Don: So, the next area of focus, and I think you already touched on it a little bit, is the idea of a Connected Product Platform. So a Connected Product Platform (like you mentioned IoT), the idea is that things and devices and machines are gathering information and sending it to some mysterious place in the cloud. A lot of companies get that far, they don’t get to the next step though of turning that platform into something they can monetize. When we start thinking about monetization of information and data, what do you think about?
When somebody says: ‘I got a great idea we’re going to make a gillion dollars.' What do you think about it?
Jim: Well most of the time I think they’re probably thinking they can sell the data or sell $20/month in credit card fees per machine to gather their data. And I’m telling you nobody wants to do that. None of these kinds of firms who are used to shipping truckloads of stuff out the door, want to switch to little bitty invoices for $20 apiece and track all that stuff. It’s not going to happen. What will happen though is you’ll make your money direct and in different ways. The key, the theoretical key - that’s practical but its theoretical, the idea here is gather all the data you can. Gather all the data you can. Because even if you may not have data scientists on staff right now, the big payoff in the end will be AI. It will be your ability to predict things you want to predict:
- When will this product fail?
- When will it need service?
- When is it time to do something else?
- When did they buy the right thing?
- When will they buy more of the same?
There’s a lot of different interesting questions you’re going to want to be able to answer and they’re going to be easier to answer in AI with the more data you can gather.
Now how do you pay for it in the short term?
In the short term, most people think they’re going to get it on unit sales. But it’s going to be tough to do that. There are some businesses and some buyers who literally will say, and I’ve seen this before in previous experience, they’ll say:
‘Don’t charge me anything monthly, just take all of the costs for the next five years and bring it right into the beginning and let me pay for it all up front.’
‘Because the product I’m buying is something that I go and capitalize as a once time expense. I don’t want to have to keep going back to the budget guys year over year and ask for more.’
So, it’s a cash flow benefit. The finance guys will tell you how much that cash flow is worth but you’re bringing forward a lot of future service revenue.
Secondly the way to make a great ton of money is, you realize that it’s a new feature, this data and capability for monitoring, is a new feature to your product. So what do you do when you get a new feature to the product? You may get it in price. You may increase the price and boom you’re just going to get it on all your normal sales. You may get the payback by saying ‘oh, this new feature is finally something that I’m going to convert people to buy my product vs my competitors.’ So, you get it in share.
And the other option, if you’re talking about a connected set of related products, you’ll get it in overall volume because this one product that I’m selling only works when I’ve got all these other products hooked in on it. So you know if you used to sell a system that you could buy five different competing products to hook in, now you only can buy mine and you’re going to get pull along sales from all your sister products.
It’s a really simple way of looking at it but those are the biggest ways that the successful IoT firms that I know are making decent money.
Don: Yeah that idea of an ecosystem.
Jim: An ecosystem. An ecosystem has a lot of different power to it to. Yeah sometimes you might think you can go to 3rd parties and license data to them and there’s a lot of variances but those first couple that I mentioned: volume, price and share are the basic ones to start with.