For US manufacturers, the IIoT future is now: Part 2

September 25, 2017

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By Bob McCutcheon and Jenn Callaway

 Monetizing IIoT: Four business models for manufacturers

It’s safe to say that the Industrial Internet of Things (IIoT) has crossed into the mainstream. In part 1 of this blog series on monetizing IIoT, we shared some findings from PwC’s recent white paper, developed with the Manufacturers Alliance for Productivity and Innovation (MAPI), which focused on where US manufacturers currently stand in their adoption and development of IIoT technologies. One finding in particular said it all: nearly nine in ten survey respondents said they are currently offering or are in the process of developing IIoT products or services. That’s an uptick from a couple of years ago, when a similar PwC survey found that about seven in ten were down that same path.

Impressive numbers, yes. But, one big question for companies expanding their IIoT initiatives (and those now figuring out how to build one) looms large: Once we develop it, how, precisely, are we going to make money on this stuff?

Manufacturers are placing IIoT bets

Monetization of IIoT is top-of-mind for US manufacturers. They’re hunting for ways to monetize IIoT through cost-cutting operational efficiencies, revenue-generating products and services and tighter customer relationships through those new IIoT products and services, often layering existing core product and services offerings. And many are investing significantly. Four in ten manufacturers are earmarking 5-20% of their total research and development budgets to IIoT products and service development. While measuring returns on that investment can be a challenge, among those respondents currently offering IIoT products and services, four in ten experienced returns of up to 5% of their total revenue last year. Looking ahead over the next five years, respondents expect a more promising scenario, with four in ten respondents expecting 10-20% of their total revenue to be driven by IIoT products and services.

Investors, too, are investigating IIoT’s prospects for commercialization. Venture capital firms poured $2.5 billion in US start-ups developing IoT products and services, roughly twice that invested in 2012, according to PwC/CBI Insights MoneyTree report data.

Four business models around IIoT monetization

Finding IIoT business models that best fit an overall business strategy and customer base can be a challenge. IIoT business models can impact the bottom line in different ways: They can enhance product and customer service in ways that lead to customer “stickiness,” help grab market share, and be designed as potential revenue generators (or, ideally, all three).

Our survey found that roughly half of the companies that have built business models are offering IIoT services bundled with a product which the customers manages. About a third offer IIoT products-as-a-service model.

We see four basic IIoT basic business models gaining traction – and which hold promise for monetization:

1. Product performance self-monitoring

Customer accesses data from connected asset independently for real-time, periodic check-ups on an asset’s performance and efficiency of use and signals for predictive maintenance.

Potential monetization: Charge a separate premium for apps or web-based tools, cybersecurity, data storage, software updates, or charge an upfront premium for the IoT-enabled asset at the point of sale.

2. Data analysis/diagnostics from manufacturer

Manufacturer (or third-party vendor) provides predictive maintenance alerts and prescriptive insights, including push alerts on service/maintenance, security alerts, and software upgrades. Manufacturer owns and remotely manages the data.

Potential monetization: Charge, on a subscription basis, for some, or a complete suite of these products and services. Alternatively, can charge on an outcome basis (e.g., improvements in asset uptime or unplanned downtime) and can include bonus incentive or penalty, based on the outcome. Or, a hybrid of the two.

3. IoT-driven field services 

Potential monetization: Charge on a subscription basis for a complete suite of IoT products and services. Alternatively, can charge on an outcome basis (e.g., improvements in asset uptime or unplanned downtime) and can include bonus incentive or penalty, based on the outcome. Or, a hybrid of the two.

Manufacturer extends service by offering enterprise-wide solutions, leveraging an asset’s product performance data and analysis via alerts to the customer of needed actions/insights (e.g., identifying the part required to prevent a malfunction, identifying the most qualified field technician, or determining a software update to address an issue); manufacturer owns and remotely manages data.

4. “The pay-per” model  For manufacturers looking to build out an IIoT products-and-services business model – and those looking to expand one already in place – it is fair to offer a buyer-beware: Many IIoT pilots do not go as planned and can take longer and be more capital-intense than expected. It’s critical, then, that companies wading into this space do so with an entrepreneurial and collaborative spirit – one that assumes both speed bumps and successes along the way.In our third and final part of this blog series, we will take a look as what sorts of steps companies ought to considering about their IIoT adoption plans, and how to get closer to taking those steps with as much confidence as possible.

The fine print of IIoT

Potential monetization: Manufacturer charges only when a customer uses products, and only when it receives insight or warnings on performance, maintenance, or insights on gaining efficiencies such as power consumption.

Just as some manufacturers are already charging on an asset usage basis, or on the service that an asset is providing (e.g., asset pay-per), IoT enabled products also lend themselves to similar “pay-per” offerings, including pay-per-hour of output, pay-per-alert, pay-per-insight, pay-per-warning, and pay-per-solution, which can be described as IoT software pay-per. Manufacturer owns and remotely manages data.

 

 

©2017 PwC. All rights reserved. PwC refers to the US member firm or one of its subsidiaries or affiliates, and may sometimes refer to the PwC network. Each member firm is a separate legal entity. Please see www.pwc.com/structure for further details. This content is for general information purposes only, and should not be used as a substitute for consultation with professional advisors.

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