Product as a Service (PaaS) and subscription-based business models are growing more popular. Instead of selling products, manufacturers rent or lease the products and provide ongoing service to the end user to ensure customer value. This decreases the cost of entry for end customers while providing manufacturers with a steady stream of predictable, recurring revenue.
The Internet of Things domain does not stay impartial to the business model changes. Manufacturers of smart, connected products must adapt to an environment where customers are shifting from a need to own the “product” towards the need for only the product’s “outcome”.
This trend is happening across different markets:
- Millennials living in metropolis centers often don’t want to own a car (and all the hassle related to it), they want access to a flexible transportation solution instead (Zipcar, Uber or Boris-bike);
- Owning CDs is replaced with music streaming services;
- Jet engine manufacturers are leasing the engines to the airlines; airlines are buying the outcome instead – jet-thrust per hour;
- Hospitals rent the equipment and pay per use to avoid paying the full price upfront of an otherwise expensive device;
- Office space providers use smart-building solutions and pay for the outcome – percentage of electricity, and other benefits.
As the examples above illustrate, the change in customer behavior is a result of one or more of the following factors: to avoid the commitment to product ownership and related responsibilities, a focus on product outcome, an expectation of service delivery, and access to new services.
IoT as a PaaS enabler
Before the IoT-era the PaaS model was limited to specific industries (telecoms), also it was not “real time enough” and license management was not easy, especially in the case of products which were not connected. Now, with ubiquitous connectivity it is much easier to bring the PaaS model to existing or new products. IoT solutions and “always on” connectivity are the key elements responsible for popularizing the subscription-based business models.
How do all of the above impact manufacturers of smart, connected products? How must their IoT solutions be adapted to support PaaS concepts? And what are the top capabilities to include in the design?
In this first installment of a two part series of posts on best practices for IoT solutions for a PaaS business model, I will provide a technology architecture blueprint overview to help you understand the capabilities you will need.
High level architecture of an IoT solution for a PaaS business model
An IoT solution capable of supporting a PaaS business model will contain the following components: the connected product (connected device or other service endpoint) connected to an IoT platform via Internet, an entitlement management system, a CRM, and a monetization engine.
What are the main functions of the IoT-enabled PaaS solution?
Let’s start with the connected product itself. In its primary function this product provides a value or an outcome to the end user. It can be a tangible product or just a service endpoint. However, in the subscription model it is important for the product to provide, in almost real time, its usage statistics. Also, the product must be aware of the entitlements granted to the end user. Based on the entitlement (think license) the product’s capabilities will be gradually switched on or off, or the service will change its levels.
The second main function of the solution is the entitlement management system. This is where the eligibility for product features and functions will be associated to the end user. This is also the system which will provide updates to the license information (entitlement) on the connected devices in situations when the entitlement changes (new license purchased, service level upgraded or downgraded, license eligibility elapsed, etc.).
The third function is the monetization engine, which serves as a pricing and billing solution. Depending on the sophistication of the charging package, it could also address (directly or via additional integrations) other concerns which are applicable in the PaaS model: taxation, currency conversions, discounting, invoicing, payments processing and accounts receivable. These will be especially important in the global deployments.
The next function is the CRM. Its role in the PaaS context will include additional functions (potentially absent in non-PaaS deployments) – management of the entitlement sales, early warnings when subscriptions are about to expire, and management of the communications about the product use to the end users. The CRM will be integrated with the entitlement management system as well as with the monetization engine to support a subscription-based business model.
And finally, the IoT platform function in the PaaS solution will play the centerpiece role – it will be the enabler of bi-directional communication with the connected product. It will collect usage statistics which will be fed into the monetization engine for charging purposes. The IoT platform also receives from the entitlement management system updates to the license information and will provide that to the connected product or service endpoint.
In my next post I will provide further guidance on the key functions of an IoT solution for a PaaS business model. I will focus on the following areas: device usage data collection and entitlement management. Also, I will provide a detailed look into the selection process of the monetization engine, and key capabilities that will be essential for a successful a global IoT PaaS deployment.