Pricing the Internet of Things: Insights from Liveworx

The Liveworx conference ran from May 22 to 25 in Boston this year. Almost 10,000 delegates attended with about 99 companies exhibiting. This conference is PTC’s flagship event to highlight its Internet of Things and Augmented Reality platforms.

The Internet of Things (IoT) is coming of age, transforming everything from product design and manufacturing (the factory floor is a major focus for IoT solutions), supply chains (in Deloitte’s words we are moving from Traditional Supply Chain to the IoT enabled Digital Supply Network), to how we imagine everyday objects. Almost all driverless cars are using IoT technologies and virtually every medical device you can think of is being attached to the Internet and data is collected.

One thing we noticed from the exhibition floor was the number of companies featuring data integration. Companies like Glassbeam take many different data feeds, from machine level data to structured data and everything in between, and look for the patterns that make this data wave meaningful to other systems.

Security is another big topic. There are a lot of security threats associated with the IoT (The Internet of Risky Things) and one of the main value propositions of a platform like PTC’s Thingworx is that it will manage security. This is a very good thing, given the amount of healthcare data that will be flowing across networks, the connection of IoT solutions to the financial system, and the risks associated with drones and other autonomous vehicles (there were a lot of people demonstrating drone technologies at Thingworx).

One interesting application was from Amalto, which combined the PTC Thingworx platform with its own business integration platform to develop a better way to manage water transport in the oil & gas industry. Basically, sensors are put in water storage tanks and when the water reaches a certain level a ticket is automatically issued to a water transport company. The entire transaction chain is captured in Blockchain (the distributed ledger technology behind Bitcoin) and the bank pays the water transport company almost immediately instead of the 90-120 days that they tolerate today. As the water transporters are often relatively small companies operating on tight cash flows this is a big deal for them.

How will the Internet of Things transform pricing?

Big changes are coming to pricing. Just as cloud computing enabled subscription models and Software as a Service, the Internet of Things will transform how we price many other things. The change drivers are

  • Data, there will be a lot more data in all sorts of formats
  • Connection, IoT devices will connect with each other and multiple networks
  • Modularity, the best of breed IoT solutions are highly modular and demonstrate the properties described by Kim Clark and Carliss Baldwin in their classic book Design Rules

What does this mean for pricing?

To begin, a lot more pricing will be model driven. Pricing will depend on building and connecting three different models: the economic or value model (how the solution delivers value to the customer), the usage model (how the solution is used) and the pricing model itself. These three models will interact to generate the actual invoices, to the extent that invoices are still used that is, most payments will be automated.

Models and Pricing for IoT

 

Over time, the impact will go well beyond model driven pricing. The combination of modularity, composability and availability of data will have three long-term results.

  1. More prices will be set by M2M auctions carried out by the IoT applications and their components
  2. Pricing will be composed based on configuration and value rather than fixed in price schedules
  3. Configurations will be dynamically driven by value and cost

This will be a very different world from the one in which we live today. In some ways, it will resemble the world of the airlines, where load balancing has become a critical pricing driver, overwhelming brand and all other considerations. If cost becomes the only consideration though, we will be missing a great opportunity to optimize for value. To avoid the commoditization that has plagued the airline industry, there has to be a focus on value to the customer as well as cost.

IoT companies and pricing consultants alike are going to need some new skills. The most important of these will be modelling skills. Very few people today know how to build a value model and fewer still understand how to connect value models with usage models to design pricing. The dark science of auction mechanism design will also become more important and one hopes more transparent. A lot of the skills developed in the financial sector over the past decade will get transferred into IoT pricing. It will be a brave new world that has such people in it.

Interested?

See the slides from Steven Forth’s talk on ‘How will the Internet of things transform pricing?’

Read our interview with PTC CTO Andy Timm and Platform CTO Joe Biron.

Ibbaka is focused on developing pricing solutions that leverage the power of the Internet of Things. Join us on this journey.

More insights from Liveworx.