Monetization of IoT

April, 2019

The previous article in my IoT series, titled “IoT Move to Consumer Mainstream,” discussed how IoT solutions are moving into consumer-facing scenarios. This article will discuss how monetization of consumer IoT capabilities can help drive new business models.

Historically, new business models have been driven by the maturation and widespread con-sumer adoption of new and evolving technologies. Look at how the internet has changed the face of retail and dramatically affected the way consumers engage entertainment channels. 

According to recent Nielsen data, Generation Z and Millennials today are spending less and less time watching traditional television, and instead they are viewing streaming services or social media channels. Creating videos online is a legitimate career now, which was unheard of 10 years ago.

IoT technologists are identifying more and more opportunities in today’s environment. Tracking the journey of a box of produce from the farm to the store, or a refrigerator that can reorder groceries, are two prime examples. We’re experiencing signs of IoT industry maturity as new business models emerge and companies are able to monetize their technology.

The monetization of IoT technology follows a few basic models:

1. Advertising revenue - These solutions are mostly free or low cost to consumers, while the provider obtains revenue from outside advertisers. Search engines, social media channels and a variety of free game apps on a smartphone are the best examples of this model.

2. Invested party funding - Requires that there be a third party with a vested interest in the use of the product. For example, an insurance company can fund connected flood sensors or fire alarm batteries to protect the home they are insuring. They are the “invested party” in the safety of that home. The service is usually provided for free or at a low cost to consumers.

3. Selling or leveraging data - Often this requires that the consumer make an initial purchase of an item such as a wearable or a connected home device. The data from usage of that item is the information than can be leveraged or sold to other interested companies. However, the ownership and use of that data brings about a number of privacy and regulatory concerns. This area is the toughest area to pursue as currently only a quarter of organizations are actually deriving significant value by leveraging data.

4. Direct charge payment for consumers - charging consumers directly can be the fastest way to monetize a solution that provides significant value.

Take a look at how some companies have successfully monetized IoT technology directly with consumers. Car sharing services enable consumers to find and pay for a ride through credit card information saved electronically. Online retail “buttons” place an order for merchandise and pay for it through saved payment information. In both of these cases, the payment is entered upon user setup only. The consumer creates their account in an app or online and enters the credit card number. 

Thereafter, the credit card payment information is accessed electronically with each purchase when the user pushes the button or selects an option on their phone. This approach is ideal for IoT solutions because it puts the payment in the background and does not require significant action on the part of the consumer with each purchase. You don’t want a consumer to have to enter their credit card information every time they rent a bicycle.

The software-enabled saved payment information also opens up the opportunities for greater monetization in the IoT. For example, it will no longer need to be a consumer who pushes the button to place an order—machines can start to order merchandise or services. A water filter can track how much water it has processed and automatically order a replacement when needed. Monthly subscriptions for home monitoring video or connected locks automatically charge the credit card without the consumer taking action beyond the initial setup. This is made possible with securely-saved payment information, often referred to as tokenization.

The software that captures and saves the payment information is enabled by a payment technology partner, and involves the following steps:

1- Securely collecting the credit card number when the consumer registers

2- Safely sending the payment information to a payment technology company

3- The payment technology company securely saves that information and returns a token or random number that represents that specific consumer

4- The token is used whenever payment needs to be processed instead of a credit card account number

5- Only the payment technology company has the ‘key’ to unscramble the token in order to process the credit card payment

A technology-focused payment partner can also offer software-enabled services such as subscription setup and stored value. Flexible rules for setup of regular subscription fees and automatic charges are important in many ongoing IoT services such as streaming media or connected home devices.

If an IoT business model anticipates repeat customers with smaller dollar transactions, a stored value wallet can offer customer loyalty and greater cost savings on credit card payment processing fees. A stored value wallet lets consumers add value to the wallet automatically as needed. Purchases made on the IoT solution deduct value from that wallet instead of a new credit card charge each time. This is a popular model for many services today such as retail mobile apps or cashless music festivals and supports the growing concept of the Sharing Economy.

As consumer-facing IoT solutions become more prevalent in the market, consumers are beginning to adopt new ways of obtaining and paying for goods and services. IoT solution companies—aligning with a payment technology partner that can handle a variety of secure payment options—can create the right solutions for their consumers’ needs while driving new business models in the industry.