From automotive to telecom, businesses seeking to maximize revenues from the Internet of Things (IoT) will need to become much more adept at revenue sharing.
Revenue sharing is already well established across most industries. It’s been used for decades in the telecommunications industry, for example, with roaming agreements existing between different carriers.
In the realm of IoT, everything is connected, including revenues. Delivering IoT-based services is typically a team effort involving multiple third parties. As a result, businesses must share IoT revenues among device makers, application developers, data storage providers, analytics experts and dozens of other vendors.
Drivers in Revenue Sharing Trends
With the expansion of IoT and new connectivity technologies, revenue sharing requirements are expected to expand dramatically across the board, posing a significant challenge for organizations that are not prepared to support the intricacies and dynamic changes that revenue sharing entails. Keeping track of who gets compensated for which services is a far more complex endeavor than traditional billing scenarios. As a consequence, IoT upstarts are under growing pressure to acquire digital dexterity in billing, fulfillment, finance, and other back end systems—capabilities that legacy operations and business systems may lack.
Multiple forces are behind the rise of revenue sharing in the IoT. Chief among them are the continued growth in cloud-connected services, M2M computing and 5G. IoT service providers are at the center of it all. They have a vested interest in expanding connected services that make them more valuable to their customers while capturing a larger slice of revenues.
Third-party collaboration and revenue sharing business models will be required to monetize these new hyper-connected services. For an example, consider new smart home services that cable operators are rolling out. In many instances, providers lack key IoT development and implementation expertise needed to run the many sensor-enhanced appliances, door locks, thermostats, and security cameras connected home services provide. An effective way to acquire that expertise is to partner with IoT specialists that provide IoT enablement services in return for a share of revenues that the companies garner from connected home subscriptions. Those revenues may be divvied up in a number of different ways, including by percentage, as micropayments per transaction, or through other consumption-based mechanisms.
Wanted: IoT Specialist Partners
It’s likely that revenue sharing arrangements will mushroom as companies continue to deploy new cloud-connected services outside their traditional core competencies. They’ll need partner expertise to help with everything from connected homes and cars to wearables, connected retail, smart cities, factory automation, and connected healthcare.
For many service providers, shared revenue arrangements with IoT specialists offer the fastest time to market. The services these partners provide span the gamut of IoT enablement. Examples include IoT device provisioning and management, mobile application development, M2M systems management, application integration, API interoperability, device security, big data storage, real-time analytics, and countless others. In many cases, companies may need to share revenues with a multitude of different partners who provide and enable different aspects of IoT services.
Revenue Management Challenges
Managing shared revenues in highly convoluted, multi-party IoT engagements is not for the faint of heart. Companies must be able to stay on top of who gets paid what for which IoT service component. That’s a tall order. But tracking shared revenues is not the only challenge.
A significant complication is that in many cases, those shared revenues are also recurring. IoT services are typically ongoing and paid for by end-customers through subscriptions, consumption, or per-use fees. In turn, many of the enabling IoT capabilities that partners furnish are likewise paid for on an incremental, recurring basis.
Subscription, usage, or micropayments—the mechanisms vary. But keeping tabs on these recurring charges adds considerable difficulty to managing revenues in partner-dependent IoT scenarios. As if that weren’t enough, the billing process must be seamless, painless, and transparent to the end customer.
New IoT entrants will be on the hook to ensure that recurring revenues in IoT engagements are properly reconciled and distributed to third parties. Companies that lack the digital agility to pull this off will be at a significant disadvantage as IoT ramps into high gear. For these organizations, cloud-based monetization capabilities can enable them to keep pace with more technologically proficient competitors and prosper in the IoT age.
About the author: Brendan O’Brien is Co-Founder and Chief Innovation Officer of Aria Systems, a cloud-based monetization platform and leader in helping enterprises grow subscription- and usage-based revenue.
Edited by
Ken Briodagh
