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Connected Gadgets Need a Business Model That Works

We’re big fans of adding connectivity to everything — from GPS systems to thermostats — but for every wireless connection there’s a price, and figuring out who pays that price and how they pay it is a roadblock when it comes to enabling smart appliances and gadgets, according to a survey by Accenture. The consulting firm surveyed businesses and found that 89 percent are interested in adding connectivity, but 63 percent of companies were concerned about the business models.

So far we’ve seen two examples of successful business models for adding wireless connectivity: buying service monthly from a cell phone company such as for a data card, or a device maker pricing the cost of wireless into the goods it sells as Amazon (s amzn) does on the Kindle. But buying additional subscriptions for a smarter photo frame or a connected navigation system hasn’t really panned out, never mind connected refrigerators. Consumers don’t want 20 different bills for wireless service associated with their devices, nor do they want a refrigerator that uses the T-Mobile network if they don’t have T-Mobile coverage at their home.

We’ve written about this problem before and touched on a possible solution: Wi-Fi. Personal hotspots that use the cellular network for connectivity and convert that signal to Wi-Fi are slowly creeping into the consumer world as a way to turn an iPod touch (s aapl) into an iPhone or merely replace a data card. That covers a range of devices with Wi-Fi chips on the go, and even in the car.

Inside a home, Wi-Fi is even easier to defend, as it’s a technology many already have. Your large appliances never leave the home, so Wi-Fi in a refrigerator or washing machine that talks to the WiFi-enabled box connected to the smart grid to monitor energy usage is a pretty safe bet for consumer appliance vendors to make. Why shell out the big bucks for a cellular connection for devices that stay home?

At a 4G conference in Florida, a Verizon (s vz) executive gave a presentation outlining a possible use case by which GE would use LTE inside a refrigerator. The refrigerator could monitor things like the water filter, and through the LTE connection, offer broadband to a screen in the fridge and tell GE (s ge) when the filter needed replacing. Then GE could ask the customer to click to buy a filter on the fridge. In a situation like that the consumer might pay for the access for broadband on the screen and GE might pay for the access to enable it to make more filter sales. That sounds great — for GE — but as a refrigerator-buying consumer, I’m not sold.

So while I’m glad to hear that device makers want to add connectivity to everything, I’m equally glad that they’re thinking hard about how to do it. Broadband will add value to a bunch of different devices, but it may not always have to come from the high-priced cellular network, especially inside the home. And if we are going to deliver it over the cell network, perhaps Wi-Fi is still the best way to go.

Image courtesy of Flickr user fihu

Related GigaOM Pro Research (sub. req’d):

Broadband Service Providers Are About to Ride the Home Energy Wave

3 Responses to “Connected Gadgets Need a Business Model That Works”

  1. “However, if the customer decided to reach GE, say for a service call, then the customer would incur incremental device charges for the refrigerator.”

    The problem I have with with this statement is that if I need service on my current refrigerator, the service call is essentially free. I absolutely would not want a device to incur a charge without my explicit approval either, so the connection would have to be free. I find OnStar pointless for the same reason – I’m not about to pay for the privilege of my vehicle sending data reports on a regular basis.

  2. @Stacey,

    I think the multiple device issue is one of the last issues impeding rapid adoption of mobile broadband services. I’ll refrain from a data pricing discussion per se, but focus instead on a reasonable basis for a model. I think the key is to not look at the connected devices, but instead look at an in home (building) data server which i’ll call a “base device”. This “base device” must be intelligent enough to manage voice and data traffic, and apply network management policy so as to communicate and measure traffic to any connected device as needed. This “base device” should be given away by the carriers, and require a “base monthly charge”. Incremental charges should be applied as consumed via the connected devices. Hence the business model would look like this:

    $(Connected Devices)= Total[$(Base Monthly Charge)+$(Incremental Connected Device Charges)]

    Using your example above, the customer would have all devices connected for the “base monthly charge” and would NOT incur a charge if GE made an offer on the refrigerator of the customer. Those details are between the carrier and GE. However, if the customer decided to reach GE, say for a service call, then the customer would incur incremental device charges for the refrigerator.

    Bottom line, this model is not only easy to understand for consumers, but allows for any number of devices to connect to the network, and for consumers to “pay as they connect” on an as needed basis. If the carriers set a reasonable “Base Monthly Charge” and give away the “Base Device” to spur adoption, I think this model will thrive.

    My $.02,