Creating A Successful Pricing Strategy As An IoT Business
The appeal of the internet of things (IoT) remains strong for businesses. And while a great business idea is an essential initial component of your IoT strategy, an equally creative pricing and monetization strategy that customers understand is critical for success.
Frequently, we see a cool business model “die” when it comes to pricing and monetizing the service. Why? Because the pricing strategy can’t work the way the business model was designed to work. This is not a theoretical concern.
Technology clearly is fueling the economy and resulting in the creation of new companies founded on great ideas. According to IoT Analytics, there were 7 billion IoT devices worldwide in 2018. By 2024, this figure is predicted to reach more than 18 billion. More and more, companies will launch innovative pricing tactics built on everyday objects communicating with each other over the internet.
However, as the chief strategy officer for a cloud-based billing provider, I have seen firsthand that making money from IoT applications can be incredibly challenging. But there are proven ways to make your pricing strategy work.
Success Depends On Flexible, Tailored Pricing
There are countless real-life examples of great ideas made possible by IoT: smart security systems, intelligent health monitoring, video-enabled doorbells, home heating thermostats, smart parking, connected trains, factory automation, automobile infotainment and municipal smart lighting.
Most use a subscription-based model and then, often, add on some usage charges. Examples include:
• Wearables with flat-rate selling plus multiple apps.
• Monitoring consumption and charging for use.
• Combining flat-rate charges with distance measures.
• Subscription pricing with service add-ons.
Mediation services enable flexible pricing for IoT monetization solutions. These services, offered by a variety of companies including ours, collect and translate complex usage data and relate it to associated accounts, products, and pricing for billing and rating. IoT-focused companies also are challenged with generating invoices on standard cycles, partial and prorated transactions, event triggers, and “billing on behalf of,” or revenue-share models. Additionally, they require invoice management flexibility for aggregating usage and nonusage charges from all partners and systems involved in supplying the complete IoT solution.
To achieve flexibility and pricing agility in IoT monetization, you need a pricing strategy that:
• Provides integrated mediation and billing capabilities.
• Integrates a variety of usage and nonusage-based rates and calculations.
• Supports charging, billing and settlement for all partners.
• Can be easily deployed, allowing any partner to understand and reconcile its IoT service-related charges and fees.
Here’s a closer look at a couple of strategies for tailoring pricing to a company’s business model.
IoT As An Add-On Business
The right pricing strategy enables companies to employ the IoT as an add-on business stream. We’ve seen this successfully and creatively utilized in the agricultural sector, providing growers with more information and flexibility. One company I follow closely provides innovative control technology for farming enhancements, such as the ability to monitor and control farming equipment to optimize resources for growing food.
This business utilizes a subscription-oriented pricing system that connects with the IoT devices in a unique way, because they have variable subscription cycles. The system is always available, but the customers pay a flat rate for unlimited access across a multiyear, variable term that starts billing based on time of year to align service values with growing cycles.
Revenue-Sharing With A Creative Twist
A more complex IoT strategy — and resulting pricing strategy — is used by an interactive experiences company that provides in-aisle video displays in retail stores. Interestingly, its pricing strategy actually ends up incorporating “reverse monetization” as the company charges a flat fee upfront to a displaying retailer and then issues credits after analyzing all the collected data.
If the delivered streams of display advertising do not meet contract requirements, because of downtime, poor traffic or display errors, the customer receives credit to their account. The IoT devices providing this data are intelligent enough to know the cause of service failures so that the resulting credits can be charged back to the responsible parties for reconciliation.
The ecosystem involves several contributors who engage in a revenue-share model fully enabled by the IoT device data, and the monetization platforms consume and interpret it.
IoT-based business models — and, increasingly, models tied to artificial intelligence and machine learning — will continue to be innovations that businesses will attempt to leverage for market differentiation and success. However, in each instance, these innovations require equally innovative pricing strategies as components of success. I’ve simply shared a couple of models from my experience that have proven up to the task. My hope is you can find the inspiration needed to create the next wave of success in IoT.