Making Money from M2M
©M2M Magazine - March/April 2008 - David McNierney
The commercialization of M2M services presents an erratic trajectory at best. Everyone sees the dollar signs associated with the various market forecasts, but finding the right service for the right customer at the right price is no easy task. Even with a compelling service leveraging the latest technology and targeting the appropriate customer profiles, commercialization can fail due to ineffective charging models.
With the growth of the hyper-connected world, we are seeing old business models turned upside down. In Chris Andersen’s book entitled “The Long Tail”, he explains that rather than selling to dozens of markets of millions as we did in the 20th century, we are now selling to millions of markets of dozens. Consistent with this theme, one-size-fits pricing should end with the end of the 20th century’s off-line world. Now, pricing should be tailored to the specific needs of multiple, diverse markets and, in some cases, a market of one.
Flat-rate subscriptions typify the one-size-fits all pricing approach. Still the most common charging model, subscriptions offer predictability for both provider and end-user and they are typically the easiest to understand and implement. The growth of the M2M market is tracking closely with another early-stage industry, Software as a Service (SaaS) where bellwether companies like Salesforce.com have adopted pure subscription models.
However, subscriptions require a commitment that many potential customers are not prepared to accept due to an unclear ROI – a common problem with next-generation services. End-users also realize that some “low use” customers will inherently be subsidizing “high use” customers paying the same all-you-can-eat price.
A key attribute of M2M and other smart device-based services is that they can be tracked. Devices can report transaction activity, metered usage and even more granular information such as time of day and specific end-user activity. Usage-based, or “Pay As You Go”, or “By the Drink”, charging models differ dramatically from All You Can Eat subscriptions. For end-users, these models eliminate the need for an upfront commitment and accurately reflect their actual service consumption. It’s no wonder that new applications such as Pay As You Drive insurance and Electronic Road Tolling are growing in popularity among both providers/municipalities and end-users. The more you drive, the more insurance and tolls you pay. Unlike Salesforce.com, another SaaS leader, WebEx has opted for the pure pay-per-use model. If you google the term pay-per-use, WebEx will appear at the top of the results – they have based their entire business on this model.
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