools and Use Cases for IoE Monetization. Learn more at: https://ioeinfocus.tmforum.org/agenda/?tab=t4_s10349