I was chatting with Intel’s subsidiary, Wind River, this week and they walked me through how an increasing number of consumer-facing vendors were aggressively looking at using the Internet to massively reduce the price of a broad range of products you currently buy. Wind River is a major provider of technology for firms that want to build connected devices. The model they are using is similar to what firms use to sell everything from cell phones to jet engines below cost - effectively making some of these products seem free. You probably don’t care much about the move to connect virtually everything you buy to the Internet but, if this got cheaper and more reliable because of those connections, I’ll bet you’d care a lot.
I expect this will change dramatically which companies survive and which expire as we move to the vastly better world where most everything is connected.
The Connected Model
What vendors are slowly figuring out is that they can likely make more money from you selling you stuff through your device, on ads on your device, and on services you consume on your device than on the device itself which has to be competitively priced. They can also make money on the information about you that your device captures. A connected TV is a gold mine on what ads you don’t fast forward through, the programing you like to watch and when you are watching TV at home - all of which tells advertisers when and what you might be interested in buying.
A networked refrigerator could automatically order new filters and more advanced models could keep track of food telling you when to throw it out and automatically ordering more. Since Supermarkets want you to come into the store they aren’t that interested in this but stores like Amazon who just deliver by order would find this capability very valuable and likely subsidize a connected refrigerator to get your business in the future.
The Kindle is the perfect example of a current generation connected device. Amazon sells it at cost and makes their money on the purchases you make using the device. Major Amazon customers will often find that if they brake or lose their Kindle, Amazon will offer them a replacement for free just to make sure they keep on buying and stay happy. For power buyers, they can afford to sell Kindles below and still make money off the things the reader buys using the device. In a way, the Kindle becomes a dedicated entry into the Amazon store and it still surprises me that other retailers haven’t figured this out and launched similar efforts.
Even Cars Are Becoming Connected
Tesla is scaring the heck out of other car makers with their connected model that allows them to monitor everything in the car and provide emergency service and even anticipate problems so the driver is never left stranded. In complex and service prone products like cars and major appliances, this allows the builder to sell maintenance contracts and keep the costs down because they can both discover parts that are failing in the field and make sure the customer remains happy so they don’t dump the product from a competing brand. One of the highest costs a firm incurs is customer acquisition - so getting customers to stay loyal is incredibly important.
Knowing when an appliance or vehicle is wearing out allows them to provide offers for upgrades (Tesla recently offered a $23K upgrade to buyers of their first sedans which would update the cars to current models replacing the motors, suspension and other key components and refreshing the car to almost new condition). This is also driven by their modular approach, a growing trend in automobiles, which would allow customer upgrades and improvements throughout the life of the product driving services revenue and reducing the need for premature replacement. The manufacturer makes more money, the customer gets a better experience and actually saves money so being connected can result in a win/win.
Wrapping Up: Internet of things = Better & Cheaper
Overall the coming “Internet of Things” will connect the companies you buy from more closely to you and the product you have purchased. If there is a problem, you need or want an upgrade, or need to replace a component, you’ll increasingly get it automatically and the vendor will get revenue that likely would have gone someplace else. Your products will last longer and the vendor will work harder to keep you happy so they don’t lose you as a customer and, increasingly, products will get cheaper to purchase being subsidized by firms that want to sell you things to know more about you, or want to provide services over the life of the device, car, or appliance.
In the end a connected world could actually be a cheaper and less frustrating world even to the point that, like cell phones, the initial purchase price could be free.
President and Principal Analyst, Enderle Group
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