The IoT Sensor Debate: Should Sensors Have Recurring Fees?

To set the stage for the great IoT Sensor Debate of 2023 - also known as the August Pro Member Gathering - James offered  a remembrance of the “old world” where sensors were hardware only and “part of the device layer.” For example, CO2 sensors plugged into a field controller, occupancy sensors plugged into a relay panel, and so on. But now, we all live in the “new world” where “everything is connected to the internet.” So sensors are part of the device layer and the application layer. And sensor stacks have become their own silos.

“They have device, network, data, and application layers,” James explained. “And then sensors are complete with not just the sensors, but also web servers, data storage, data model, API, web apps, mobile apps, etc.

“Mostly what we’re seeing right now is that the sensor companies that are hitting the marketplace want to basically pull the data into their cloud and they’re expecting if you want to get the data into something else, like a centralized data layer, you’re using the sensor company’s API to pull the data from their stack into a centralized stack or horizontal architecture.”

But is that a given? Are buyers comfortable with that structure? Are there other options? That’s where this Nexus Labs debate began. The central question to be argued for, against and free choice, was: Should IoT sensors come with recurring fees?

Arguing in favor of recurring fees was Liam Bates, co-founder and CEO of Kaiterra, maker of environmental sensors for buildings. His central point: IoT sensors should come with a subscription rather than a one-off upfront cost. 

His reasoning:

• Misalignment of incentives: Think of your favorite streaming platform. Now imagine, instead of paying $15/month for access to the platform you had to pay $10,000 upfront and you can watch as many movies as you like for the rest of your life. If only receiving a large lump-sum once, the streaming platform would have no incentive to continue making new, high quality content.
• Sensor data is not valuable on its own. Raw data doesn’t solve use cases. “There’s a huge gap between the data that the sensors put out and the value that needs to be delivered to the customer.” Putting sensors on the wall is only half the battle. Making sense of raw data is “100x harder.”
• There’s always new data. Bates noted that the journey to that value is ongoing - “there’s always new data, new problems and new solutions to be found.” And the subscription creates the incentive for the manufacturer to continue iterating on the hardware you have, not issue new hardware on regular intervals and asking you to upgrade.
• You’re paying recurring fees no matter what. For Bates, it’s just a matter of to whom you’re paying. It could be to a consultant or data analyst to make sense of the raw data, or an application layer tool, or it could be the sensor manufacturer. In his view, the sensor manufacturer is the straightest line to the value.

Arguing against recurring fees and representing the owner/buyer perspective was Tom Balme who manages technology deployments for the Australian landlord Dexus. His central point: CapEx is preferable to OpEx.

His reasoning: 

• The commercial model. “When you finance a project through CapEx, this effectively means that the owner of the building pays for that project or that IoT solution upfront or upon completion. Critically important here: this doesn’t impact the tenant’s outgoings. On the flip side, when a project includes OpEx, it will typically include increased fees for tenants. “And when a tenant ends up paying for a solution, this is where the scrutiny really comes in.” 
• The ownership model. When you purchase everything via CapEx, whether it’s an IoT sensor or a car, if you pay for it in full “then you have far more ownership of that product.” In the case of IoT sensors, Balme noted the owner’s perspective is that recurring fees mean they’re essentially renting the stack “and you’re ceding more of the ownership back to the vendor.” So he prefers to pay for the solution upfront “and then choose how my data is managed, where it’s stored and who gets access to it.”
• The management model. In one Dexus building, there were four IoT vendors with active OpEx. When Balme’s team dug in and began asking the FM team if they were using all of those platforms, it turned out the original team who procured them was no longer there and the new FM team didn’t even know how to log in.

Because this is a friendly forum, Nexus introduced a third option to the debate with David Sciarrino, VP of Business Development at Kterio, who argued for giving buyers the option to choose between recurring and up-front fees.

He started by showing that the marketplace already has a wide range of options...

His central point: We need to look at this in terms of how the market buys IoT sensors. Different buyers have different needs.

His reasoning: 

• End users: The recurring fees model is likely best suited to end users because they aren’t structured to make their own use of the data. They don’t have a way to get the data and make it useful because that isn’t their business. So the SaaS fees can add value without them having to become data specialists on top of everything else they do.
• Service providers: They just want the data for its service enablement capabilities without having to add their SaaS fees on top of someone else’s SaaS fees. If sensor manufacturers don’t go to market without subscription fees, they’ll be alienating an entire portion of addressable market in the service providers who can use their sensor data to provide unique value to their end user customers.

Intrigued? Catch the full debate recording in the Gathering Recordings section of the community. You’ll be surprised at the outcome of the audience poll conducted at the end.

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