I’m annoyed. Our hard work is being undone by those on the inside.
A recent report by a reputable publication in the smart building sector highlighted the increasing adoption of recurring revenue business models by vendors in that market. The publication and the statistics aren’t important, but surprise, smart products are increasingly monetizing smart services (PaaS and SaaS) as part of their offerings.
There was a single phrase in the article that seemed innocent at first, but it reinforces a huge misconception by providers and buyers of connected products. The author of the article referred to recurring revenue as “passive income”.
Any company who treats a service wrapped around a product as “passive income” deserves no incremental revenue and to lose all their customers. Hardware companies don’t get to charge customers an annual fee because they feel like changing their pricing model. Customers aren’t going to write checks every year without a material change in the value they receive from product suppliers.
PaaS (and SaaS) income is anything but passive. Devices as a Service are no exception. Smart products that are monetized with smart services are connected, interactive, and continuously providing value to their customers. The service connected to the product never sleeps.
- Connected products come with explicit, even contractual, commitments to their customers from their suppliers.
- Connected products securely and continuously share important operational data with entitled stakeholders.
- Connected products periodically provide wellness reports to customers and service organizations.
- Connected products must be able to receive periodic software updates for bug fixes, security patches, configurations changes and even feature updates.
- Connected products should be able to communicate with other systems, upstream applications and services - they are part of a broader value chain.
- Customers should be able to decommission products when they reach the end of their life - taking them out of active management.
Connected products are at the epicenter of the new customer relationship - one that never sleeps. This new relationship requires meaningful investment but the return in the form of predictable recurring revenue streams is tremendous.