Consumer IoT Business Models: What Consumer Products Companies Can Learn From The Mobile Games Industry
A recent Wall Street Journal article “How Mobile Games Rake In Billions” offers consumer product brands much food for thought. The July 28 article by Sarah Needleman delved into the trend of ‘in-app’ purchases and how the mobile gaming industry is earning billions of dollars, 99¢ at a time. The revenue from mobile games, largely coming from purchases of virtual goods, is estimated to hit almost USD $37 billion this year.
‘CHEATS’ ARE THE NEW ‘WINS’
The term ‘in-app’ or ‘in-game’ refers to purchases that are made while a person is playing a game that they usually acquired for free. It’s a business model that has dramatically changed the game and mobile entertainment industry. This summer’s hottest mobile game, Pokémon Go, has already sold $120 million worth of virtual Poké balls, incense, lures and other game enhancements since it’s debut in July.
At Arrayent, we believe there is a lot that consumer product brands can learn from the in-app purchase phenomenon and business model. And though it’s the IoT platform that makes it possible to transform every home product from being an end-point purchase to one that encourages an ongoing user relationship, it’s up to the brand to envision new user interactions and create an ongoing monetizable relationship.
“REMEMBER, YOUR GRANDFATHER HAD ONE BLADE, AND POLIO” — Dollar Shave Club
The meta trend seems to be that all products are switching to the razor and blade business model. But is a free or nominal-cost product enough of an incentive for consumers to buy a connected version that offers associated goods and services? Is it possible to encourage and incentivize consumers to buy enough consumable replenishments and other goods & services over time to justify the up-front cost? It seems to have worked for printers and ink and/or razors and blades. Worked, that is, until a consumer backlash spawned Epson’s Supertank printers and Dollar Shave Club’s cost-effective blades. Which goes to show that just because a product can generate recurring monthly revenue doesn’t mean that it doesn’t also have to provide commensurate consumer value of both the razor and the blade.
CONNECTED PRODUCTS ARE ALL ABOUT USER EXPERIENCE
With games, we have the ability for data, context, customization and personalization to shape and improve the user experience. And as with mobile gaming, the technology is available to make smart home products more engaging with new user interfaces such as voice-command, virtual assistants and augmented reality. Marrying these improved user experiences with engaging ongoing after-sale purchases will likely be how product companies compete in the future.
Making smart products more useful and fun out of the box, in addition to even more useful and fun as time goes on, is now possible in a world where software controls everything and a persistent connection allows software to be upgraded well after the initial sale. The challenge will no longer be whether a product can be connected, it will be how inviting, useful and fun the product will be over time, and how that can be communicated to the prospective buyer.
KEEP THINGS IN PERSPECTIVE
Mobile gaming offer us a lot of inspiration for future IoT business models. But we also need to keep their success in context. Research shows that only 3.5% of gamers actually make in-app purchases, but for those that do, they spend a lot and spend it frequently. Still, few consumer IoT products will have such runaway popularity as Pokémon Go. And while thousands of companies are creating mobile games, Deloitte estimates only about 200 will gross over $1 million in 2016.
QUESTIONS BRANDS SHOULD PONDER: ARE YOU READY FOR THE FUTURE?
1. When you launch a product onto store shelves, do you think your work is done?
2. Do you see any incoming consumer contact as a cost center?
3. Who benefits from any related monetary transaction that occurs after your product is sold?
4. Does your company have the ability to sell an item to a consumer via credit card?
5. How might your product’s user experience be improved through ongoing consumer contact?
About Arrayent and the Arrayent Connect IoT Platform:
As of the writing of this post, Arrayent has helped its customers launch over 60 connected products on four continents. If you work at a consumer products brand and would like to know how you can prepare now for a world where ongoing consumer interaction is the rule instead of just an escalation, contact us. We’ll share with you the best practices we have developed and why Arrayent has been chosen by the world’s most trusted brands — like Whirlpool, OSRAM/Sylvania, Chamberlain, Maytag, and many more — to help them create their connected products.