By Jim Carroll and Michael Silva
Application Programming Interfaces (APIs) have been around since the earliest computers; they serve as the "entry-point" from one system to another. Smart home devices depend on APIs for connectivity. Not all APIs are equal or free, begging the question of who should carry the cost of API access? In the smart home industry, the idea of who pays gets dicey quickly; device manufacturers deal with recurring charges for sustaining engineering and cloud infrastructure expenses throughout a product's life with only the original purchase price to offset the ongoing costs. Stacey Higginbotham of Stacey on IoT addresses the issue in a recent post, "Avoid the smart device Ponzi Schemes," where she addresses connected devices’ inexpert architecture, leading to ongoing runaway cost for manufacturers.
Device manufacturers have tried several approaches to address the ongoing expenses. The examples below increase the consumer's overall lifetime cost without any extra value creation. At issue is the misalignment of operating expenses with customer value generation, resulting in customer friction.
The new iRobot Select program is an example of proper value alignment and an outcome-based IoT model; the consumer pays for the outcome of clean floors, not a vacuum cleaner, Vacuuming as a Service. The service has a one-time upfront cost of $199 and a monthly subscription fee of $25 per month. A sustainable proposition model delivers on the clean floors promise while addressing the recurring engineering and cloud expenses.
In our last post, we discussed the idea of devices needing IoT abilities. We focused on the desired outcome of a Healthy Home by recruiting several connected devices enabled by APIs to create a composite of technologies to deliver a meaningful customer experience worthy of subscription fees. The level of ecosystem interaction in this example is straightforward, but for the most part, not achievable with legacy approaches of pre-defined scenes or command-orientated ecosystems, falling short of the ultimate experience for the consumer.
The use case outlined below goes beyond our previous example to deliver the ultimate user experience and desire for a clean and healthy home.
Use-case: Busy parents prepare a dinner for the children before rushing out to the kids' practice. Machine Learning (ML) insight from the recruited devices, appliances, lighting, occupancy sensors, and garage door leads to a deterministic opportunity to launch the vacuum. This “healthy home composite” starts first by initiating HVAC fresh air cycle in anticipation of vacuuming throwing dust particles into the air. Then vacuuming begins in thekitchen’s high traffic area. Starting in the kitchen increases the highest traffic area's chance tobe cleaned before the garage door signals that someone has returned home, sending the vacuum back to the docking station and completing the fresh air circulation cycle.
The Sendal platform recruits additional devices to determine optimal vacuum times, e.g., preferably when the house is vacant. An autonomous home activity develops; the vacuum no longer takes the lead based on a fixed schedule that the homeowner must program and doesn’t account for exceptions such as vacation or sick days. Instead, participation starts based on Sendal's machine learning algorithms centered on real-time occupant behaviors. The best opportunity to clean is determined by the Sendal autonomous home based on home occupancy status. Sendal initiates the “clean home” event when the recruited devices' status indicates no one is home.
Without a SHaaS platform, each manufacturer’s device would struggle to participate in the Healthy Home multi-composite example. The vacuum manufacturer, whose sole focus is cleaning floors, would incur significant ongoing expenses with any attempt to curate the composite. There is no motivation to incur additional costs when it doesn't contribute to the clean floors' promised outcome. The healthy home SaaS company faces the same challenges, many manufacturers with multiple products and models. The volume of integrations becomes a costly burden to the business without directly impacting their ability as a sensor aggregator to provide air quality status.
The autonomous home is so meaningful the occupants will soon look to add other valuable SaaS-enabled services. All the SaaS solutions leverage the typical set of devices, delivering a high-value exchange for their specific service. By applying the outcome-based business model for smart homes from the first post of this blog series, we now see how cash flows through the Sendal platform to device manufacturers based on participation. The new cashflow source aligns the ongoing support cost with value-added outcomes, yielding a cash flow that addresses the device providers’ ongoing cost and perhaps a profit.
Sendal provides a single monthly invoice for specific services provided. Sendal retains a commission that, in turn, is apportioned to the participating devices in the home. The value exchange has two primary benefits for the application company. The first is the opportunity to elevate their software team to focus on high-value product features, not device integrations. The second is access to the ML outputs as information inputs, again freeing software resources to focus on customer-centric revenue-generating outcomes.
The Sendal smart home as a service demonstrates a positive network effect for all parties involved. SaaS solutions unburdened from device integrations refocus resources to develop new value-added features that improve the consumer experience—increasing the fidelity effect, leading to increased device demand and new revenues that enhance the participant’s outcome economics.
Smart home economics finally makes sense. The customer receives valuable benefits not available with disparate devices, benefits they will gladly pay a subscription fee for. Service companies can create value-driven applications that drive recurring subscription fees. Device manufacturers can focus on their core competencies while gaining the ability to monetize their ongoing cloud services by participating in SaaS as the hardware layer and receiving payment based on outcomes. With the Sendal Platform, the full value chain of the smart home becomes clear."