April 10, 2012

The Next 20 Billion Node Survey Update: Mis-Alignment on Revenue Goals?

As posted in CW Blog 3.23.12

Revenue growth is nice. New sources of revenue are too. But profitable, scalable, sustainable revenue is the Holy Grail for connected device markets.

The latest returns from the Connected World/INEX Advisors survey, The Next 20 Billion Nodes, are showing signs of a minor misalignment in ‘revenue enhancement’ goals, benefits discussions between connected device solution buyers and sellers.

We have been polling all major stakeholder groups during the past few weeks. There appears to be alignment among suppliers, users, and intermediaries on a number of goals driving investment in and deployment of connected device solutions across a wide range of market segments.

Suppliers and users appear to be in alignment with respect to the key drivers to investment in and deployment of connected devices:

What are the Key Drivers to Growth?

1. Revenue enhancement for the core business – cited by all stakeholder groups
2. Revenue enhancement from rolling out newly enabled service offerings – cited by all stakeholder groups

However, they may not be simpatico on barriers:

What are the Key Barriers to Growth?

1. Cost of solution services – cited by all stakeholder groups
2. Cost of solution operation — cited by all stakeholder groups
3. Cost of solution hardware – cited by users/ evaluators only
4. Cost of solution software – cited by users/ evaluators only

While this may read like motherhood and apple pie—customers have been grinding suppliers in tech markets since the first merchant civilian markets for electronics emerged 50 years ago—it is still a problem. Labeling it ancient but not curious does not make it less real.

Some readers might take issue with this argument. They might cry, “This is the problem! We are talking about cost and price but not about value!”

But we are not arguing about price or cost. We are arguing about value. We are highlighting the difference in value between marginally profitable revenues made so in part by the cost to acquire, deploy, and maintain a service delivery solution versus more profitable revenue generation enabled by solutions with lower cost basis and TCO (total cost of ownership) that enable the generation of higher margin revenue.

This brings us to the identification of one of many powerful, nuanced findings from the survey so far: If we are talking only about revenue, even if that is what everyone wants to talk about, we are still missing the boat. We need to be talking about profitable revenue; margin-enhancing revenue. This is the ultimate arbiter of the creation of value in rational technology markets.

Our  advice: Focus on the profitability of that new revenue for your customers and partners as well as your own firm.

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April 10, 2012