While the Industrial Internet of Things (IIoT) has already begun to deliver operational improvements to the shop floor, the greatest IIoT opportunity for manufacturers is just emerging: unlocking new revenue streams by transforming highly engineered products into smart connected products and services.
Last month I had the honor of presenting on this topic at the Industrial Internet Consortium (IIC) Members Meeting, where over 400 IIC members from across the world gathered to learn and collaborate. For those unfamiliar with the IIC, it is a global think tank on the forefront of setting the standards, best practices, and processes of the Industrial Internet.
During my session, I shared examples and observations on monetization approaches currently in the market, including the emergence of new pricing models, and discussed the operating model changes manufacturers must make to be successful. Gauging by the interest from both technology vendors and traditional manufacturers that I met with, as well as from conversations my colleagues and I have had with industry participants and at other conferences, it is clear that IIoT monetization is at the top of everyone’s mind.
Upon leaving the IIC meeting, three things were evident. First, manufacturers recognize that IIoT can be the foundation of new revenue streams. Second, providers are still in the early stages of this new wave of industrial monetization with a new framework emerging. And third, a transformation of both the business and operating models is key to realizing success.
The strategic shifts that manufacturers must make to succeed in this new environment include shifting from hardware to software, shifting from a transactional business model to a subscription business model, and delivering a Customer Success-focused experience.
While the hardware remains essential, software is equally essential to make sense out of the massive amounts of data being generated from sensor-enabled equipment, and manufacturers will need to ensure proficiency in software engineering and design. In addition, the traditional monetization model in manufacturing of a one-time sale of a product is being rapidly replaced with a subscription model that supports an accelerated product engineering cycle with more frequent product updates. And finally, continuous customer engagement is essential to driving adoption, usage, and retention, in addition to providing real-time customer feedback that can be used to accelerate product improvements.
IIoT is at the heart of the biggest manufacturing shift since the Industrial Revolution, in which manufacturers are transforming into technology companies. For lessons on how to navigate this transformation, manufacturers should look to the technology industry itself, which has navigated its own disruption brought on by the cloud and the as-a-service business model. Manufacturers that realize that smart connected products will be at the heart of their very existence will be best positioned to capitalize on this tremendous IIoT opportunity.
To learn more about the opportunity presented by smart connected products and the challenges that must be overcome to be successful, read my paper Unlocking New Revenue Streams with the Industrial Internet of Things.
Hubert Selvanathan is a principal at Waterstone Management Group based in the San Francisco office. He has more than 18 years of operating and consulting experience in the technology sector. Hubert focuses on helping clients capitalize on disruptive growth opportunities by launching and scaling new technology offerings and businesses. Contact him at email@example.com.