Solution providers are seeing business-outcome-based models as key to driving Internet of Things success and enabling win-win conversations with customers.
The business-outcome-based model, which is comprised of an entire IoT ecosystem, brings together partners and customers into a project agreement where the payment is based on the performance of the IoT solution.
“We’ve pivoted our business model to give companies visibility into the outcome of the IoT projects,” said Rick Erickson, co-founder and executive vice president of business development at solution provider Agosto. “We need to eventually get to a place where [IoT is] outcome-based, reduce the cost up front to get the pilot phase done quickly, and get to the minimum viable product faster so the customer doesn’t have to spend as much to get to market.”
Minneapolis-based Agosto, for example, has worked with a big air quality monitoring and inspection company to help it flesh out its business model. As the initial part of that sales process, Agosto worked with the company to collect data from sensors in the field and look for patterns that would help provide the most business value.
“This joint success model is becoming bigger with partners on the industrial design side of things,” Erickson said. “Companies like Agosto can take advantage of the back end for operative models that work, so you want to pay for what you use, but there has to be a threshold.”
John Thayer, vice president of sales and strategic business development at Grand Rapids, Mich.-based solution provider Open Systems Technologies, said the solution provider has been working on a “handful” of business-outcome-based projects.
“We provide client solutions with outcome-based pricing, which connects our pricing to the value of outcomes for our clients,” he said. “We’ll agree to different pricing models, a set of hourly pricing that might involve weekly pricing or monthly pricing, plus milestone- or accomplishment-driven payments.”
Open Systems Technologies works with the customer to “collaboratively define success” in a project, such as a certain amount of money saved through IoT-driven efficiencies, said Thayer.
“Both parties see it as a win, not an ability to avoid costs. … Our desire is to make money as it’s earned and see through the lens of outcomes versus the lens of hourly revenue,” he said.
Scott Udell, vice president of IoT solutions at Boston-based Cloud Technology Partners, said he is actively encouraging the business-outcome-based model.
“It goes back to the very beginning of the sales process … we start the customer journey by asking the most basic question, ‘Why are you doing this?'” he said. “Services companies are warming up to that model; it’s a shared risk and shared reward model. It’s also an opportunity for partners and customers to really take a step back and ask questions about how to measure success in IoT. Those are reasonable questions to ask.”