Usage-Based Financing

How the IoT is Making Usage-Based Pricing Accessible in the Manufacturing Industry

Tuesday, February 27, 2018

The Internet of Things (IoT) concept involves connecting any device with an on and off switch to the Internet and other integral systems.  From cell phones and wearable technolog to home appliances and now industrial machines, technology is becoming smarter and causing entire industries to evolve.  This is causing an increasing number of products and services to be monetized by usage rather than flat upfront fees.

Usage-based pricing is the future for IoT devices because it benefits both the OEM and end-user.  This has the potential to allow customers to pay for their equipment based on their need for the product.  This allows companies the opportunity to sell high value add-on features.  Let's dig deeper into these concepts, focusing on the effect of IoT in the manufacturing sector.

Why Usage-Based Pricing?

So why should companies think about utilizing usage-based pricing?  Almost all companies prefer to receive full payment for products upfront, however, IoT and the increasing intelligence of machines is causing machines to become more and more expensive.  This causes a variety of problems between OEMs and end-users.  The end-users do not want to subject the company to any risk by purchasing a new type of machine that is using a new technology.  Even when the benefits of the technology could greatly impact the organization, big businesses are more likely to chose a safe path.  These advances in technology are also causing issues for OEMs who are trying to sell their more advanced, better machines.  

Usage-based financing in manufacturing has the potential to allow end-users to purchase more expensive machines while reducing their risk on a new technology.  An example of this would be a micro-canning OEM who has a new industrial canning machine that has more features and capabilities than the standard canning machine.  The new machine costs 2 millions dollars, where as, the standard machine is 500k.  The new technology has the potential to increase production and lower cost for the end-user in the future but the end-user does not have 2 million dollars in the budget to purchase such an advanced machine.  Utilizing usage-based financing the end-user could pay the OEM 500k upfront and then pay per product produced.  This financing agreement would mitigate the risk for the end-user while generating recurring revenue for that OEM.

Lowering Costs Using IoT

The Internet-of-Things is making all of this possible, and so too is blockchain. With so many devices now being plugged in, a company renting or leasing out machinery can now keep an eye on machines across the world, adjusting prices to coincide with the degree of operation. This is making the pay-as-you-use model beneficial for both the OEM and end-user.  

In the past, paying for the server space and cloud technology to run this network might increase costs, but blockchain could potential do the opposite. By distributing processing power and managing multi-step authentication by multiple parties, Blockchain can decrease expenses and provide mutual benefits to consumers and producers.

Conclusion: The Future Will Yield Even More IoT Breakthroughs

SteamChain is pushing usage-based financing to align incentives of both the OEM and end-user.  Having the ability to sell more advanced, more expensive technology at the same upfront cost as a less productive machine has the potential to revolutionize the manufacturing industry.  Giving end-users the ability to purchase machines that were previously only used by industry leaders, levels the playing field for all participants.  In addition, usage-based financing allows the OEM to sell more of the advanced machines to smaller companies and generate recurring revenue.

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