Iot commerce or how to sell an app on four wheels
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So, if the Internet of Things is the future of business, what does it take to sell iot products? This talk explores how businesses need to adapt their business models and commerce systems to take the full advantage of the new world of smart devices, They can achieve success by adding services, using flexible pricing models, utilizing usage data for understanding customers’ needs, building affiliate programs with cross-sell in mind, and seeing each device as an advertising platform.
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Iot commerce or how to sell an app on four wheels
- 1. IoT Commerce or How to sell an App on four wheels? Michael Vax Principal Product Manager hybris, SAP Company Image: heimarck.com/wp-content/uploads/2015/01/Tesla-Roadster-Interior-2016-Wallpaper-Car.jpg
- 2. IoT Products are Different Require Different Business Models Need Different Commerce Tools & Systems
- 3. IoT Products are Different Require Different Business Models Need Different Commerce Tools & Systems
- 4. You are in s/w business “If you went to bed last night as an industrial company, you’re going to wake up this morning as a software and analytics company.” Jeff Immelt, CEO of General Electric, Minds+Machines summit, 2014
- 5. What OS Version is Your Car? • For Tesla the current OS version is 7.0 • Tesla has been updating vehicles through software downloads since 2012 • 7.0 adds new autopilot features that allow the car to stay in its lane, change lanes, and parallel park itself. • This feature is in public Beta • Auto-park in garage is on the roadmap for 7.1 • https://teslaos.github.io/ - open sourced on GitHub CC BY-SA 2.0 Flickr
- 7. CONSOLE SOFTWARE 2.29 - APRIL 8, 2015 New Feature: Set-Top Box Sync Technology Discover SE consoles are now fully compatible with the largest selection of Cable TV, Satellite TV and IPTV set-top boxes in the fitness industry CONSOLE SOFTWARE 2.28 - JANUARY 12, 2015 New Lifescape Virtual Courses including Panama Ride, Costa Rica Waterfall and Artentine Patagonia, BlueTooth heart rate monitors now compatible Apple Inc. products can now connect via BlueTooth to transfer workout data to the LFconnect app and use the device as a secondary workout display CONSOLE SOFTWARE 2.27- AUGUST 19, 2014 Bug fixes and performance improvements for all Discover SE & SI Tablet Consoles, and support for the FlexStrider Variable-Stride Trainer. CONSOLE SOFTWARE 2.26 - JULY 15, 2014 Bux fixes and performance improvements for all Discover SE & SI Tablet Consoles, and support for the PowerMill Climber CONSOLE SOFTWARE 2.25 - MAY 27, 2014 Flipboard added to on-console apps on Discover Tablet console (English Only) – app must be turned on in the systems configuration settings Welsh language added to Lifescape courses and on-demand content screens CONSOLE SOFTWARE 2.24 - MARCH 25, 2014 Bluetooth data exchange for Android devices using LFconnect app Welsh Language added CONSOLE SOFTWARE 2.23 - JANUARY 23, 2014 PaoFit, BullTrainer, Cardio Legend, and Kinomap images now included in the mobile app section on the console Stream Netflix, etc. from iPhone Backend s/w Frontend s/w
- 9. Adding Services PRODUCT PRODUCT + SERVICE +
- 11. For IoT Product We Know how it is Used Checkout ?
- 12. For IoT Product We Know how it is Used Checkout
- 13. From Mass Production to Mass Personalization
- 14. IoT Products are Different Require Different Business Models Need Different Commerce Tools & Systems
- 15. Subscriptions PRODUCT PRODUCT + SERVICE + √Subscribe
- 16. Multiple Degrees of Business Model Innovation BUY-ONCE PRODUCTS PRICE SUBSCRIPTION PRODUCT PAY-NOW PRICE FREE TRIAL RECURRING PRICE SUBSCRIPTION TERMS USAGE PRICES ENTITLEMENTS NO X MONTHS NO CONTRACTS X YEARS
- 17. Your potential customer base One Subscription Plan is not enoughPrice $ $$ $$$
- 18. Your potential customer base One Subscription Plan is not enough • Prime user base Price $ $$ $$$ • Advanced users • Occasional users
- 20. Pay as you drive Citroen offers a novel “pay-per-use” option with the C4 Cactus. Source: europe.autonews.com/article/20140312/ANE/140319975/0/SEARCH
- 21. Insurance – Pay as you Drive Source: https://www.metromile.com/blog/uber-driver-insurance-ab2293/
- 22. Cross-sell Image from Essential Hospitality
- 23. Cross-sell based on order history + Usage Data Image source: community.arm.com/ Cross-sell for IoT
- 24. Affiliates Schedule Service & Part Replacement Included Subscription for Detergent with 3 months free trial period Suggest Replacement Machine Advertise new Fabric Softener
- 27. Loyalty program - Rewarding Purchase
- 28. IoT Loyalty Program – Reward Usage For calories burned For energy saved For miles driven and trips shared For every wash
- 30. connected devices are point-of-sale for e- commerce, search boxes and app stores for services, and ideal place for discovery of a purchase intent.
- 31. Product as a Platform The value of your platform to a partner and the likelihood of their developing to it is directly proportional to the amount of business the partner is able to capture through the platform. http://pragmaticmarketing.com/resources/becoming-a-platform IoT Product API SDK Dev. Community Revenue Sharing
- 32. With different ways to monetize their solutions IoT makers can now afford a negative BOM (bill of materials), by subsidizing the cost of hardware with the revenues from bundled services
- 33. IoT Products are Different Require Different Business Models Need Different Commerce Tools & Systems
- 35. Bundles MULTIPLE PRODUCTS PRODUCT + SERVICE DIGITAL & PHYSICAL PRODUCTS
- 36. FLEXIBLE PRICING PAY-NOW PRICE FREE TRIAL RECURRING PRICE SUBSCRIPTION TERMS USAGE PRICES ENTITLEMENTS NO X MONTHS NO CONTRACTS X YEARS
- 37. Term frequency & length Renewal type Cancelation SUBSCRIPTION TERMS Frequency Cycle type Cycle day BILLING CYCLE PLAN SUBSCRIPTION PRODUCT Subscriptions
- 38. Flexible Pricing & Subscriptions SUBSCRIPTION PRODUCT • One time price(s) • Recurring prices • Consumption based prices
- 39. Subscriptions – Recurring Prices SUBSCRIPTION PRODUCT • Multiple periods: • Free trial first month - $0 • From 2nd to 4rd month - $5 • $3 afterwards
- 40. Subscriptions – Consumption Based Prices SUBSCRIPTION PRODUCT • Usage Units: • API Calls • Km Driven • Customer accounts • Multiple Tiers: $15 $10 $5 1-30 Users 30-100 Users 100+ Users
- 41. Subscription Billing & Management SUBSCRIPTION BILLING PROVIDERS Billing & Payments • Recurring billing • Usage based billing • Billing frequency • Billing date • Middle cycle upgrades & cancelation • Financial reporting and revenue recognition • Different payment methods
- 42. Subscription Billing & Management SUBSCRIPTION BILLING PROVIDERS Account Management • Billing account • Payment details • CC Expirations • Change payment method • Billing history
- 43. Subscription Billing & Management SUBSCRIPTION BILLING PROVIDERS Subscription Management • Active subscriptions and terms • Subscription renewal • Upgrade / Downgrade • Cancelation • Pause/Resume • Self-Management
- 44. “THE INTERNET OF THINGS (IOT) IS TURNING MANY MANUFACTURERS OF "THINGS" INTO FIRST-TIME SOFTWARE VENDORS THAT NEED LICENSING AND ENTITLEMENT MANAGEMENT (LEM) SOLUTIONS” GARTNER, INC.
- 45. ENTITLEMENT IS A RIGHT TO ACCESS A BENEFIT OR SERVICE
- 46. ENTITLEMENT CAN BE METERED - 20 GB of storage - 100 km free OR NON-METERED - Access to a premium feature
- 47. Entitlements as a Link Between Products & Services ONSITE MAINTENANCE EACH QUARTER ACCESS TO KNOWLEDGEBASE TRAINING FOR 3 EMPLOYEES WARRANTY PREMIUM FEATURES PRODUCT SERVICESENTITLEMENTS Smart Device Services S/W
- 48. Entitlements as a Link between Products & Services PRODUCT SERVICESENTITLEMENTS 2 free appointments with Personal Trainer Consultation with Dietitian Access to Premium Reports
- 49. Entitlement Grants Customer Support Online shop Marketing Campaign Third Party Systems GRANTS
- 50. Access Control & Metering ACCESS CONTROL & METERING SYSTEM USER HAS USED X… Subscription Billing USAGE DATA GRANT/REVOKE ENTITLEMENT Online Store Analytics DOES USER HAS RIGHTS TO Y? EXTERNAL SYSTEMS Manage Entitlements
- 52. Customer Support Remote Monitoring Replacement Parts Service Selling Additional Products & Services
- 53. Marketplace to Support Product as a Platform Model Partners Publish to MP Revenue(x%) Buy Partner’s Product Buy device Platform Owner Customers Marketplace
- 54. THANK YOU Getting in touch: Michael.Vax@gmail.com de.linkedin.com/in/michaelvax
Editor's Notes
- The car is well on its way to becoming the most sophisticated mobile device in the Internet of Things (IoT) Connected cars are changing the way we get from Point A to Point B. In the process, they’re opening new realms of monetization for carmakers, service providers and many other industries. Many of those proceeds will involve a range of flexible billing options, including traditional up-front payments, subscriptions and consumption-based recurring payment schemes. Additional revenues will come from enhanced editions of subscription services, like SYNC from Ford and EnForm from Lexus, that carmakers have been offering for some time. New cloud-powered versions of these digital services provide value-added features, such as always-on access to emergency services and roadside assistance, teen-driver monitoring and advanced voice control. Technology innovations will continue to profoundly influence how we price — and pay for — cars. Additional revenues will come from enhanced editions of subscription services, like SYNC from Ford and EnForm from Lexus, that carmakers have been offering for some time. New cloud-powered versions of these digital services provide value-added features, such as always-on access to emergency services and roadside assistance, teen-driver monitoring and advanced voice control. Verizon launched hum, its new aftermarket subscription service. For $14.99 it brings a host of cloud-connected services, including accident notification, system diagnostics and stolen vehicle locator services to any older car with an OBD port. ODB ports are in fact becoming the entry point for a rapidly growing number of cloud-connected mobile apps designed specifically for cars. While many are free, some, like the fleet monitoring app FleetLeed, offer a potentially lucrative source of ongoing data monetization for service providers. The potential for connected cars to do even more for us is far-reaching. They’ll soon be able to check us into hotels, notify people when we’re running late, confirm appointments, make dinner reservations, order movie tickets, even pay for gas and parking — all on their own and without intervention. Enhanced services such as these will likely entail subscription- or usage-based billing mechanisms. There is a reason why Tesla calls its car – An App on four Wheels. Source: http://techcrunch.com/2015/10/20/the-cloud-connected-car-drives-iot-monetization/
- Today we are going to discuss: Why IoT products are different? Which will lead us to changes and new opportunities in applying different business models when selling IoT products Then we will talk about Commerce Tools and Systems to support those business models
- Examples Every industrial company has become a software and data company, overnight. This means you need to start thinking as a software company This means you need to start selling your products the way software is sold
- Tesla is encouraging its customers to think about the car as an app on four wheels. Software updates keep your Model S current with the latest features developed by Tesla. THE WORLD’S FIRST CAR TO GET BETTER AND BETTER FROM THE DAY YOU TAKE DELIVERY Sources: http://my.teslamotors.com/en_CA/service#/tesla-service http://www.fastcompany.com/3052338/innovation-agents/teslas-model-s-has-new-autopilot-tech-and-i-just-sat-behind-the-wheel?partner=rss
- Source: https://www.lifefitness.com/facility/customers/success-stories/48-fitness Software transforms business of Fitness Equipment Company Backend s/w Manage Equipment Learn from Your Cardio Machines: Monitor equipment usage through LFconnect.com and wireless connection. View peak exercise times and learn what equipment is used the most. Information like that makes it easy to rotate equipment, and keep exercisers moving. Connect Your Entire Cardio Portfolio: Detailed asset management helps prolong the life of equipment and offers valuable information about exerciser habits. Life Fitness is the only manufacturer that provides connectivity across all of its cardio lines. Easy Equipment Management: Facilities can conveniently manage configuration settings for multiple cardio pieces from LFconnect.com, without manually updating via USB. Customize your equipment Facilities can build brand loyalty with several customization choices on LFconnect.com. Add logos, messages and background to console screens, or promote custom workouts that keep exercisers motivated. Home Screens: Add branding and messaging to Discover Tablet Consoles. Promote facility news, events, classes or even incentives to your members. Entertainment: Name TV channels to make them easy to find by exercisers. Create website quick links to promote your facility or other sites. Workouts: Let exercisers choose custom workouts created by your personal trainers. You can add up to nine custom workouts to each console 2. S/w for Customers INTERACT WITH EQUIPMENT You are instantly recognized when you connect to a Discover, Explore or Track+ Console with the LFconnect app on an Apple or Android device. Connection provides workout tracking and gives you access to personalized workouts created at LFconnect.com. Factors like speed (treadmill only) and incline/resistance, chosen during workout creation, automatically adjust during a custom workout. Track outdoor runs, walks or bike rides with the GPS on an Apple® or Android™ device. Calories burned, time, and distance all upload to LFconnect.com and the app’s results page after the workout. 3. S/w upgrade to bring new functionality and premium features
- Source: https://www.lifefitness.com/facility/customers/success-stories/48-fitness Software transforms business of Fitness Equipment Company Backend s/w Manage Equipment Learn from Your Cardio Machines: Monitor equipment usage through LFconnect.com and wireless connection. View peak exercise times and learn what equipment is used the most. Information like that makes it easy to rotate equipment, and keep exercisers moving. Connect Your Entire Cardio Portfolio: Detailed asset management helps prolong the life of equipment and offers valuable information about exerciser habits. Life Fitness is the only manufacturer that provides connectivity across all of its cardio lines. Easy Equipment Management: Facilities can conveniently manage configuration settings for multiple cardio pieces from LFconnect.com, without manually updating via USB. Customize your equipment Facilities can build brand loyalty with several customization choices on LFconnect.com. Add logos, messages and background to console screens, or promote custom workouts that keep exercisers motivated. Home Screens: Add branding and messaging to Discover Tablet Consoles. Promote facility news, events, classes or even incentives to your members. Entertainment: Name TV channels to make them easy to find by exercisers. Create website quick links to promote your facility or other sites. Workouts: Let exercisers choose custom workouts created by your personal trainers. You can add up to nine custom workouts to each console 2. S/w for Customers INTERACT WITH EQUIPMENT You are instantly recognized when you connect to a Discover, Explore or Track+ Console with the LFconnect app on an Apple or Android device. Connection provides workout tracking and gives you access to personalized workouts created at LFconnect.com. Factors like speed (treadmill only) and incline/resistance, chosen during workout creation, automatically adjust during a custom workout. Track outdoor runs, walks or bike rides with the GPS on an Apple® or Android™ device. Calories burned, time, and distance all upload to LFconnect.com and the app’s results page after the workout. 3. S/w upgrade to bring new functionality and premium features
- Software companies built extensive partners ecosystems Now device manufactures can do it in a similar way IoT device manufacturing can put themselves in the center of Ecosystem Nest has inserted itself in between manufactures of electricity powered devices and energy providers
- Services and their terms become major differentiator Smart products represent another trend that contributes to increase in services. Their smartness comes from a connection to a cloud service that is analyzing and making sense from data collected by IoT devices. If you are a producer of a regular thermostat you sell a product. On the other hand, a manufacturer of a smart thermostat sells a physical product bundled with a service subscription. It is easier and faster to add value by updating services than replacing physical products. Having a service as a part of your offering opens more business opportunities and ways to please customers. As a business is moving towards adding services to its offering, it will need to adjust its business model, processes, and tools that support them. Services business requires maintaining a long and ongoing relation with customers instead of “sell and forget” attitude. Sales, services, and consumption need to be blended into a coherent user experience. Business should also be ready to deal with defining and managing complex combinations of products and services, both digital & physical, supporting recurring and consumption based pricing, and helping customers to select a combination that fits their needs. Switching from selling products to providing services opens exciting business opportunities and companies need to prepare themselves for taking advantage of them.
- Surface of each device offers e-commerce discovery and distribution, and act as a customer acquisition channel for e-commerce goods and services This could include products and services from your company and/or your affiliate network
- For centuries, merchants placed their focus on bringing shoppers to the store. When commerce moved online, the same objective remained. 1. Attract customers to the site. 2. Convert them. 3. Increase the Average Order Value (AOV). When the mobile economy started to gain traction, merchants slightly modified their priorities, looking for techniques to maximize SEO and then optimize conversion. It was essentially the same technique as before: get the buyer to the store and convince them to buy. Businesses exerted great effort and spent large amounts of money on paid ads, A/B testing of checkout flows, and even the location, color, and size of the checkout button itself. They paired upsell and cross-sell techniques with promotions and free shipping offers, all to get the online consumer to add more items to the shopping cart. Such techniques continue to be a valid and critical part of Internet-based, in-the-moment commerce, but vendors must now look beyond that. The lion’s share of revenue happens following the initial purchase, after the customer has checked out. That’s where attention should be placed. Intelligent machines, part of the Internet of Things revolution, are supplying vendors with data. Some people may scoff at the prospect of a refrigerator connected to the Internet, but when it can tell a food retailer which day the fridge gets re-stocked or how quickly the orange juice runs out, it can have significant impact on ordering from suppliers, in-store promotions, upsells and cross-sells. Grocers can sell information pulled from orange juice consumption to health related suppliers, vitamin manufacturers, or media companies looking for interesting on-demand show topics – all on an individualized, person-by-person basis. Big data analytics is a hugely malleable resource with almost infinite use. It opens insight into customer intentions and habits and to create future sales opportunities and increased overall value. Image sources: http://www.tlbox.com/wp-content/uploads/2013/12/GMC-Topkick-Dual-Suspension-Mountain-Bike-1024x866.jpg http://www.dcrainmaker.com/2014/04/pinnacle-samsungs-activity.html http://www.bike2workscheme.co.uk/wp-content/uploads/2015/07/Best-apps-for-cycling-to-work.jpg
- For centuries, merchants placed their focus on bringing shoppers to the store. When commerce moved online, the same objective remained. 1. Attract customers to the site. 2. Convert them. 3. Increase the Average Order Value (AOV). When the mobile economy started to gain traction, merchants slightly modified their priorities, looking for techniques to maximize SEO and then optimize conversion. It was essentially the same technique as before: get the buyer to the store and convince them to buy. Businesses exerted great effort and spent large amounts of money on paid ads, A/B testing of checkout flows, and even the location, color, and size of the checkout button itself. They paired upsell and cross-sell techniques with promotions and free shipping offers, all to get the online consumer to add more items to the shopping cart. Such techniques continue to be a valid and critical part of Internet-based, in-the-moment commerce, but vendors must now look beyond that. The lion’s share of revenue happens following the initial purchase, after the customer has checked out. That’s where attention should be placed. Intelligent machines, part of the Internet of Things revolution, are supplying vendors with data. Some people may scoff at the prospect of a refrigerator connected to the Internet, but when it can tell a food retailer which day the fridge gets re-stocked or how quickly the orange juice runs out, it can have significant impact on ordering from suppliers, in-store promotions, upsells and cross-sells. Grocers can sell information pulled from orange juice consumption to health related suppliers, vitamin manufacturers, or media companies looking for interesting on-demand show topics – all on an individualized, person-by-person basis. Big data analytics is a hugely malleable resource with almost infinite use. It opens insight into customer intentions and habits and to create future sales opportunities and increased overall value. Image sources: http://www.tlbox.com/wp-content/uploads/2013/12/GMC-Topkick-Dual-Suspension-Mountain-Bike-1024x866.jpg http://www.dcrainmaker.com/2014/04/pinnacle-samsungs-activity.html http://www.bike2workscheme.co.uk/wp-content/uploads/2015/07/Best-apps-for-cycling-to-work.jpg
- It’s a huge opportunity to customize goods and minimize waste. Furthermore, traditional online and offline retailers could face a real threat, as the one-to-one relationship between brands and consumers jumps over middlemen. This level of personalization may even signal a return to our pre-Industrial Revolution roots, where goods were always tailor-made for individuals based on personal preferences, sizes and more. As we deploy the IoT, the amount of consumer data will grow exponentially, and so will the insights. Some marketers will doubtless use that technology to immediately bombard their customers with more relevant ads; and in the short run, they might move the sales needle. However, the marketers who win the customer relationships of the future will do so by personalizing their offerings to a consumer’s preferences, habits and environments, and managing that consumer’s requirements over the longer term.
- Different products require different business models
- We have established already that in most cases the “smartness” of IoT products comes from a connection to a cloud service that is analyzing and making sense from data collected by IoT devices. Business should also be ready to deal with defining and managing complex combinations of products and services, both digital & physical, supporting recurring and consumption based pricing, and helping customers to select a combination that fits their needs. Switching from selling products to providing services opens exciting business opportunities and companies need to prepare themselves for taking advantage of them. And it means establishing a long term relation with customer and selling subscriptions Subscriptions are common when selling access to different types of media, like news, music, Software as a Service (SaaS), or software upgrades for downloadable packages. Telcos subscribe customers to a variety of service plans, bundling them with subsidized smartphones. Newspapers are following suit by offering a subscription to online editions bundled with an e-reader device like the iPad mini or Kindle. In B2B commerce, warranties and service plans are also often offered as subscriptions.
- Don’t think of subscriptions simply as recurring billing. It’s better to see them as a way to maintain an ongoing relationship with your customers. Multiple events, not all of them transactional, happen in the course of that relationship. They vary from customer registration to providing payment details to charging initial or recurring fees, or charging a fee based on usage. As with any successful relationship, it goes both ways. Businesses may offer additional incentives to access service, like a free trial, a reduced price on the first few purchases, or free credits for referring new customers. The attractiveness of the subscription business model also lays in its multidimensional flexibility. When selling a regular product, the only dimension in a merchant’s arsenal is the price. There are of course multiple ways to offer a discount, but in the end, it all comes down to how much a product costs when it is added to the shopping basket. Subscription model is offering unlimited flexibility to allow business innovation: One time prices Recurring (multiple periods) Per usage prices, multiple usage units, multiple tiers, overage, different ways to calculate Subscriptions provide multiple degrees of flexibility when defining a merchant offer. In addition to recurring and one-time charges, non-monetary parameters come into play – for example, subscription duration, cancelation terms, how often billing occurs (including billing dates), and entitlements that determine what’s included in an offering vs. usage charges. With so many degrees of flexibility, there are no limits to creativity and experimentation. You can choose a registration fee and a recurring monthly charge. You can use a free trial with automatic conversion. You can charge a flat fee with unlimited usage. Or you can apply per usage charges only.
- The surface below the line represents the whole potential market for your product. At the beginning, you may prefer to go with a simple subscription model and select a set of features and a price point that would be attractive to the biggest customer segment. While this is a good point to start growing the business, it leaves a lot of money on the table. Some of your customers are ready to pay extra for advanced features. There are also price sensitive customers who would love to use your service if you can offer them either a cheaper plan or a pay-as-you-go option. As industry develops, subscriptions plans become more complex. Netflix has started with a single plan and is moving now to multiple options Netflix tests new pricing options. Telco industry is an example of how complex subscription offering can be in a mature and highly competitive market. To maximize revenue potential you should be able to define complex subscription plans that cater to different segments of your market and offer a flexible combination of recurring and one time prices as well as a number of additional services with pay per usage charges. In addition, you will need a robust entitlement and metering solution to control access to your services and generate per usage charges. As we saw on the previous slide, subscription business model offers a lot of ways to define flexible offerings that fit needs and budgets of your customers.
- The surface below the line represents the whole potential market for your product. At the beginning, you may prefer to go with a simple subscription model and select a set of features and a price point that would be attractive to the biggest customer segment. While this is a good point to start growing the business, it leaves a lot of money on the table. Some of your customers are ready to pay extra for advanced features. There are also price sensitive customers who would love to use your service if you can offer them either a cheaper plan or a pay-as-you-go option. As industry develops, subscriptions plans become more complex. Netflix has started with a single plan and is moving now to multiple options Netflix tests new pricing options. Telco industry is an example of how complex subscription offering can be in a mature and highly competitive market. To maximize revenue potential you should be able to define complex subscription plans that cater to different segments of your market and offer a flexible combination of recurring and one time prices as well as a number of additional services with pay per usage charges. In addition, you will need a robust entitlement and metering solution to control access to your services and generate per usage charges. As we saw on the previous slide, subscription business model offers a lot of ways to define flexible offerings that fit needs and budgets of your customers.
- Taxicabs have been doing this for over a century. The term taxi comes from the French term taximètre, referring to the amount charged for riding in hired transport. So what changed? Why all of a sudden has there been such an explosion of usage-based business? Consumption based pricing is going mainstream. What started out as a subscription and usage fees for software, soon extended into the growing world of car and bike sharing. Innovative insurance companies like Progressive and Metromile are modifying auto-insurance to make sure that people who drive less do not pay the same amount as people who spend half of their lives behind the wheel. They are also taking steps to ensure that high-risk drivers, such as inexperienced teens, only trigger a higher rate for their family’s policy when they are actually at the wheel. Other industries like construction, trucking, rail, oil, and gas – all of which require very expensive equipment – rely heavily on usage-based payment mechanisms to help their customers lower capital and operating expenses and minimize total cost of ownership. This includes airlines and their high-maintenance engines. The airline owns the plane, but its engines still belong to GE, which charges the airline per-fly-hour, meaning only when the engines are in use. “Product” is not just simply “priced” any longer: it is priced by usage. Consumption-based pricing is becoming more prevalent as companies move from selling products to providing services. The Amazon initiative to pay authors based on a number of pages read is revolutionary for the book publishing industry, but this model is by no means restricted to media. Essentially, anything that is “used” can be metered and paid for accordingly. Technology Becomes the Change Agent Technology has made it easier to implement three essential components of flexible usage based business models. 1) First is flexible pricing. Modern omni-commerce systems can support flexible pricing schemes. A product can be priced with a combination of one-time prices, recurring prices (weekly, monthly, annually), and a combination of per usage prices with multiple pricing tiers. 2) Secondly, it has become much cheaper to measure usage. Measurement was based on large-scale activities such as auditing or periodic review and was generally only available to large companies and utilities. Now, IoT and GPS make the cost of measurement negligible. SaaS gives service providers ability to collect detailed information on how their service is used by each customer. GPS makes it easier to correlate usage with location. IoT makes physical devices smart enough to report back by themselves. 3) Thirdly, flexible and affordable billing solutions automate complex billing processes. Until recently, only large utilities and phone companies had the resources to invest in complex and expensive consumption-based billing systems. This has changed with the advance of billing as a service solutions offered by such companies as Vindicia, Zuora, or Monexa. Taken together, these three components enable application of complex but flexible pricing models. So Why Is This Important For Business? There is a changing societal norm, in which people are more willing to pay for partial use of a product, as Uber has clearly shown, and they are less willing to pay for fixed-rate bulk commodities. Variety becomes a competitive advantage. This change extends into the B2B market, too. Coffee machine companies sell access to coffee through capsules, rather than the machines themselves. Copy machine companies keep ownership of the copiers, and sell a pricing model based on 1000 pages instead. In short, almost everything can become a service, individually deliverable and billable. Any business that does not have the e-commerce system to support this will be left behind.
- Source: http://europe.autonews.com/article/20140312/ANE/140319975/0/SEARCH The pay-per-use contract will require C4 Cactus customers to pay a fixed monthly rate that will be lower than the all-inclusive flat rate. But in addition they will incur a monthly fee directly related to distance driven, with nothing owed if the car is not driven during the period. "There is a portion of the population that is not willing to buy a car, but willing to buy the use of a car," Banzet told Automotive News Europe.
- Innovative insurance companies like Progressive or Metromile are modifying auto-insurance to make sure that people who drive less don't pay the same amount as people who spend half of their lives behind the wheel. Metromile is a California-based insurance startup. It offers a driving app and a pay-per-mile insurance product using a device that connects to the OBD-II port of all automobiles built after 1996. They offer consumers a fixed base rate per month plus a per-mile-rate ranging from 2 to 11 cents per mile, taking into account all traditional insurance risk factors. Drivers who drive less than the average (10,000 miles a year) will tend to save. Metromile allows users to opt out of GPS tracking, never sells consumer data to 3rd parties, and does not penalize consumers for behavioral driving habits. Snapshot is a car insurance program developed by Progressive Insurance in the United States. It is a voluntary, behavior-based insurance program that gives drivers a customized insurance rate based on how, how much, and when their car is driven. Driving data is transmitted to the company using an on-board telematic device. The device connects to a car's OnBoard Diagnostic (OBD-II) port (all automobiles built after 1996 have an OBD-II.) and transmits speed, time of day and number of miles the car is driven. Cars that are driven less often, in less risky ways and at less risky times of day can receive large discounts. As Mertromile has shown Insurance rates can also change dynamically based on type of usage http://techcrunch.com/2015/01/28/metromile-launches-uber-car-insurance-where-drivers-only-pay-for-personal-miles/ Image Source: https://www.metromile.com/blog/uber-driver-insurance-ab2293/ http://s176.photobucket.com/user/KrK007/media/ProgressiveMyRate.jpg.html
- Cross-sell is a marketing term for the practice of suggesting related products or services to a customer who is considering buying something. If you're buying a book on Amazon.com, for example, you may be shown a list of books similar to the one you've chosen or books purchased by other customers that bought the same book you did. A search on a company's Web site for bed linens might also bring up listings of matching draperies. The most ubiquitous example of cross-sell is likely the oft-spoken fast food phrase: "Would you like fries with that?“ While for regular products cross-sell represents an additional opportunity to increase an order value, it will be one of the most important revenue drivers for IoT Products https://trainridetothecity.files.wordpress.com/2012/11/do-you-want-fries-with-that.jpgImage from Essential Hospitality
- For regular products Cross-sell recommendations are based on aggregated order history Cross-sell becoming even more important because recommendations can be based now on usage data http://community.arm.com/servlet/JiveServlet/showImage/38-1361-2650/blogentry-107443-070747900+1339169495_thumb.png http://community.arm.com/groups/embedded/blog/2012/06/11/a-face-for-the-internet-of-things
- Internet of Things will allow any connected “thing” to become an affiliate for e-Commerce goods that are consumed together with the “thing” – what in economics are termed complements. Any connected object could become a distribution surface and customer acquisition channel for e-Commerce goods and services of every kind and description. IoT extends e-Commerce affiliate and user acquisition schemes beyond websites, mobile and apps, into every physical object Today, it’s well understood that adding computing and Internet to a car, a watch, a thermostat, or a chair can allow the manufacturer to capture value beyond the purchase of that object and into data-driven business models. Car makers can now offer post-sales services, like vehicle diagnostics that alert you when it’s time to have your car serviced by a dealer. Or smartwatch apps that alert you when you’ve forgotten to put your seatbelt on. Watchmakers can create stickiness as you can now use your watch to unlock your front door, or control your thermostat without leaving the couch. Thermostat makers can now expand into energy management. Office furniture makers can now extend their business into productivity management. With IoT, washing machine makers can now not just deliver detergent just in time by knowing when your supplies run out. They can also recommend the right detergent, based on your usage, type of clothes, on demand. Car makers can recommend where you buy your gas, by understanding your drive journey, availability of gas stations, pricing on-demand discounts, and gas station commission. Watchmakers can command a commission from health insurers, as they can monitor your heart rate, temperature, fitness habits and determine what risk zone you are in.
- There is a big business opportunity in utilizing affiliates programs and building relationship across industries boundaries This Insurance Company Pays You To Walk If you don't walk enough, you don't get paid. But if you do? Expect an Amazon gift card in the mail. If you're having trouble getting off the couch to go for a walk, maybe some cash will help. Oscar Insurance, a New York-based startup, now sends members a free Misfit wristband to track their steps, and whenever someone reaches a daily goal for a certain number of steps, the company pays them. "We were fascinated with the U.S. Surgeon General's recommendation that if you walk around 10,000 steps a day, you will have a real impact on almost all the top killers in the U.S., like obesity, diabetes, and high blood pressure," says Mario Schlosser, co-founder of Oscar Insurance. "If you just get a bit more physically active, you can avoid those conditions getting worse, or make them better." Members of the insurance plan download an app, and then get a wristband in the mail that automatically syncs up as soon as someone puts it on. Each day, someone can earn a dollar for reaching their goal, and at the end of the month, Oscar Insurance sends them a $20 Amazon gift card. Image sources: http://www.fastcoexist.com/3039725/this-insurance-company-pays-you-to-walk http://www.forbes.com/sites/stevenbertoni/2014/12/08/oscar-health-using-misfit-wearables-to-reward-fit-customers/
- Intelligent machines, part of the Internet of Things revolution, are also supplying vendors with data. Some people may scoff at the prospect of a refrigerator connected to the Internet, but when it can tell a food retailer which day the fridge gets re-stocked or how quickly the orange juice runs out, it can have significant impact on ordering from suppliers, in-store promotions, upsells and cross-sells. Grocers can sell information pulled from orange juice consumption to health related suppliers, vitamin manufacturers, or media companies looking for interesting on-demand show topics – all on an individualized, person-by-person basis. Big data analytics is a hugely malleable resource with almost infinite use. It opens insight into customer intentions and habits and to create future sales opportunities and increased overall value.
- We are all familiar with loyalty cards that reward consumers for each purchase
- Rewards users for using your products –this builds loyalty Allow them to use loyalty points for unlocking premium features or towards purchase of new product
- LifeFitness integrations with apps from other fitness manufactures and fitness oriented websites
- -Commerce affiliate sales can happen in two ways: firstly, by pre-sales hardcoding of the e-Commerce service into the physical object. Think how Mozilla was able to make over $200M annually by preloading the Firefox browser bar with Google search, before moving to Yahoo. Affiliate sales can also be dynamic. Think how BMW can recommend a different brand of oil for the maintenance of the car based on price, oil efficiency observed on the car and many other similar cars, and the driver’ analyzed behavior on the road. Naturally, makers like BMW who can create value by tracking user behaviour will also be able to capture more value as an e-Commerce affiliate. White goods manufacturers can now extend their business models across the product lifecycle. They can also own the device real-estate that offers e-commerce discovery and distribution, and act as a customer acquisition channel for e-commerce goods and services. . More importantly, Internet of Things will allow e-Commerce to stretch across the breadth of the customer journey. Consider how limited e-Commerce is today in understanding the customer journey: you search on Google for something to buy, click on what fits your purchase intent, including advertisement link, then lead to a purchase on the device being used. Along that path, Google receives a kickback (typically on a cost-per-click, CPC) from the advertiser on the assumption that a small percentage of those clicking the link will buy, making the business case for paying the CPC. There is no way for advertisers to know when a real purchase was made in a brick-and-mortar shop, let alone make someone with purchase intent visit that physical shop in the first place. This is the holy grail of advertising business, i.e. being able to track consumer behaviour from awareness to intent to purchase to purchase, and across web, mobile and increasingly number of physical connected touch points. By embedding the e-Commerce discovery and distribution surface on physical objects, and more connected touchpoints across the customer journey, you are now able to cross the last mile from awareness to purchase intent to purchase. Put simply, connected devices will become the optimum point-of-sale for e-commerce, search boxes and app stores for services, at the ideal place and ideal context of a purchase intent.
- Platforms are all very well for companies like Google and Facebook that are software-oriented from the start, but do traditional product companies need to worry about network effects? Why Be a Platform The allure of becoming a platform is easy to understand: your product gets the benefit of other companies investing time and treasure in extending its functionality for you. Platforms are even more interesting when you factor in their positive feedback loop – as more developers add their products to your platform, the value of your platform increases to customers and attracts new customers, which increases the value of the platform to developers, in turn attracting even more developers. Eventually, your platform has such a rich set of unique applications and services available through it, that customers have a hard time imaging getting the same experience through any other source. They’re effectively locked in, not through force, but by choice. - See more at: http://pragmaticmarketing.com/resources/becoming-a-platform#sthash.akVtyzcR.dpuf Tech blogger Jonathan Clarks helps build the argument here, “Platforms are structures that allow multiple products to be built within the same technical framework. Companies invest in platforms in the hope that future products can be developed faster and cheaper, than if they built them stand-alone. Today it is much more important to think of a platform as a business framework. By this I mean a framework that allows multiple business models to be built and supported. For instance, Amazon is an online retail framework. Amazon started by selling books. Over time they have expanded to selling all sorts of other things. Apple iTunes started by selling tracks and now uses the same framework to sell videos.”
- Your product catalog should be able to support both physical & digital products
- Bundles can be used in multiple scenarios but they are especially important when you want to sell product & services Bundles may be configurable and require rules and guided selling
- Your commerce systems should be able to support the level of flexibility in pricing your offers as we discussed in the business models section of this presentation
- Term is one of dimensions in your pricing and can be a differention
- You can have multiple types of One Time prices. For example: Pay on checkout Pay on first bill Pay on service activation
- Multiple units (whatever makes sense in your business) Multiple tiers Different ways to calculate: Each applicable tier Highest applicable tier
- Interface for Recurring and consumption based billing Synchronizing user account details Payment details Multiple partners
- Source: http://www.dabcc.com/article.aspx?id=31537 By shifting product value from device hardware to the software running on the device and applying an appropriate licensing strategy, manufacturing product strategists can maximize revenue potential. "By controlling product functionality and the features and capacities of Internet-connected devices via flexible licensing, device manufacturers will be better able to compete in current and new markets. They will also be able to come to market quicker with new products, new feature combinations and product enhancements," said Ms. Wurster. "Moreover, software-controlled configuration gives manufacturers more flexibility to regionalize their offerings and develop niche solutions for specific markets without having to manufacture separate product stock keeping units (SKUs). Overall, this reduces the number of SKUs produced, lowering overall manufacturing costs while enhancing manufacturers' ability to customize and regionalize products." For the foreseeable future, the IoT will drive business transformation for many device manufacturers, enabling them to use software on the device to differentiate product and solution offerings. Like vendors in the traditional software industry, device manufacturers need to protect and monetize the intellectual property (IP) contained in applications. They can do this by adopting LEM systems that control access to the Internet-connected device, its functions and its features. LEM also enables flexible pricing and packaging, allowing manufacturers to bundle product features, capabilities and capacities, ensure payment, provide verified upgrade paths and create new revenue streams.
- You need to be able to associate entitlements with products in your catalog
- A good way to look at Entitlements as a link between products you sell and services you deliver Most of business are selling complex solutions now as well as looking to differentiate themselves from competition by providing additional services Examples: Sell mixer get access to recipes Gym membership access to dietitian & 2 free sessions with personal trainer Buy something get free shipping on anything else within 2 days (don’t wait to make your shipping cost “worth it” buy what you want, and if you find something later, buy it with no extra shipping cost) Out of stock while promo is on, entitled to rain check Spend $100 now and be entitled to 20% discount for your next purchase
- A good way to look at Entitlements as a link between products you sell and services you deliver Most of business are selling complex solutions now as well as looking to differentiate themselves from competition by providing additional services Examples: Sell mixer get access to recipes Gym membership access to dietitian & 2 free sessions with personal trainer Buy something get free shipping on anything else within 2 days (don’t wait to make your shipping cost “worth it” buy what you want, and if you find something later, buy it with no extra shipping cost) Out of stock while promo is on, entitled to rain check Spend $100 now and be entitled to 20% discount for your next purchase
- Selling a combination of product and services requires integration with multiple order management systems and order orchestration
- With IoT products customers will expect always-on Customer Support service that can Monitor Be proactive in service scheduling Replacement part delivery Suggesting additional products and services
- Using AppStore model as an example A marketplace is 3-way commerce: Platform owner Partners Customers