The business model for your IoT product is the most important thing you need to figure out. As I said in my previous post about not building an app first, without a business model your product will never be a success.
Here are the four business model patterns that in my opinion you have to know. The best thing, you already experienced them without realising their power. So, here they are:
1)Freemium is a model that is very common in the gaming industry. If you check the apps in the Appstore or the Google Play Store most of them are for free. That means the basic functionality is free. If you want the premium version with all the bells and whistles you have to pay. And usually a lot of features that you actually need are locked behind that paywall.
2)A digital add-on enhances the functionality of the physical product with a digital product or service. This is what Vorwerk did with the new generation of the Thermomix. Owners can enhance the Thermomix’es functionality by buying digital cookbooks with new recipes that can be selected through the user interface. This business model is not limited to pricey, high margin products. It also works great for low margin physical products where the add-ons are high margin products that make the profit. This is what Microsoft is doing with its Xbox gaming console. Some say Microsoft is even losing money on every sold console. But, boy do they earn money with digital add ons and subscription services.
3)Object self-service is when products can order spare parts or consumable goods directly without user interaction. You might remember this pattern from my post about The coffee machine (why the internet of things is about more than just connectivity). It is a great way to make sure that the customer is buying the spare parts or the goods from you and not from someone else.
4)Selling physical products for a low base price or leasing them to the customer for free is usually part of pay per use. The customer pays only for what he uses. This model is commonly known for years now in the cloud computing industry by Amazon and Google. You only pay for the hours of used server uptime. If the server is shut down you don’t have to pay a thing. Now that the IoT enables more and more devices to connect to the internet I predict that pay per use will get a common part of our lives in the future. General Electric for instance now offers gas turbines through a pay per use contract to airlines. The airlines do not pay for the turbine, instead they pay for the thrust per hour that the turbine is outputting.
Combine patterns for your business model
Remember, it is not enough to only use one pattern as a business model. You should combine some patterns to generate the perfect business model for your product.
For instance: Digital add-ons can be nicely combined with the freemium model. The basic digital service for the product is for free. This lowers the barrier significantly for getting potential premium customers to try out the paid digital add-ons.
So, what do you think, are you interested in some more business model patterns? Do you have something to add to it? Just leave a comment in the box below. If you liked this post please consider sharing it on social media and joining my mailing list. If you think this post sucks please also consider writing me a comment and tell me how wrong I am 😉
Until next time!