How IoT Connectivity Models Are Changing

The Internet of Things (IoT) has continued to expand at a phenomenal rate worldwide. Combined with the effects of the pandemic, an increasing number of companies are eyeing up further digitization across their platforms. This shift translates into higher demand for IoT-related products as well as services. 

IoT hosting is instrumental to delivering company goals of convenience and speed – and it's growing as a result. In the past five years, the IoT hosting market grew $800 million more than originally predicted – and this maturing market is still expanding.  

However, with many IoT platforms linked to the same cloud vendors and the market becoming saturated, businesses are struggling to identify the best connectivity model for their needs. Typically, enterprises agree to a monthly or yearly subscription fee for platform hosting. However, some providers are turning to a device-by-device model.

With either option, it’s important for companies to know the difference and how each can shift their IoT solution.

The Problem With the Subscription Hosting

Historically, most providers have operated with a subscription connectivity model. This means they utilize cloud vendors to power the hosting of their IoT platform. In turn, providers pay a monthly or yearly subscription fee for the service.

One particularly important element of the subscription model is that prices fluctuate based on use. For example, when it comes to subscription-based IoT pricing, this is achieved via an IoT Application Enablement Platform (AEP). Centralized cloud solutions like Microsoft Azure and Amazon Web Services then determine how much to charge the provider based on things like user activity, workloads, and more.

Having to depend on a third party that hosts IoT services can become expensive over time. As businesses grow, they often require more capacity to facilitate connectivity, which means they could be on the hook for long-term (and costly) subscriptions.

Why Models Are Changing

Back in the formative years of IoT, the price of cloud hosting was of less concern. This is because the industry expected to make money in connected devices by charging subscription services to the consumer. The thinking went that new features and functionality could be pushed to the customer regularly thanks to over-the-air updates. The ability to track products in use would also make it possible to respond to customer behaviour, leading to new analytics and new services for more effective forecasting, process optimization, and customer service experiences.

Therefore, services would generate predictable and recurring revenue streams to lock the customer in for a certain period. As we know, this is far from what actually happened.  The rise of widespread cloud hosting means “freemium” is now the customer norm. Much like music and news services, most customers don’t expect to pay for subscriptions once they get a taste for free. The reality is that competition is much fiercer and receipts much smaller for providers than they anticipated.

This is a problem when it comes to subscription hosting. Only a fraction of customers today pay for extra premium services, with the majority satisfied with remote control and access to real-time data. And yet, the majority of device makers continue to host their devices via the cloud and accept fluctuating costs. It’s in this context that connectivity models are shifting as providers require predictable, transparent, and affordable hosting that can be accounted for upfront.

The Rise of the Per-Device Model

As a result, hosting models are evolving. While subscription connectivity continues to serve the majority of the industry, more flexible models are entering the market. For example, the rise of per-device connectivity enables flexibility that was previously not possible. 

This connectivity method bypasses the cloud with peer-to-peer (P2P) technology, thereby using servers to mediate the connection between client and device. As a result, data privacy becomes a non-issue and low latency (thanks to direct connection) facilitates the best possible user experience. Better yet, providers don’t need to worry about fluctuating cloud costs.

In my mind, there are three major benefits to per-device connectivity:

1. Connectivity at one cost: Rather than an ongoing subscription, this emerging model enables IoT connectivity at a fixed cost. That means hosting setup, maintenance and support, as well as device license prices, are clear from the start.

2. Zero fluctuation: The removal of cloud hosting means the removal of fluctuating cloud expenses. This predictability is especially important in the world of connected devices where profit margins are thin.

3. More transparency: The status quo of connections means that providers don’t know their expenses until the subscription charge arrives. By paying upfront for hosting, device makers can view connectivity as a component and adequately anticipate costs.

It’s exciting to see the development of novel connectivity models following years of subscription dominance. While subscription connectivity works for some projects, it doesn’t work for all projects. And as more devices enter our homes and workplaces, and costs become increasingly important for consumers and device makers, we should expect to see more innovation in the way our devices connect. Watch this space.