Earlier this week we looked at how the emerging Internet of Things, when everyday objects become connected to the Web, will affect product managers and marketers. Today we look at some of the implications for accountants and bean counters – those people responsible for revenue and expenditure in companies.
A recent article by McKinsey, a consulting firm, outlined the business value of Internet-connected objects. In a nutshell, real time usage tracking enables companies to value their products and services much more efficiently.
McKinsey explained:
“Goods and services that self-monitor can be sold in much finer slices and much more efficiently. Rather than buy a product outright, or sign a long-term service contract, sensors can track actual usage, enabling customers to pay only for what they consume or even the value they receive. In some cases, what was once a weighty capital expenditure is transformed into a lighter-weight operating expense, when products are transformed into services.”
It goes on to illustrate this ‘product as a service’ transition with an example from the insurance industry:
“…auto insurance companies now are experimenting with networked sensors installed in cars that allow them to price insurance based on actual driving behaviors (such as distance, speed, and where the car is driven) rather than blunter demographic characteristics (such as age or where a customer resides).”
This same model could be applied to car ownership. Why own a car when you can ‘subscribe’ to one as/when you need it? Indeed, the “car as a service” model is already being successfully deployed by Zipcar (we wrote about this back in March). With Zipcar you subscribe to a ‘pay as you go’ plan or a monthly plan. You may then borrow a car whenever you need to, at the most convenient location, in your own city or any other city where Zipcar is available.
It’s worth pointing out the potentially negative impact on the consumer of these types of business models. As a commenter on the McKinsey article noted, if the driver of an owned or borrowed car happens to work in a part of town that gets more crime than other parts, then their insurance premiums will go up. For the owner of the car, the value of it will decrease over time due to its driving history. So while accountants may view Internet of Things as an enabler of more efficient pricing models, many consumers may think it’s unfair and inequitable.
Bean counters at manufacturers and retailers should also take note of the trend towards using RFID and sensors in the supply chain. For example using RFID technology to monitor temperature when transporting flowers ensures that no short cuts are taken and that the product is optimal.
Let us know your further thoughts and ideas in the comments.
Top image: Esteban Cavrico
