Pricing the Internet of Things: The Path to Composed Pricing - A conversation with Andy Timm and Joe Biron

By Steven Forth

First cloud computing, then mobile phones and their apps, and now the Internet of Things are coming together to change how we think about pricing. Each of these innovations has added a new layer of data, a new layer of complexity and new business opportunities. All of this is giving us new ways to think about pricing.

One of the leading players in Internet of Things is PTC (formerly Parametric Technology Corporation). PTC was originally known for computer aided design and modeling software, where it is still one of the major players. In 1998 it leveraged its expertise in design to go into product lifecycle management with Windchill. For the past few years it has moved its focus to the Internet of Things and Augmented Reality. PTC has done this by acquiring a series of companies and using this to develop an integrated platform for the Internet of Things.

With the Liveworx conference coming up May 22-25 in Boston, we reached out to PTC’s CTO Andy Timm and the Internet of Things CRO Joe Biron to get their insights into the new business opportunities that the Internet of Things is opening up and how these will impact pricing and pricing innovation.

Steven Forth (SF): Andy, can you share with us the PTC vision for the Internet of Things?

Andy Timm (AT): Our vision continues to evolve as the market emerges.  I wouldn’t say we have a singular vision for IoT – but maybe I can provide a few core thoughts.

• No one platform will “rule them all”. There are hundreds of IoT platforms available (in varying degrees of maturity). Many companies are choosing to roll their own “platform” – leveraging some existing connectivity work. We often say our greatest competitor is the “Do It Yourself’er”… This means that platforms will necessarily need to work together. ThingWorx has a modular architecture that allows us to complement the good parts of whatever a customer has built already. We draw a circle around the value an existing system has already delivered, and go forward from there.

• An IoT platform on its own doesn’t do a whole lot. IoT solutions require many components to function together. We need sensors connecting to gateways. We need hardware (either on premise or in the cloud) to run on. We need integrations to enterprise software systems. We need resources with the right business domain expertise to know what to build, and technical resources to build it. PTC is building relationships with leading companies all over the world. We’re working with Systems Integrators to help assemble some of the pieces so the end customers don’t have to figure it out themselves. PTC understands that long-term success is not possible without a thriving partner ecosystem

• Augmented Reality (AR) plays a big role in our view of IoT. We believe that in the near future AR will be the user experience for IoT. PTC acquired Vuforia, the leading AR SDK, and built ThingWorx Studio around it. Studio allows the rapid development of AR experiences that integrate IoT data via ThingWorx. We can look at the PTC set of tools from two directions – a robust IoT platform with a sexy IoT front-end, or an AR toolkit with the ability to source data from the IoT.

SF: OK, so PTC is building the platform for the Internet of Things and enabling an ecosystem of innovators and service providers. What are some of the most exciting new applications that you are seeing on the PTC platform?

AT: There are too many applications to list. I do see a trend forming, however. It’s rare that a customer knows on day one what application they need. They do not have a requirements document to hand over to their SI. System’s Integrators are being asked to behave more like Management Consultants – and vice versa.  The consultants need to first help identify what business challenge or opportunity they are trying to address – then use their knowledge of the “IoT art of the possible” to dream up a solution that fits. They can then start by rapidly developing a prototype that can be used to further refine the intended outcome of to guide further investment.

It makes a lot of sense to create small, focused applications that quickly deliver value to some segment of industry. Something that gets an immediate return on investment greatly reduces barriers to entry when trying to convince a company to start on an IoT Journey.

SF: One of the most compelling things about the Internet of Things is the wealth of new data it provides us. This is going to be the source of a lot of new value, but there seems to be a lot of uncertainty as to who should have the right to monetize this data. Is it the application provider, the platform provider or the customer who is after all the source of much of the data? Is PTC providing leadership in sorting out these questions and managing data rights at the platform level?

Joe Biron (JB): It is interesting that a subtle change to the question would have great impact. You specifically asked “monetize” and not “use”. It has been said that “data is the new oil”. I think the analogy is a bit limited. Oil gets used up while data can provide value for many stakeholders. Data can also get remixed, enriched, synthesized, and distilled. Let’s also consider the data acquired by a machine or sensors within an operational context. An operation is a business process. A business process is executed by a business. Most reasonable people would then say that machine and sensor data collected in the course of executing a business process belongs to the business that executes the process. In that operational context, the owner/operator of the equipment, machines, sensors, environment, and process should be in control of monetization of the data, since that party can most reasonably lay claim to it as theirs. But that is when the operative word is “monetize”. Other stakeholders, in the context of business relationships such as providing remote service to equipment, or SLA for a SaaS application, may ask for contractual permission to use data in the course of fulfilling their contractual obligations. For example, the OEM may ask that machine status data be collected and relayed to service personnel in order to deliver the service contract at a certain effectiveness, SLA, or efficiency. We see a trend where the owner/operator of the equipment chooses which relationships they care to entertain. Who should control use and monetization of the data acquired is a subject that will be quite domain specific as players within industry verticals decide how best to move their respective industries forward.

SF: One of your points about IoT applications is that they are composed out of many components. There are typically sensors, actuators, data connectors, predictive analytics and so on. In most cases these will be sourced from many different companies. In the manufacturing model we would treat each of these as components and they would be part of the cost of manufacture. You suggested in conversation that we can take a different approach with the Internet of Things, where most of the components, even the physical ones, can be treated (and priced) as services. Pricing of services is often much more flexible than pricing of physical parts. Will the pricing of Internet of Things solutions be more like how we price physical goods, or how we price services, some kind of hybrid, or are new models possible?

AT: I think that hybrid models are most likely. There are lots of things for Internet of Things vendors to learn from SaaS vendors and the subscription model in general. But as the end of the day most Internet of Things solutions combines the Internet and things, and pure subscription models will not always be appropriate. We are going to need to get good at developing and managing hybrid or blended models. I hope we can get the best of both worlds.

SF: One of your most intriguing suggestions is that in the future we will see ‘composable pricing’ for Internet of Things applications. Each component (whether physical, communications infrastructure, software or data source) would include an API that share usage data. This would be compiled into a value model and the price of the whole service would be this composed price. The price would reflect a combination of use and value to the user. The revenue would be allocated to each party based on the contribution of the component or service to use and value. Will composable pricing and revenue sharing be part of the PTC platform in the future?

AT: Too early to tell. I like the idea.  I believe that in the future we’ll need thousands upon thousands of IoT applications – one for every possible scenario.  Who will build all these?  We’re certainly not going to build them all from scratch

The concept of a “building block marketplace” would allow citizen developers to pick and choose the components of their solution.  This also creates an opportunity for people to make money developing those building blocks.

Somehow we need to make it easy for people to combine the blocks into a functional solution, while also making it evident that “if you build it, they will come”.

JB: We see a few things converging: 1) microservice based technology architecture, 2) subscription based pricing, and 3) a much more agile and dynamic business context for industrial solutions. The combination of effects will render old-school pricing, where a sales guy gives a customer a new price when any part of the solution changes, is not sustainable or scalable. So while we don’t know how this will manifest exactly, we can intuitively see that new ways of tracking usage and interplay of solution building blocks needs to be orchestrated by either a neutral “economic platform” provider, or self-organized by an ecosystem. Most likely the former will be the most practical step forward.

SF: Thank you Andy and Joe. I look forward to continuing the conversation at Liveworx. My session will be Wednesday May 24 from 4:00 and we will explore pricing and revenue models for the Internet of Things in more detail.

Andy Timm: Is the Chief Technology Officer at PTC where his team ensures alignment with the technical direction of the company as whole.

Joe Biron is the Chief Technology Officer for IoT at PTC.  He is focused on our IoT Platform.

Steven Forth is a co-founder of the skill management platform TeamFit. He also provides consulting on revenue models and pricing strategies to companies in the B2B SaaS and Industrial Internet of Things space as a partner at Ibbaka.