IoT product manufacturers face new challenges seemingly every day, as new smart devices continue to proliferate our homes and businesses. One of the more pervasive of those challenges comes when they have to set a price for the services made possible by their smart products and their built in sensors. They aren’t selling tangible products with a finite lifecycle anymore. The products are flows of data and service innovation. The answers to the following questions can help define the issues.

Who are the customers?

When data streams from car sensors transmit road hazards and other useful information, everyone benefits, from companies like Waze that inform customers in real time, to the municipalities that coordinate emergency vehicles, to media outlets looking to report on trends to the drivers themselves. That’s why the first step should always be to define your customer.

How do they value IoT services?

In other words, how much are customers willing to pay for this information? The value of road hazard information to a Waze user, an insurance company, or an emergency services company may be very different.

How should they be charged?

Before deciding “how much,” companies must first look at the potential pricing models. One-off payments for durable goods are no longer applicable. Some of the existing options include:

• Subscription packages: The customer pays the supplier at regular intervals for a service or a bundle of services. Think OnStar.
• Pay per use: Think data packages with mobile plans.
• Value Sharing: The supplier takes a share of the benefit the customer enjoys.

How much should we charge them?

A great deal of information is required to perform an economic benefit analysis that considers sales, revenue, variable cost scenarios, and intangible customer benefits and use. Smart data pricing and the monetizing of IoT services requires innovation and the willingness to look beyond traditional business models.

Companies must find the answers to new questions before they can capitalize on the opportunity that IoT technology presents.