As the Internet of Things (IoT) continues to grow, the implications for business model innovation are huge. One of the major drivers in this connected landscape is the shift in end-user preferences: there is an increasing demand for flexible pricing models, ease of access to software upgrades, and a superior customer experience. As a result of the rise in connectivity, end users’ perception of value and what they are willing to pay for is changing drastically. Therefore, to take advantage of the IoT, independent software vendors and intelligent device manufacturers alike need to fundamentally rethink their orthodox attitudes towards value.
One of the best parts about buying a new car, other than getting a new car, is that you can get the basic model plus a long list of extras. Often certain packages have been designed that include the basic model plus a certain set of extras: the “sport” model, the “winter” edition, the “luxury” package etc. You can start at a lower price point and then just add the extra features you want, without adding or paying for what you don’t want or need.
A few years back, I found myself with a few colleagues in a bar in Amsterdam having a conversation around the merits of online consumption of music. We were converging to a common view point as to why anyone would want to pay 99 cents for downloading a single song when you could buy the entire DVD in any retail store complete with jewel box and lyrics for $10-15. Besides, you can always upload songs from CD to the electronic devices; this sounded like the better option to us, a win-win. Proud of our intelligent conclusion over a beer, we were soon up for a rude awakening when the person sitting next to us declared that we are nothing but a bunch of old fellas who don’t know what is going on in the new world.
Guest blog post by Amy Konary, Vice President, IDC
For decades, success in the software business required executing on the following:
1. Make a Killer Product
2. Drive down Marginal Costs
3. Sell as many Units as Possible
4. Repeat Steps 1-3
Traditional software monetization models have been built to support this approach. However, today’s software customers are focused on using what they have, rather than buying more.