IDC estimates there will be 55.7 billion connected IoT devices (or “things”) by 2025, generating almost 80B zettabytes (ZB) of data and says “organizations continue to connect their internal processes across roles on a digital platform; and these same industry organizations are realizing the importance of expanding their ecosystems to meet market and customer need, and be more flexible and resilient.”
We all recognize the criticality of gathering data, but do we have clarity around exactly how to make the most of that data? Based on my recent conversation with Dr. Andreas (Andy) Schroeder, Reader for Information Systems at Aston University and Digital Lead for the Advanced Services Group, it seems the answer in most cases is no – particularly as we look at the paths for monetizing data. Andy and I recently recorded a podcast, which will be released soon, during which he demystified some of the common challenges around how to leverage data to increase revenue.
The Chicken and Egg Syndrome
The first point to get clear on is what comes first: strategy or technology? As Andy explains, data is an answer that should be answering a question that is tied to your strategy. “Technology or data, information technology is a way to answer questions,” he says. “The questions that need to be answered are defined by the business model. So, if my business model, for example, says I provide heating as a service, then the question is, for example, how much heat does my customer need, how much comfort does he or she need? This is a question, and then we can look at how we can use technology to answer this question.”
Leading with strategy and focusing on what questions do you need to answer to deliver value to your customers is the best way to approach putting technology in place to gather the right data. Too often companies get ahead of themselves by putting technology in place and collecting data that they aren’t sure what to do with or how it fits within their value proposition. This can waste valuable time and create overwhelm, so you are better of setting your strategy first and defining exactly what questions you need answers (data) to.
Clarify Your Path to Revenue
This was my favorite quote from the podcast with Andy: “We all agree that Servitization is tightly linked to digitalization, but I would go even further and say that Servitization is the way to monetize digitalization.” He goes on to explain the cohesiveness that should exist when it comes to your company’s evolution from product provider to Servitized business, digitalization efforts, and new customer value proposition.
Clarity around how best to approach this puzzle is where the majority of demystification needs to occur. “A lot of the IOT investments that we’re seeing, may not pay off on their own unless they’re wrapped into a business model that takes advantage of being able to monitor something at distance,” explains Andy. “There are some huge misconceptions around Servitization. Servitization is not a statement of, ‘We are not good at producing products.’ It’s a statement of, ‘We can provide our product as a service because we have the best products around, because we can provide products that we can put a lifelong commitment to instead of our competitor who is more or less happy when they don’t have to be involved with that product long-term.’”
When there is confusion around or resistance to the idea of morphing to a Servitized business model, the value proposition tends to be presented in a fragmented way: product first, then service after with new data capabilities added on as digitalization efforts mature. This fragmented approach is all wrong, because not only does it not embrace the true meaning of Servitization, but it pieces out the value that customers are willing to pay for into siloes that aren’t at all meaningful to them.
“If we take the narrow term of monetization, that means money for data in the way we can interpret this,” explains Andy. “We’ve found that in a lot of companies that we work with, they come with ambitions of being able to monetize the data on its own. Some make investments in development platforms and so on and so on, to be able to communicate data and insights to the customer. Very, very few are managing to convert this into actual business propositions that are being taken up by the customers.”
What Are Your Customers Willing to Pay For?
What Andy is describing is a challenge I’ve heard tale of many times – a customer isn’t receptive to paying for data or a new tier of service contract enabled by that data, because their expectation is that as their trusted provider, you will extend your latest and best capabilities to them. In other words, they are interested in the outcome – not the path to the outcome. “What we find is that a lot of times, the customer is not willing to pay for the data. There might be different reasons, there might not be enough value in the data, or the customer might say, ‘I buy your product and you want to charge me to tell me when my product will break? I mean, I’m your customer, why don’t you just tell me? Why would we have to have a different loop, why do you want to charge me extra for it?’”
This is why, in most scenarios, the path to data monetization needs to be a natural part of the shift to Servitization or outcomes-based service, not an initiative on its own. “In the wider context, the way to monetize data is to make it part of the entire service proposition,” says Andy. “To be honest, the customer doesn’t really care to know when the machine breaks in a service context. In a service context, you’re contracted to make sure the machine doesn’t break, and there’s a penalty associated with the downtime of the machine. Why would the customer want to know? For curiosity reasons, yes, but it is your responsibility. By folding data into a service proposition, you can more easily monetize it because you are translating it into tangible, substantial value.”
Now some organizations who have advanced quite far on the Servitization journey have also seen success in monetizing data in additional areas beyond the core service value proposition – by leveraging data as a way to provide valuable knowledge and business insights in more of a consulting manner. While this isn’t yet the norm, it is also worth considering how data may play a part in your revenue growth if you can glean insights from it that provide value to your customer base beyond informing your service.
Stay tuned for this podcast coming soon, where Andy and I discuss these themes in more detail and also walk through important tips for collecting the right data for your needs.