From the second you lift your head off your smart pillow in the morning and grab your phone, to the moment you ask Alexa to turn off your lights and lock up in the evening, you’re connected. That’s the world we now live in. That’s the Internet of Things (IoT).
IoT devices collect and transmit data, and are intended to enhance our lives by creating efficiencies and seamless experiences like never before. It’s estimated there will be over 20 billion IoT devices by 2020—a huge jump from the 8.4 billion just a few years ago.
How much is it all worth? Some suggest up to $11 trillion globally by 2025, making the financial impact of this industry undeniable.
As always, though, the technology is moving faster than many businesses can evolve. Those that aren’t finding solutions to the challenges of doing business in this new ecosystem risk being permanently disrupted.
Efficient IoT billing for monetization is one of the challenges brought on by these rapid tech advancements. Businesses are being forced to rework their processes in order to adapt.
Billing in the IoT era
Accounting and billing have traditionally been specialty areas with standalone management systems. However, modern billing systems need to be well integrated with all aspects of the businesses they serve in order to capitalize on the IoT. These systems also require the capability to accommodate increasingly complex business models and pricing structures.
For years, it was simple and linear: a buyer would purchase a product or service from a seller with a one-time transaction, and the process was complete until the next time that customer needed to make a purchase.
This way of conducting business will soon be a thing of the past. In fact, it already is for many businesses that understand the new requirements to compete in this subscription-based, customer-driven marketplace. While the IoT presents some complications for billing, the opportunities it creates are even greater.
Here are four main challenges of IoT billing, along with solutions that lead to scalable growth.
1. Fragmented business and financial architecture of IoT
IoT devices capture an incredible amount of data. If properly aggregated and analyzed together with the entirety of a business’s analytics, this data can provide unlimited, revenue-driving intelligence. However, businesses that use legacy systems aren’t able to capitalize on the opportunities IoT data presents.
When fractured information has to be manually cobbled together from multiple sources, a few issues arise:
- errors occur
- valuable time and resources go to waste
- elements of the customer relationship fall through the cracks
This outdated method of gathering, tracking, and analyzing quickly becomes a barrier to growth.
Click & Grow is an interesting example of an IoT company that’s making good use of its data to drive every area of its business. Click & Grow creates indoor smart gardening devices. It sells its devices and accessories to both customers and vendors. It also offers ongoing subscriptions to plant pods that pair with its devices.
The Click & Grow devices themselves continuously collect a breadth of information to enable the end user to enjoy a zero-effort home gardening experience. The devices use the data to emit ideal levels of water, light, and nutrients to the gardens. All of this is tracked from an app on the user’s smartphone or computer.
In this example, there’s constant data communication between:
- the business, its vendors and end users
- the business and its devices
- the devices and the end users
- the devices and their multiple functions
All of this data can give the business rich insights into how it can best market and sell to its customers, as well as how it can optimize its devices for better functionality and appeal.
Without the ability to easily manage and make use of information in this way, there are limitations to growth and competitiveness.
The way forward will be for businesses to choose the right technologies and partnerships to help them successfully monetize IoT data.
Replacing multiple billing, information, and management technologies with a tightly integrated system can offer centralized, 360-degree management and communication.
This creates flexibility to make real-time changes and business decisions based on observed patterns and market demands. It also offers opportunities to locate new sources of revenue from the continual flow of well-organized IoT data.
For example, Click & Grow’s app tracks the lifecycles of its customers’ plants. While it offers plant pod subscriptions that ensure its customers are purchasing a continual stream of product, it also offers the option to purchase pods as needed. Click & Grow could use the plant pod lifecycle data it collects to target ads and new offers to encourage its non-subscribing customers to purchase their next round of pods precisely when they need them most.
The business might also use its continual flow of data to determine if there’s demand from its customers for new product offerings. For example, if more customers are purchasing pepper plants pods, the business might consider developing various new strains of pepper pods. It could then market this new product offering directly at the customers most likely to buy based on data.
2. Long, complex value chains of an IoT ecosystem
There’s no longer just a seller and a buyer of products and services. The IoT process often involves manufacturers, vendors, resellers, and end users in a complex, end-to-end billing chain. It’s a juggling act in which monetization, customer management, and billing on a recurring basis all need to flow harmoniously, and at scale.
Additionally, IoT devices are able to participate in their own value chain. They transmit information back to manufacturers, service providers, and their operators. They even pass on valuable customer intelligence to sales and marketing departments.
For example, Sonos smart speakers can be purchased directly from the business, as well as any number of resellers, creating a transaction network. The end user connects the device using the Sonos app, and can listen to content from over 80 streaming partners—all of which are also collecting data about the types and amounts of content being consumed, as well as delivering billing on a recurring basis. Updated functionality and streaming options are automatically communicated between the device and Sonos.
Revenue management systems must be able to handle this complex range of information and business ecosystems. Billing has to be able to support all of the partnerships, including their various processes and levels of charging.
Legacy billing systems can only handle part of these billing/business models. As a result, customer relationship data becomes fragmented. To pull the data together, businesses with these outdated systems end up adding data warehouses, or attempting to dump and manually join the data from multiple systems into Excel.
This is risky because, from a customer perspective, the process needs to happen seamlessly. The consumer mindset has shifted with the rise of e-commerce, making it imperative that billing methods meet customer expectations and perceived value in order to reduce churn.
Implementing multiple systems from multiple point solution vendors is an expensive, time-consuming option that often creates an overlap. A better solution for businesses looking to reduce the complexity of their IoT value chains, shrink their costs, and eliminate overlap is by working with a single vendor that can offer consolidated IoT solutions for the ecosystem's billing and financial management needs.
3. Traditional billing solutions unable to support pricing agility demands of IoT
Traditional billing structures are being disrupted in almost every industry by unique IoT monetization models and pricing structures. Subscription-based products and services are quickly becoming the norm, benefiting sellers with predictable recurring revenue and customer loyalty.
Businesses need to be flexible and agile in order to thrive in the IoT market. They must have the ability to roll out marketing initiatives that offer new pricing, various bundle offerings, and creative discounting to rival their competitors. Customers are also demanding a more tailored purchase experience; this includes how they receive their invoices and how they are billed. Customers increasingly demand the convenience of hybrid pricing options.
Again, legacy billing systems generally only focus on one part of the billing picture, such as subscriptions, project management, one-time purchases, or expense management. This piecemeal approach is inefficient. Customers frequently purchase all of the above from multiple vendors during a single sale or purchase order.
Usage-based billing is another growing trend enabling recurring revenue companies to maximize their profits in the IoT landscape. While this method of billing has been used by utility companies for some time with the use of smart metering, it’s quickly making its way into other industries.
Consumers of today would rather not pay for what they aren’t using. Usage-based billing frees them to consume as they desire without worrying about arbitrary plans. It also enables businesses to allocate appropriate resources to their heaviest users.
This billing model can also create opportunities to bring in new customers who were previously priced out: initial purchase costs can be waived for products and services offered through recurring, usage-based billing. Recurring billing allows purchase costs to be amortized over time.
Of course, all of the new IoT monetization models and pricing structures are only possible with the input of a continuous supply of accurate data.
Businesses with legacy billing systems and processes are unable to manage these requirements because usage is a moving target. The inflexibility of these legacy systems also means the businesses using them can’t keep up with competitive pressures. Systems that support agility in pricing are vital to agile monetization.
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4. Revenue recognition standard compliance requirements add to IoT billing complexity
Businesses need to get revenue recognition right. Incorrectly stating revenue—intentionally or not—can lead to restating revenue, and even legal ramifications. The risk is real, and it’s one no executive wants to take.
Revenue recognition standards create further complexity for IoT billing when it comes to accounting for subscription-based revenue. Revenue recognition classifies payments as either deferred or earned/recognized. According to ASC 606, subscription businesses are unable to record revenue until the value is delivered.
Therefore, the monthly fee a business charges its customers for a product or service is gradually recognized day-by-day, and cannot be recognized in full until the end of that billing period. The billing system a business uses should account for this deferred revenue and ensure that revenue isn’t recognized prematurely.
The reality is, point billing systems aren’t designed to keep up with evolving revenue recognition standards, such as ASC 606. They lack the necessary data for establishing correct revenue recognition when an order is placed. They’re also incapable of keeping accurate data as elements of an order change over time.
Businesses with point billing systems have two options for establishing correct revenue recognition. They can purchase another point revenue recognition system—an option that’s expensive and often difficult to integrate and keep in sync. Alternately, they can continually audit their orders and subscriptions manually. This method of syncing data is risky, inefficient and prone to human error.
A business’s billing system needs to be able to keep up with adjustments that are made during a customer’s IoT subscription journey. This might include:
- free trial periods
If these adjustments are delayed or left to manual entry, it could result in additional incorrect revenue recognition.
A modern recurring billing system like Fusebill is built on a powerful ledger-based platform and allows one to control revenue recognition at the product level, earn one-time fees immediately or over a period of time, etc. The right billing platform will automate the revenue recognition process with high accuracy and at scale, allowing the IoT business to focus on growth.
Simplification of IoT billing is a strategic business necessity
What all of these IoT billing challenges have in common is disconnect between businesses and the data they could be leveraging, the flow of their end-to-end billing chains, their pricing structures versus those being demanded by the market, and modern accounting standards.
The right technologies and partnerships will enable businesses to:
- quickly and accurately gather and analyze their data
- alter and add to their billing processes as necessary
- act on all of the resulting intelligence to manage their customer journeys and capitalize on the IoT
- adapt, grow, and increase their competitive advantages, despite changes in the market
The solution to IoT billing challenges comes down to implementing a modern billing system that facilitates the ease of data exchange between varied technology and business components, in alignment with holistic business requirements.