Industrial IoT: How Subscription Models Will Change the Industry and Society

The Internet of Things (IoT) — or the network of internet-connected objects able to gather and exchange data — has been part of our lives for some time.

And now, there is the Industrial IoT that is already taking the business world by storm. This use of IoT technologies to enhance industrial and manufacturing processes is gaining traction across many industrial segments and in terms of the Industry 4.0, it represents the hope of raising yet untapped potentials and creating new digital business models.

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While IoT-enabled systems continue to create value all over, the question around how best to build a business model around connected machines continues to be a challenge.

The current popular model that involves selling IoT-enabled hardware at a huge scale to make profits is only largely viable in the consumer sector. In the industrial sector where equipment is costly, sales happen less frequently, and machines have extended shelf life, large scale sales are largely a non-viable model.

Machine manufacturers must therefore consider other ways to build revenue. And subscription models are quickly taking shape as that go-to option that is filling in the gap. Judging from all indications, subscription models are the future of the IoT world.

Indicators that subscription models are the models of the future

A growing number of B2B companies are finding ways to provide their customers with subscription services across different industries.

Meanwhile, global spending on IoT is expected to hit $1.29 trillion by 2020, with B2B applications projected to account for about 70 percent of the total value. With B2B IoT-related subscription businesses being on the rise, it’s only expected that we’ll see them become mainstream as far as Industrial IoT is concerned.

Further, manufacturing companies that are creating and selling only devices limit themselves with a one-time revenue. With subscriptions on the other hand, these businesses are able to offer additional services around the data that they harvest and process through installed IoT elements and sensors.

This shift to a recurring revenue model which helps these companies create sustainable businesses is not something entirely futuristic. Already, companies like Heidelberger Druck (Subscription Model) and Kaeser (Druckluft-as-a-Service) have started it, and other B2B companies are expected to follow suit.

That said, here are some of the ways in which subscription models are going to transform our society.

Increased risk enablement in product development across the IIoT marketplace

Because more and more products will be embedded with a digital layer, vendors will be able to capture valuable customer data needed to inform their product development decisions. Sensors will collect and relay a complete range of usage data, eventually removing guesswork from these companies’ product development roadmap.

With such data granularity, machine manufacturing companies will know exactly how their customers use their product(s), and when they use them.

This way, companies will be more informed and more certain with the kinds of subscriptions to offer their markets. All they’ll have to do is properly analyze the data, and leverage it as the basis for not only designing new products, but also marketing their entire IoT offer.

Businesses will be able to relate better with their B2B customers

Already, companies that design their marketing campaigns around accurate customer data (from accurate surveys and research) are unbeaten in their respective industries. IIoT takes the whole element of data acquisition to a whole new level. Data collected via IoT-enabled businesses is richer and will allow for even more precision when communicating with prospective and current customers.

Companies can collect the data they need on the go, and use it to better design customer follow-ups for specific customers at the right time to achieve greater results; including successful upsells, cross-sells and repeat sales.

When you know your prospective customer’s partialities and specific interests, it’s easier to choose the right message content and timing to maximize success.

This is particularly important for a subscription-based business as it helps to bring the company closer to the subscriber, encouraging the latter to keep buying and using the service. The company on the other hand is therefore better placed to make more revenue on a recurrent basis.

Vendors will compete in new markets with subscription offerings around their machines

Let’s take the example of Kaeser Kompressoren. The company originally manufactured and sold compressed air systems and services as a B2C offering.

Now, the company has embedded its equipment with machine sensors that deliver real-time analytics, predicting and preventing system outages way before they occur; and offering these data and customer insights to its B2B market.

The thing is, each time a production system goes down because of something like failing machine parts in an industrial process, the problem creates an extensive ripple effect that impairs the entire production processes and disrupts factory output further downstream.

What Kaeser Kompressoren does is collect a wealth of customer data from the machine sensors embedded in its compressors to predict failures and preventing downtime for its B2B customers through predictive maintenance.

And this is giving them a competitive edge because they can now identify and replace potentially faulty parts before they actually fail, which helps to avoid unexpected, costly outages on the their customers’ production lines.

More and more industries are starting to offer subscription models, which were not traditionally part of their business. But because these companies can now gather enough IoT data to inform their product development and marketing strategies, they are able to enter new markets and compete effectively with impressive success.

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Performance Based Contracting: Usage-based /pay-per-use pricing models in the mechanical engineering B2B sector

IoT will continue to provide B2B companies with insights necessary for prolonging the life of products. With the data that these devices gather, the cost per item, use, and more can be calculated with a total cost of ownership.

At the moment the machine vendor does not know much on the machine behaviour and how the costs for maintenance are.

The companies will then be able to sell this proactive predictive maintenance, that’s necessary for reducing downtime for the customers, as service on a pay-per-use basis. This way, the companies will be able to earn a recurring revenue stream.

Wrap up

Even though some of the suggestions regarding subscription models as future models may be largely predictions based on observed trends, one thing remains true: the technology behind the Industrial Internet of Things will continue to evolve, and so will the business models underpinning it. It’s imperative therefore for companies in the manufacturing and industrial sector to incorporate this Industry 4.0 mindset in their future plans, both for the immediate and long term. If you want to start with your own subscription model, elunic is able to offer an IIoT-Subscription Model Framework.

Written by

Executive Board Member elunic AG // Industry 4.0 & IIoT Solution Firm

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