On March 21, the RIC Centre held the second conference of its Driving Dreams 2019 Expert Series at the Arrow Electronics office in Mississauga, Ontario. Where the first session was focused on the research and development of Internet of Things (IoT) products that could be leveraged to bring solutions to manufacturers, consumers and governments, this second session honed in on the commercialization aspect of IoT devices and products.
Solutions from Sensor to Sunset
The morning began with a talk by Joe Trinidad—director of IoT, cloud and security at Arrow ECS—who walked attendees through the process of commercialization. According to Trinidad, there are three stages to the commercialization of IoT products, each guided by an emphasis on exit strategies.
The first is the phase of ideation, where an idea begins to nucleate as a possible solution to an existing or future problem pestering a sector in industry. Be it hardware manufacturing, flourishing connectivity technologies, encryption, security, software development or analytics, each idea starts at a drawing board. Once a possible solution has be formulated, discussions about initial financing can begin.
Cost analysis and feasibility are very important at this stage, as these are the two most convincing factors to venture capitalists and potential investors before a product or service even begins its journey to deployment into the market. This is also the stage with the largest likelihood of spent opportunity costs, according to Trinidad, since it is likely that the engineers and creative types will have to dedicate time to selling their ideas.
Once a solution has received initial financing to produce the first wave of products and services, it is time for the second stage: taking it to market. According to Trinidad, digital marketing can help, but the utility of ads on Facebook is decreasing. That is, getting 20 million impressions is fantastic, but only useful if prospective customers or clients actually click on the ad. Therefore, he said, “commercialization requires better strategies for market penetration.”
Instead, use this time to gather data from user acceptance testing. The stage of taking a product or service to market is a stage to figure out how user experience can be optimized. This means user acceptance testing. According to Trinidad, users are the fastest at finding edge cases where the product can be improved. This information is crucial to the success in further stages of a product’s lifecycle as well as expanding possible use-cases and finding new niches. Once user acceptance testing has been successful, it’s time to think about how to scale. This is where the third stage kicks in.
The third stage of commercialization is that of “round two funding,” or, simply, expanding your financing options by presenting your successes. Investors want to see adaptability; they don’t care for how well a solution can be shoe-horned into the market. Initial investments often only cover initial deployment, rarely enough to guarantee successful growth or scaling. “The evolution of post-initial financing does not account for the needs of new development of products or services,” Trinidad said.
He emphasized the need to keep an eye out for venture capitalists that have expertise in the sectors to which your products or services provided solutions. That is, investors who have their fingers on the pulse of the market that you’re seeking to penetrate, or investors that own assets and intellectual property specifically related to your solution’s sector that then allow you to establish relationships between your product and their other assets. That isn’t to say that one should avoid generic venture capitalists while seeking round two funding; however, he pointed out the long leash that generic venture capitalists come with, often requiring substantial debt liabilities. “You’re looking for growth, don’t jump onto the first venture capitalist that comes out of the woodwork, knocking on your door,” he explained.
Once second round funding has been secured, it’s time to settle on your exit strategy. This doesn’t mean jumping ship as soon the solution starts to become successful. Exit strategies can vary anywhere from staying at the helm, to building the foundations of a legacy after you retire or selling to the highest bidder five years out and escaping to a secluded beach in the Caribbean. The point, Trinidad said, is to have an exit strategy and use it as a map throughout commercialization. The exit strategy can change and evolve along with each stage as new implementations are discovered or roadblocks encountered, but the key point is to develop one in the first place.
Hitchhiker’s Guide to Monetizing your IoT Solution
Allusions to the foresight of the late science-fiction author, Douglas Adams, were abound later in the day during the keynote presentation by Greg Dashwood, product lead of IoT and advanced analytics at Microsoft. These allusions included the fictional babel fish (a language decoding fish that characters in Hitchhiker’s Guide to the Galaxy insert into their ears), the breathe-o-smart (a smart building-like climate control technology) and the nutri-matic (a machine that takes in as much data about a user’s likes, wants, needs and state of being, but almost always produces something that resembles tea).
On the path to monetizing IoT solutions, there are three questions that Dashwood believes need to be answered:
i. What is the ratio between implementation cost versus the value that is added to the lives of the customers? Dashwood asks us to think about the babel fish: is the value of having access to all languages worth a fish in your ear?
ii. Is this IoT solution resilient and adaptable? That is, how quickly can your solution evolve so that the value it is providing is consistent and accurate to the scenarios it encounters? Or is its poor implementation going to start riots like Douglas’ breathe-o-smart?
iii. Are the needs of users truly being addressed? That is, regardless of how much data you harvest, is your product or service like a nutri-matic in the sense that it only outputs similar solutions regardless of varying input?
To exemplify where these three questions are well answered, according the Dashwood, is in the development of workspaces as spaces that work. Be it office furniture, HVAC control, security, accessibility infrastructure or employee engagement, there are many solutions that can optimize workspaces and actually have those spaces generating revenue through the leveraging of IoT technologies. And more often than not, these are the exact solutions that possible partners want to invest in.
It is in environments such as workspaces where the crux of the power of IoT is really revealed. IoT is a lodestone of connectivity: the collaboration of various devices, software and sensors in an ecosystem to provide better, faster and smarter solutions, products and services. Mimicking that connectivity by making the right partnerships (such as with Microsoft’s Azure) and finding the right niche inside these collaborative ecosystems, monetization can be simplified.
To expand on this, Dashwood walked through four monetization frameworks:
1. The one-and-done method. This is where a single transaction is made, and money is exchanged for a specific, discrete product or service. While this simplifies the forecasting of margins and revenue and avoids the paperwork that renewing agreements bring about, it is not a recurring revenue stream and thus limits the ability to predict future revenue.
2. The
pay-as-you-go
method. This is where products-as-a-service technologies often thrive. It allows solution providers to add incremental offerings, such as premium capabilities, throughout the product or service’s lifecycle to improve margins over time instead of having them decay like the previous one-and-done method. However, recurring revenue streams also require a deeper relationship with customers, such as providing support.
3. The
good-better-best
method. This framework is best in contingent situations with products and services that easily evolve. According to Dashwood, this framework allows for the extension and amplification of existing core competencies and effectively increases in value to customers. However, the ability to customize solutions comes with the burden of spending time on different billing strategies.
4. The revenue sharing method, also known as “we’re in this together.” The benefits to this framework include the fact that it is a great value proposition for customers and often results in straightforward sales processes. It also drives the building of stronger, more intimate relationships between customers and solutions providers. That is to say, your success is their success. The difficulties lie in developing solutions that consistently deliver real value to the customer and yourself. This method also adds in elements of unpredictability, according to Dashwood, especially if price floors haven’t been established or other contractual obligations are in place to ensure consistent revenue streams.
Connectivity Beyond Devices and “What’s Next?”
The key takeaways from this second session of the RIC Centre’s Driving Dreams 2019 Expert Series can be viewed two-fold. The first is that developers and engineers need to be able to adapt as the demand for IoT solutions varies. Rigid ideas sink and are replaced quickly by smarter, faster and better solutions every day. Trying to force solutions onto customers doesn’t work and it is much more profitable to focus on customers and their understanding of what solutions they know they need or the solutions they will eventually need. The second is that, in a time of giants like Amazon and Google, building relationships and partnerships with other providers of IoT solutions can be the lifesaver that keeps your ideas alive.
There’s lots to come over the next year from the RIC Centre’s Driving Dreams 2019 Expert Series. The next event lined up is scheduled for May 23 and will focus on the innovation of IoT solutions by answering questions such as: Which supply chain strategy and manufacturing strategy is best for your business? Should you source products from China? If you do business abroad, how do you protect your intellectual property? The event will once again be held at Arrow Electronics in Mississauga, Ontario. The itinerary includes a hands-on session with Digi International discussing “Modular Solutions Speeding Time to Market” and a keynote topic of “Protecting Your Intellectual Property” by Bereskin Parr.
Registration is still open, and more information can be found here .