How to stop selling a product and start selling a service

The consumer IoT is having a real “A Tale of Two Cities” moment right now. It’s the best of times, as sales of connected devices are growing and standards efforts are set to make things less complicated. But it’s also the worst of times. No one is funding consumer connected hardware products, and costs are continuing to rise while business models flounder. So what’s a company to do? And what should a consumer buy?

This was my takeaway after watching panelists speak at my Everything is Connected event on Tuesday. In both a panel and a roundtable discussion, speakers from Google, June, 3M, Ayla Networks (an event sponsor), and more focused on the challenges of connectivity and how they relate to both the consumer experience and the business of running a company.

The first challenge on everyone’s mind, especially in the wake of a handful of connected companies (Wink, Wyze, Mellow) suddenly switching to monthly subscription payments, was figuring out how to sell consumers on a service as opposed to a product. Matt Van Horn, CEO of smart oven maker June, argued that because companies like Google and Amazon can provide continual service updates and improvements for free, they have conditioned consumers to expect improvements to hardware without additional costs.

“I wish I could see Google’s Home’s cloud bill, I wish I could see Amazon Alexa’s cloud bill that they are not passing along to consumers,” he said. “But I can see my cloud bill, and I don’t have a Google or Amazon business behind me to fund that. I have to figure out how to pay that cloud bill and I have to pay that forever.”

June so far has built a subscription service around recipes that costs $4.99 a month, but Van Horn is always thinking of other options, even as he continues to add considerable new functionality to the oven so as to keep consumers delighted with their purchase.

Michele Chambers Turner, senior director of smart home at Google, said that connected product companies have to build relationships with their customers, but that those relationships can only happen if the product really makes an impact on a consumer’s life. “I don’t necessarily have a relationship with my light bulbs unless they can do more for me,” she said. So it is incumbent on companies to figure out how to make that work.

Making things more valuable might happen as part of a new service or it might be a result of connecting your product to an existing ecosystem or other connected product. Kieron Hannon, CMO at access company Openpath and the former CMO of Belkin Wemo, said that Openpath is looking at adding integrations with productivity software so that when an employee enters their office building it can alert their calendar, which can then start setting up the first meeting of the day. “IoT should be serendipitous,” he said. “It should allow people to live in the moment.”

That feels like a pretty tall order for today’s connected devices, which don’t often work easily with each other and require a lot of technical skills from the user in order to make them work with other devices and services. In the roundtable, Turner said that was why Google, Amazon, Samsung, Apple, and others were trying to build standards through the Connected Home over IP project.

Johan Pedersen from Silicon Labs (another event sponsor) said that these IoT ecosystems were important, not just to reduce the confusion and number of apps on a consumer’s phone, but hopefully to also create a consistent set of rules around security and data sharing so that consumers can have a real sense of where their data is going, how it’s used, and whether or not their device is secure. I thought that was an especially good point, and it also drives home why so many platforms, such as Google and SmartThings, are changing the way their integration programs work to give their platforms more control.

Panelists also discussed the challenges associated with device costs, and keeping those costs reasonable while also allowing companies to build products that can last for several years before becoming obsolete. Other topics included the evolution from building a connected device to actually building a service and, by extension, a business on a connected device, so check out the videos from the event to learn more.