IoT Business Model Impact Andrew Smith Senior Director, Strategy & Operations Microsoft IoT Device Experience andrewsm@microsoft.com
IoT Scenarios: Business value
The Business of IoT Chase Profits Not Headlines Translating this to that? ROI P&L Impact Opportunity Costs Path of least resistance Business Case Mapping your IoT value beyond the hype
Digital Transformation OEM Channel Customer Business Insights Manufacturing Efficiencies New Business Models Features and Rev Streams 1. Business units have access to advanced, real-time analytics for install-base. 2. Understand how products are being used. 1. Manufacturing unit fed real-time data on defects & durability 2. Update manufacturing process - avoid recalls and warranty costs. 3. Experiment with BOM savings informed by live field data 1. Predictive maintenance capability enables referral model with repair companies 2. Enablement of white goods as a service (e.g. lease or pay per use) - increased refresh rate for manufacturer 1. Hotel chain receives device connectivity and usage data 2. Consumer auto-orders consumables after 35 cycles/loads 3. Consumer buys cost saving updates based on usage.
Transformation in your market offering profitability customer relationships From MRI Scanner to Remote diagnostics subscription From Industrial Machine to Machine uptime subscription From Thermometer to Temperature Control Service From hardware margin to subscription margin From capex to capex+opex From transaction relationship to annuity relationship From procurement relationship to business owner relationship
Example: Sandvik Coromant Field Service
Forefront of metal cutting industry Sensor-equipped tools: Temp, load, vibration Specific knowledge at tooling level Facts out of the machining process Integration to CRM & Call Centre From customer to sales interaction Efficiency of machining process Savings for customers of millions of dollars Instant recommendations about cutting parameters Minimising idle time up to 50% Collect data in real-time Predict When to change a tool; When to order a tool Reinvent the art of manufacturing (machines, tools, processes) Unprecedented field service
IoT Business Model Canvass
Business Model Canvass Partnerships Key Activities Value Proposition Customer Relationships Customer Segments Channels Resources Cost Structure Revenue Stream
Approach 1: Value Proposition first work outwards We use this approach when the proposition is defined Partnerships Key Activities Value Proposition Customer Relationships Customer Segments we need to work out the impact on customers, activities Channels we need to determine our costs how they scale Resources and how we ll ensure revenue scales to at least cover costs Cost Structure Revenue Stream
Approach 2: Work from outside in to Value Proposition We use this approach when Existing business looking at new business opportunities Partnerships Key Activities Value Proposition Customer Relationships Customer Segments Brainstorming ideas Value proposition is not clear Channels Start from what we know Resources Cost Structure Revenue Stream
IoT Scenarios: as a service models
IoT as a service models Suitable for more complex solutions requiring high controllability, high customization, with low endpoint volume Suitable for less complex solutions and common use cases requiring low degree of customization, with high endpoint volume $$$ $$$ $ Your solution implementation costs increase as you provide services further down the solution stack Your operating costs increase as you provide services further down the solution stack Your service consumption costs increase as you provide services further up the solution stack $ $ $$$
As a Service, Business Model Basics Preferred pricing Models Value Drivers Challenges Value/usage-based pricing PaaS Post-sale integration / consulting services sales opportunities Reduced headcount / IT costs vs on-premise Demand-side economies of scale (network effect) Innovation added at lower cost vs on-premise Common infrastructure, communication, security and analytics Migration risk: need to create stickiness while maintaining interoperability and flexibility Managed Service Operations: Usage metrics; entitlements (eligibility, level of service), monetization SaaS Per device pricing, Monthly subscription, Freemium Delay in revenue recognition: initial cash flow tough Prepayments and minimum subscription periods Sales cycle can be lower touch Per-user cost of operating infrastructure reduced with each new customer add Reduced legacy support cost (constantly updating) Visibility into user behavior increases targeted up-sell and cross-sell, proactive support, increases retention Per tenant customization for app behavior Pricing - balance predictability vs flexibility Key Costs Incremental spend on Cloud IaaS Developer, Data Scientist Usage tracking, monetization engine, support Incremental spend on Cloud IaaS/PaaS Developer, data scientists Usage tracking, monetization engine, renewals Security, Integration support CRM and Support
IoT: evolution of P&L impact
Supercharge your P&L Field Service Initiative Expanded offering SaaS Solution +5yrs Revenue Traditional Device Revenue 400 400 412 412 424 424 437 437 507 507 Expanded Offering, Devices 0 0 0 0 8 8 8 13 13 13 14 14 5 Reduced Churn 0 0 0 0 2 2 2 2 2 2 3 3 3 IoT Application/Services Revenue 0 0 0 0 0 0 0 8 8 8 91 91 89 Total Revenue 400 400 412 412 435 435 461 461 614 604 COGS Device, Materials Costs -160 160-165 165-174 174-181 181-209 206 Device, Labor -92-92 92-95 95-100 100-104 104-120 118 Device Maintenance & Repair -16-16 16-10 10-7 -7 7-7 -7 7-8 -8 8 Development Amortization 0 0 0 0 1 0 0 2-5 -5 5-6 -6 6 IoT Hardware Costs -4-4 4-4 -4 4-5 -5 5-5 -5 5 IoT Related Labor -2-2 2-2 -2 2-2 -2 2-4 -4 3 Cloud Hosting and Platform Costs -4-4 4-4 -4 4-5 -5 5-14 14 FieldOne Costs 0 0 0 0 0 0 0 0 0 0 0 Total COGS -268 268-280 281-291 294-309 309-366 360 Gross Profit 132 132 132 132 131 144 141 152 152 247 243 Gross Margin 33% 33% 33% 32% 32% 33% 32% 33% 33% 40% 40% Gross Margin Expanded offerings, reduced churn Predictive Maintenance & Inventory SaaS 33% 32% 33% 33% Reduced maintenance/repair savings App Dev Amortization for SaaS Device sensors Field tech hours on Operating deployment and Margin integration Field One Cloud infrastructure Delta to Pre IoT in YR 5 40% PRE IOT PHASE 1 PHASE 2 PHASE 3 P3 + 5YRS 15% SG&A Research and Development -72-72 72-76 78-80 83-83 88-110 109 Sales and Marketing -12-12 12-12 12-12 13-13 14-17 18 General and Administrative -16-16 16-16 17-17 17-18 18-25 24 Azure Hosting, Internal Use -1-1 0-1 -1 1-1 -1 1-1 -1 1-2 -2 2 Total SG&A -101-101 100-105 108-111 114-115 121-154 152 Operating Profit 31 31 32 27 23 32 32 27 37 37 31 94 94 91 Operating Margin 7.8% 8.0% 6.5% 5.5% 7.5% 6.2% 7.9% 6.7% 15% 15% R&D IoT Eng/Dev, pre technical feasibility 8% 7% 8% Wages and tools 6% to manage solution output (Power BI, new field mobile devices, internal use Cloud hosting) PRE IOT PHASE 1 PHASE 2 PHASE 3 P3 + 5YRS Note: sample data for illustration only
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Genetec s journey to the Cloud Christian Morin Vice President, Cloud Services
Genetec At A Glance Who We Are ISV Founded in 1997 in Montreal, Canada Genetec is a pioneer in the physical security industry Video surveillance Access control License plate recognition Leading global provider of world class unified IP-based security solutions Offices and partners in over 80 countries Value-added and custom-tailored services Over 1,000 employees worldwide Privately-held company; organic growth through global sales efforts
Protecting the everyday: Making things work better for everyone We have built our business by: Developing security technology that keeps people and data safe Designing software that is flexible and adaptable Combining an open system of state-of-the-art hardware Fostering a culture of partnerships
ADVANCED IDENTIFICATION RETAIL ANALYTICS VISITOR MANAGEMENT VIDEO ANALYTICS DESTINATION TECHNOLOGY VIDEO WALLS INTRUSION TECHNOLOGY TRANSACTION INTELLIGENCE COMMUNICATIONS MANAGEMENT AUDIO ANALYTICS PERIMETER SECURITY PARKING SYSTEMS
SaaS Transformation Challenges TechnologyBusiness
Business Transformation Lessons Learned Pricing Strategy Sales Team Engagement Channel Partners Back Office
Repeatability: The Key to Success Simplicity rules Streamline the buying experience Eliminate the human factor
Merci. Köszönöm Thank you! Danke! شكرا cmorin@genetec.com