November 29, 2012

“Freemium” Services Are Not Free and Not a Fit for M2M and Internet of Things Markets

The IoT and M2M solutions markets are not and will not be driven by ‘freemium’ services.  They cannot.  The enterprise markets and more enlightened consumer markets will not accept them.  In this post, we highlight three reasons why.

Recognizing that this is an extraordinary statement, and in the spirit of honoring time as the most valuable resource on the planet, we will cut to the chase. We hope that you read this all the way through; and engage us in dialogue in the INEX forum or another – we like ID Scales’ at TelecomTV.

  1. Freemium costs time.  ‘Free Content’ is a ‘Freemium’ service.  But content is is never truly free.  The most valuable resource you have is time.  This is true whether you are healthy or ill; wealthy or destitute; happy or sad.  If you think that reading free content from any source is free, think again.  Your time has value does it not?  When we pay $10/$12/$14 or more to see a new release in a movie theater and we do not like the movie, we no longer bitch for our money back.  We are in pain over the two hours of our lives that we will never get back.  Seriously.  When was the last time you regretted burning 40 minutes on Temple Run when you promised yourself you would only play for 10?  Please be honest.  Time is far beyond money.  Waste, spend, share or invest time.  But you cannot store it.  Content or services that you do not pay for, butput time against, are not free.
  2. Freemium undermines privacy – and security.  Do we realize how much privacy and security we risk by participating in some of the freemium content and freemium services we use?  Burn a few minutes to read the fine print in one or ten or ALL of the freemium content sites and services that you use.  And as you read them, remember, you are freely trading your right to privacy, and related security, for the privilege of using the content or the service without having to pay money for it.  .  Or simply burn a few minutes on DNT (Do Not Track) research.  So many pieces have been written about the systems used by the US Presidential campaigns to target voters.  INEX even weighed in with our Digital Exhaust piece.  When we say security we mean the whole gamut, from peace of mind to digital identity management to financial security to personal physical security.  The more that you authorize to share with third-parties, the more you expose yourself – wittingly or not.  Live by the ages old adage from the second oldest profession:  Need to know basis. Do these freemium services really need to know?
  3. Freemium compromises authenticity, serendipity and emergence.  In a short, sweet article on the subject, Dmitri Leonov of SaneBox frames the sweet spots and larger limitations of freemium.  Authenticity?  Really?  Yep.  We already established that you will spend or waste or burn or invest time.  We may have shed some light on the the risk to privacy and security.  Now, we are suggesting that freemium may, in fact, compromise the quality of the user experiences.  One of the most often used words that we come across in our exploratory market intelligence in IoT opportunities is the term ‘authentic’.  Authentic value.  Authentic experience.  Authentic ROI.  And when a freemium offering is positioned as being in the business of providing you with this experience or that, based on them providing this service or content or that, yet they derive revenue from another source, you may have an authenticity challenge.  Mark Cuban highlighted it with respect to Facebook for anyone that did not get it.

Now, there is a wonderful tension in there – serving the non-paying content or service users AND delivering for the rate card paying advertisers in a freemium model, but, if the freemium service cannot support the aims of the paying advertiser, it may not be in position to continue to charge historical or higher rates for ads.  Moreover, it may not be in position to ask users to pay.

Sidebar:  I cannot help but cringe when I see social media services compared to Red Cross comfort-in-combat services during WWII.  Seriously?  Could there be any more egregious misapplication of an analogy?  While real value can be created by the intentional and meaningful application of social media, a significant amount of the time put into it is, at best, a distraction, at worst a time suck.  If that is the best argument for not charging social media users, we need to start charging social media users and give them back control of their digital exhaust.   

Which arrives me at the fulcrum on which this argument applies to the Internet of Things (IoT), Machine-to-Machine (M2M) and related connected devices markets.  IoT and M2M markets care deeply about time, security and authenticity in their business, in their customer and supplier relationships, and in their IoT and M2M deployments.  In other words, the hidden, or deferred or shared costs of freemium discredit the very value propositions that IoT and M2M evaluators are demanding.

IoT and M2M solutions are being deployed based on their discrete, specific, evidence based value-add.  For the user and its assigned stakeholders.  Delivered to the user and its assigned stakeholders.  Controlled by the user with the sole and or express limitation that the intelligence to be derived from that solution be deployed for the benefit of the users and its stakeholders in the pre-defined, approved and limited stakeholder group.

IoT and M2M are not about entertainment.  They are about creating authentic value, often measured in time, always securely.  And the greatest potential in the IoT and M2M markets sure as hell is not about making people’s lives ‘easier’.  The potential for these solutions is in t making people’s lives more meaningful; more productive; more valuable.   It is about making organizations’ experiences with their stakeholders more powerful; their costs more manageable; their revenue and profit opportunities more scalable and predictable.  In the exploratory market intelligence thatI referenced earlier, we NEVER hear enlightened developers or deployers lead with – and they rarely mention –  making things ‘easier’.

I sure hope companies such as GE get this and lead the way on it.

For if the solution cannot add value then users will not and should not pay for it.  And this is THE rub.  Too many value propositions for too many IoT solutions are not clear enough.  And too many potential customers are weary and wary of going all-in on solutions whose ROI remains elusive five years into the ‘experiment’.

B-to-C mobile app development is not the answer either – take a look at the paucity of winners in that freemium market.

If we want the IoT and M2M markets to succeed, and support our collective vision for a better future, then the solutions being developed in these markets need to be designed and deployed for, and priced at, the value that they create for the companies deploying them and their defined stakeholders and partners, NOT for ill- or undefined third-parties seeking an edge selling us ideas, positions, candidates, cars or candy.

Who needs to know that you opened your refrigerator after midnight?  Three times a night?  Four times a week?  Smart appliances?  OK?  To what end?  What is the value proposition to me, the appliance owner?  There are arguments to be made that the appliance OEM engineering, product management and customer service departments can benefit from knowing that as part of your usage pattern.  It might help them better design the next model (their benefit and your friends, yours only if you buy).  It might help them better plan their service calls and included a predictive maintenance stop for you (benefits to them and to you).  It might help them better manage compressors, fans and such based on your usage patterns and local grid rates (benefits to everyone).  But, in order for those benefits to accrue to others, you will have to share your usage pattern data.

You will want to make sure that that usage pattern data does not come back and hurt you when you apply for health insurance.  Hitting the ice cream at midnight 5X a week Mr. Rezendes?    That is dangerous behavior.  3% surcharge.  Is this a realistic scenario?  Certainly is in a freemium play.  This shiny new feature is free? Ok, then I will sign away my rights to control or monitor the data from my unit for this shiny, new feature.

Now if I am paying for the service … that could be another story.

The only entities that really need to know about my reefer utilization patterns are the OEM, appliance service provider and perhaps the power company.  And even then, the service provider and the power company should get snapshots or slivers.  Not comprehensive access to all the data all the time.  And certainly not authorization to apply it to share it with other people, who have other goals.  Understand the implications of this and be forewarned.  Companies will pay other companies big money to be able to gain access to your personal data so that they can market to you based on your personal habits, preferences and perceived needs and desires.  This data can and may be used to lever you in the future.  Privacy and sharing regulations are not protecting the average consumer from the unintended consequences of these sharing tactics right now.

I hope this reads a little radical.  We need it.

Christopher Rezendes, president of INEX Advisors, a technology intelligence and advisory firm based in New Bedford, MA, has nearly 22 years of experience analyzing, advising or operating mission critical technology businesses. Rezendes’ firm, INEX ADVISORS, focuses on helping clients define, select and prosecute their most promising growth and investment opportunities. The firm concentrates in Machine to Machine/Internet of Things/Connected Devices, and a cluster of related enabling technologies critical to transforming mobility, cloud and big data solutions into a semantic web.

Throughout his career, Rezendes has worked with some of the largest and most respected companies in the industrial, embedded, defense, infrastructure and information technology industries. His clients have included nearly 75% of the Electronics Business Top 100 OEMs, most of the Information Week 100, and every tech-focused member of the Fortune 500. You can contact Chris Rezendes at to continue the conversation on these topics and explore ways that INEX Advisors can help youcompany to develop and deploy successful M2M/IoT solutions that create true value for sustainable revenue growth.



November 29, 2012