The Biggest Question for IoT…Who Pays?

Talk to anyone with even a passing interest in the Internet of Things (IoT), and they’ll quickly tell you that the real value of an IoT deployment lies in the data that it generates and the insights that can be gleamed from analyzing that data. Fair enough.

Ask the same people about who they think should be paying for all the equipment necessary to capture that data in the first place, however, and you’re likely to get a range of responses. (By the way, this is even true for consumer IOT applications.) In some instances, the answer might seem to be easy: the company that’s installing IoT technology within its own four walls, for example. But even then, however, there are often questions about which department should foot the bill.

As I’ve written about recently, not all business IoT projects are being run by IT—in fact, the majority of them (2/3) are not. So, you can’t just assume that IT will be paying for all the new sensors, gateways, networking equipment, analytics hardware and software—as well as any consultative help provided by VARs or other specialists to get it all up and running. In many organizations, operations specialists, manufacturing, business strategy or even sales and marketing might end up being handed the check.

Part of the problem is that even a simple project can quickly become expensive—as many organizations are now learning—so figuring out who is financially responsible for what can be rather taxing.

Still, it’s much easier than it is for the growing number of more indirect business models now being used for enterprise IOT deployments. Deciding who picks up the tab in those situations can be much more difficult. In some instances, the equipment makers or service providers have even built business models that specifically remove the equipment acquisition cost from a customer’s bill. Instead, the idea is to get a customer using IoT to simply pay for a service, in some cases based on their usage, or an amount of savings, or some other value-based determinant.

In many cases, however, there is a critical (and incorrect) assumption being made that the value of the data or service that can be derived will easily justify the expense. Smart cities seem to be the poster child example for this situation. Many people and many vendors have waxed semi-eloquently about the amazing conveniences modern cities can bring to their citizens once they become “smart.” Everything from better traffic, easier parking, lower utility bills, safer streets and more are promised to the denizens of these future metropolises.[pullquote]In many cases, there is a critical (and incorrect) assumption being made that the value of the data or service that can be derived from an IoT deployment will easily justify the expense.”[/pullquote]

However, I have yet to hear how any modern, cash-strapped city can even begin to start paying for the capital investments necessary to make these wonders possible. Unless vendors decide it’s in the interest of mankind to make these improvements available—call me a cynic if you like, but I’m not holding my breath on this one—it’s going to be a very long time before the posited smart city capabilities come to pass. This is particularly true now that we’re seeing investors start to demand positive cash flows from the kinds of startups that might have been able to get away with the longer-term investments that are going to be necessary to build these smart city infrastructures.

Business model experiments and concerns are also happening on the consumer side. While some consumers are buying their own wearables or smart home elements, others are paying for services where the equipment is provided. Health insurance companies are starting to give away wearables, auto insurance companies are giving away “connected car” devices, and telcos and other service providers are offering up connected security cameras and much more.

While consumer purchase seems to be the more common option right now, it’s still very early. Plus, the relatively slow rates at which these devices are being purchased and used strongly suggests we’re going to see a lot more aggressive experiments by consumer IoT vendors to give away their hardware either as part of a paid service, in exchange for the aggregated data collected, or some combination of the two.

Of course, this also raises the question of who owns the data for consumer IoT applications. While that topic deserves a column unto itself, suffice it to say that questions about ownership in IoT extend well beyond the basic hardware.

Ultimately, there’s no single right answer to any of these ownership questions, but for IoT applications to really succeed, the vested parties all need to work through the sometimes awkward process of figuring out who it is that’s going to pay the bill.

Published by

Bob O'Donnell

Bob O’Donnell is the president and chief analyst of TECHnalysis Research, LLC a technology consulting and market research firm that provides strategic consulting and market research services to the technology industry and professional financial community. You can follow him on Twitter @bobodtech.

781 thoughts on “The Biggest Question for IoT…Who Pays?”

  1. The real question is who is going to wash the dishes after everybody. And it is not going to be me.

  2. You raise an interesting issue. Even if there are economic
    benefits to the technology, many companies have capex-constraint and will not
    undertake the investment (even if it has a payback period as short as five
    years). An interesting area where you see this play out is with the adoption of
    LED lighting in retail. The electricity savings on the LED lighting and AC should
    make it a no-brainer, but the adoption rate has been very low because of the
    high upfront investment.

    I’m now seeing creative leasing structures being implemented
    where lessors charge retailers based on the amount of light output in lumen
    (which is very predictable because most shops do not have much daylight and
    nobody likes to shop in the dark). The interesting question is if such a model
    could be developed for IoT. My guess is that where IoT is used in functions
    that lend themselves to back office outsourcing, you may see a faster rate of
    adoption as the capex can be borne by the back office provider.

  3. The IoT is a marketing label like cloud. It all boils down to a massive data collection mechanism. As it turns out the “information economy” had little to do with people getting information and more to do with corporations and government getting information on people.

    One can’t dispute the selective benefits of the internet and its spawn any more than one can dispute the selective benefits of car ownership. In the same vein one can read the utopian promises put forward for television as that technology burst on the scene and compare it to what it became and see that the end result over time is a far departure from the fantasies of idealistic technologists.

    Of course whatever the future scenarios are it is a truism that those born into it will find it as natural as a fish being in water.

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