Why IoT Solution Companies Don’t Make Money?

Companies which want to solve their efficiency issue through IoT, ask the implementors to demonstrate the increase in efficiency

By Srinivasa Moorthy S A

I have been in the Internet of Things (IoT) space for the last two years working with a clutch of startups as well as matured companies in different roles as sales guy, implementor, designer and simply a mentor. One thing I noticed common is, no IoT company has made money, leave alone lots of it!

I have noticed every idea that gets into implementation is good and worth pursuing. But the challenge has been how to make money out of the solution. Most IoT solutions are born out of problems or challenges faced by the companies (let us leave the individuals for the moment). Most of the times I have seen the challenges faced by the would-be customer companies are related to addressing:

  • Efficiency in their processes
  • Challenges which can’t solved manually
  • Solutions which are totally new which can be implemented

A typical IoT solution has three critical components:

  1. Things: Which are custom hardware with embedded software which are dedicated to a solution
  2. Interconnection/Network: When the geography of the solution is large, it can be expensive and dependent on the service provider, so costs money
  3. Central Computing Infrastructure, basically Cloud: For storage and computing, which again is a third-party service provider when the geography is large

If you notice carefully all the three items call additional cash when the IoT implementation is done. So biggest issue that the companies which want IoT solution face is the source of funding if they need go ahead implementing the solution.

Challenges and solutions

This being the case every IoT solution ultimately faces the challenge of how to get the funds for implementation. As we discussed the problems of efficiency, addressing solution which can’t be done manually, and finally totally new solution call for different ways of handling. Companies looking for IoT solutions try to be creative to find the money for the solutions.

  • Companies which want to solve their efficiency issue through IoT, ask the implementors to demonstrate the increase in efficiency and thereby the savings. Invariably they propose a share in the revenue rather than paying upfront. This is the key issue facing IoT solution companies.
  • When the solution is to address a challenge, which can’t be done manually the challenge comes in two ways. First, the end customers have to find money to fund the solutions. Since this is a new solution, cost tends to be high. Second, the economic value add of this solution has to be quantified, so that the management approves the project. This is always a challenge especially when historical data around the problem is not available. To add to the confusion, the IoT solution provider adds lots of technology and jargons and muddies the water further.
  • Finally, an absolute new idea that the provider pitches to the customer. Best example I can quote is the PoE (power over ethernet) powered lighting. This technology is new and energy efficient and when deployed it can save energy to the extent of 20-30 per cent over the conventional lighting. But deployment of this technology in an existing building calls for a huge investment. Despite better efficiency and control, most would-be customer tends to ask the solution providers to deploy and take their investment as a monthly fee (basically lighting-as-a-service – LaaS). This calls for huge investment from the solution provider.

As we can see in all these cases sell and support option doesn’t exist, and this calls for a completely different way of doing business. Some of the models that are offered are:

  • Take a share in the savings (increase in efficiency solution)
  • Implement the solution and take part payment and rest in monthly/quarterly instalments (basically the solution provider can breakeven on the cost of HW and recoup the rest of the cash through subscription) (Solution for difficult job)
  • Finally, implement the solution and get paid periodically for a longer duration. This is advantageous for the end customer as they have no capex and only opex. (Absolutely new idea)

However, these models are making the SMEs/startups in the IoT business to struggle as all of these solutions are capital intensive to implement. Most SMEs/startups don’t have funding to do this.

I always advise these companies to start for the pilot in a small way – go in for one or two cases and perfect the model. Then go in for different funding to rollout in large scale.

Srinivasa Moorthy S A is the Chief Executive Officer of the Andhra Pradesh Electronics & IT Agency. He has over 30 years of experience in the IT industry as Head, Leader & Technocrat in the Electronic Product Design & Engineering Services.

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